FLUSHING FINANCIAL CORP - Quarter Report: 2022 September (Form 10-Q)

September 30, 2022

(Dollars in thousands)

of contracts

Commercial business and other

Total non-performing

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer” ,“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


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

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

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

The number of shares of the registrant’s Common Stock outstanding as of October 31, 2022 was 29,805,453.

Table of Contents

TABLE OF CONTENTS

	PAGE
PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements - (Unaudited)
Consolidated Statements of Financial Condition	1
Consolidated Statements of Income	2
Consolidated Statements of Comprehensive Income	3
Consolidated Statements of Cash Flows	4
Consolidated Statements of Changes in Stockholders’ Equity	6
Notes to Consolidated Financial Statements	8
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	64
ITEM 4. Controls and Procedures	64
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings	65
ITEM 1A. Risk Factors	65
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	67
ITEM 3. Defaults Upon Senior Securities	67
ITEM 4. Mine Safety Disclosures	67
ITEM 5. Other Information	67
ITEM 6. Exhibits	68
SIGNATURES	70

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Financial Condition

Item 1. Financial Statements


	September 30,		December 31,
	2022		2021
	(Unaudited)
	(Dollars in thousands, except per share data)
Assets
Cash and due from banks	$	164,693	$	81,723
Securities held-to-maturity:
Mortgage-backed securities (including assets pledged of $4,548 and $5,643 at September 30, 2022 and December 31, 2021, respectively; fair value of $6,986 and $8,667 at September 30, 2022 and December 31, 2021, respectively)		7,880		7,894
Other securities, net of allowance of $1,096 and $862 at September 30, 2022 and December 31, 2021 respectively; (none pledged; fair value of $52,727 and $53,362 at September 30, 2022 and December 31, 2021, respectively)		66,032		49,974
Securities available for sale, at fair value:
Mortgage-backed securities (including assets pledged of $210,525 and $212,388 at September 30, 2022 and December 31, 2021, respectively; $317 and $388 at fair value pursuant to the fair value option at September 30, 2022 and December 31, 2021, respectively)		468,366		572,184
Other securities (none pledged; $12,625 and $14,180 at fair value pursuant to the fair value option at September 30, 2022 and December 31, 2021, respectively)		351,495		205,052
Loans:
Multi-family residential		2,608,192		2,517,026
Commercial real estate		1,914,326		1,775,629
One-to-four family --- mixed-use property		560,885		571,795
One-to-four family --- residential		240,484		276,571
Construction		63,651		59,761
Small Business Administration		27,712		93,811
Commercial business and other		1,532,497		1,339,273
Net unamortized premiums and unearned loan fees		8,927		4,239
Less: Allowance for credit losses		(41,268)		(37,135)
Net loans		6,915,406		6,600,970
Interest and dividends receivable		42,571		38,698
Bank premises and equipment, net		22,376		23,338
Federal Home Loan Bank of New York stock, at cost		62,489		35,937
Bank owned life insurance		212,353		210,754
Goodwill		17,636		17,636
Core deposit intangibles		2,147		2,562
Right of use asset		44,885		50,200
Other assets		179,090		148,989
Total assets	$	8,557,419	$	8,045,911

Liabilities
Due to depositors:
Non-interest bearing	$	992,378	$	967,621
Interest-bearing		5,062,383		5,365,911
Total Due to depositors		6,054,761		6,333,532
Mortgagors' escrow deposits		70,544		51,913
Borrowed funds:
Federal Home Loan Bank advances and other borrowings		1,336,185		636,187
Subordinated debentures		186,893		122,885
Junior subordinated debentures, at fair value		49,752		56,472
Total borrowed funds		1,572,830		815,544
Operating lease liability		48,330		54,155
Other liabilities		140,235		111,139
Total liabilities		7,886,700		7,366,283

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; 34,087,623 shares issued at both September 30, 2022 and December 31, 2021; 29,851,253 shares and 30,526,353 shares outstanding at September 30, 2022 and December 31, 2021, respectively)		341		341
Additional paid-in capital		263,755		263,375
Treasury stock, at average cost (4,236,370 shares and 3,561,270 shares at September 30, 2022 and December 31, 2021, respectively)		(90,977)		(75,293)
Retained earnings		543,894		497,889
Accumulated other comprehensive loss, net of taxes		(46,294)		(6,684)
Total stockholders' equity		670,719		679,628

Total liabilities and stockholders' equity	$	8,557,419	$	8,045,911

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

-1-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2022		2021		2022		2021

		(In thousands, except per share data)
Interest and dividend income
Interest and fees on loans	$	75,546	$	69,198	$	212,254	$	206,218
Interest and dividends on securities:
Interest		5,676		3,706		14,350		10,463
Dividends		17		7		36		22
Other interest income		506		42		716		129
Total interest and dividend income		81,745		72,953		227,356		216,832
Interest expense
Deposits		11,965		4,705		20,059		16,349
Other interest expense		8,574		4,884		17,882		15,188
Total interest expense		20,539		9,589		37,941		31,537
Net interest income		61,206		63,364		189,415		185,295
Provision (benefit) for credit losses		2,145		(6,927)		5,093		(5,705)
Net interest income after provision (benefit) for credit losses		59,061		70,291		184,322		191,000
Non-interest income
Banking services fee income		1,351		865		3,891		4,823
Net gain on sale of loans		—		131		73		289
Net gain on disposition of assets		—		—		—		621
Net (loss) gain on sale of securities		—		(10)		—		113
Net gain (loss) from fair value adjustments		5,626		(2,289)		6,350		(7,855)
Federal Home Loan Bank of New York stock dividends		538		491		1,342		1,680
Life insurance proceeds		—		—		1,536		—
Bank owned life insurance		1,132		1,015		3,361		3,021
Other income		348		663		1,108		1,275
Total non-interest income		8,995		866		17,661		3,967
Non-interest expense
Salaries and employee benefits		21,438		20,544		66,196		63,087
Occupancy and equipment		3,541		3,534		10,905		10,423
Professional services		2,570		1,899		7,077		6,287
FDIC deposit insurance		738		618		1,773		2,560
Data processing		1,367		1,759		4,174		5,287
Depreciation and amortization of bank premises and equipment		1,488		1,627		4,395		4,904
Other real estate owned / foreclosure expense		143		182		259		194
Other operating expenses		4,349		6,182		15,171		15,773
Total non-interest expense		35,634		36,345		109,950		108,515
Income before income taxes		32,422		34,812		92,033		86,452
Provision for income taxes
Federal		5,783		6,410		16,042		16,338
State and local		3,197		2,989		9,295		6,404
Total provision for income taxes		8,980		9,399		25,337		22,742
Net income	$	23,442	$	25,413	$	66,696	$	63,710

Basic earnings per common share	$	0.76	$	0.81	$	2.15	$	2.02
Diluted earnings per common share	$	0.76	$	0.81	$	2.15	$	2.02
Dividends per common share	$	0.22	$	0.21	$	0.66	$	0.63

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

-2-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2022		2021		2022		2021

					(In thousands)

Net income	$	23,442	$	25,413	$	66,696	$	63,710
Other comprehensive income (loss), net of tax:
Amortization of actuarial losses, net of taxes of $2 and ($39) for the three months ended September 30, 2022 and 2021, respectively, and of ($1) and ($116) for the nine months ended September 30, 2022 and 2021, respectively.		(4)		86		(19)		259
Amortization of prior service credits, net of taxes of $2 and $7 for the three months ended September 30, 2022 and 2021, respectively, and of $0 and $19 for the nine months ended September 30, 2022 and 2021, respectively.		(5)		(14)		(21)		(44)
Net unrealized losses on securities, net of taxes of $10,266 and $1,209 for the three months ended September 30, 2022 and 2021, respectively, and of $29,925 and $1,518 for the nine months ended September 30, 2022 and 2021, respectively.		(22,797)		(2,645)		(66,658)		(3,365)
Reclassification adjustment for net losses (gains) included in income, net of taxes of ($3) for the three months ended September 30, 2021, and net of taxes of $35 for the nine months ended September 30, 2021.		—		7		—		(78)
Net unrealized gains (losses) on cash flow hedges, net of taxes of ($3,668) and ($910) for the three months ended September 30, 2022 and 2021 respectively, and of ($12,544) and ($4,485) for the nine months ended September 30, 2022 and 2021 respectively.		8,190		1,991		27,856		10,310
Change in fair value of liabilities related to instrument-specific credit risk, net of taxes of $184 and ($27) for the three months ended September 30, 2022 and 2021, respectively, and of $389 and ($139) for the nine months ended September 30, 2022 and 2021, respectively.		(414)		58		(768)		250

Total other comprehensive income (loss), net of tax		(15,030)		(517)		(39,610)		7,332
Comprehensive net income	$	8,412	$	24,896	$	27,086	$	71,042

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

-3-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)


	For the nine months ended September 30,
	2022		2021

	(In thousands)
Operating Activities
Net income	$	66,696	$	63,710
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (benefit) for credit losses		5,093		(5,705)
Depreciation and amortization of premises and equipment		4,395		4,904
Net gain on sales of loans		(73)		(289)
Net amortization of premiums and (accretion) of discounts		309		(1,062)
Net gain from disposition of assets		—		(621)
Net gain from sale of securities		—		(113)
Deferred income tax provision (benefit)		3,914		(762)
Gain from bank owned life insurance		(1,536)		—
Net loss (gain) from fair value adjustments of qualifying hedges		161		(957)
Net (gain) loss from fair value adjustments		(6,350)		7,855
Income from bank owned life insurance		(3,361)		(3,021)
Stock-based compensation expense		6,230		5,516
Deferred compensation		(4,870)		(2,571)
Amortization of core deposit intangibles		415		464
Decrease in other assets		6,998		821
Decrease in other liabilities		(13,294)		(8,524)
Net cash provided by operating activities		64,727		59,645
Investing Activities
Purchases of premises and equipment		(3,433)		(2,839)
Net (purchases) redemptions of Federal Home Loan Bank-NY shares		(26,552)		7,281
Purchases of securities held-to-maturity		(16,475)		—
Proceeds from prepayments of securities held-to-maturity		190		—
Proceeds from bank owned life insurance		3,307		—
Purchases of securities available for sale		(222,810)		(508,402)
Proceeds from sales and calls of securities available for sale		—		58,613
Change in cash collateral		44,015		—
Proceeds from maturities and prepayments of securities available for sale		80,503		294,004
Net (originations) and repayments of loans		(173,311)		232,391
Purchases of loans		(207,546)		(192,705)
Proceeds from sale of loans		29,247		24,967
Net cash used in investing activities		(492,865)		(86,690)

-4-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Cash Flows (Contd.)

(Unaudited)



	For the nine months ended September 30,
		2022		2021

	(In thousands)
Financing Activities
Net increase in non-interest bearing deposits	$	24,757	$	162,587
Net (decrease) increase in interest-bearing deposits		(253,478)		168,174
Net increase in mortgagors' escrow deposits		18,631		21,585
Net proceeds (repayments) from short-term borrowed funds		750,000		(25,000)
Proceeds from long-term borrowing		63,710		—
Repayment of long-term borrowings		(50,000)		(251,393)
Purchases of treasury stock		(22,117)		(7,778)
Cash dividends paid		(20,395)		(19,920)
Net cash provided by financing activities		511,108		48,255
Net increase in cash and cash equivalents		82,970		21,210
Cash and cash equivalents, beginning of period		81,723		157,388
Cash and cash equivalents, end of period	$	164,693	$	178,598
Supplemental Cash Flow Disclosure
Interest paid	$	32,459	$	30,727
Income taxes paid		24,559		21,419
Taxes paid if excess tax benefits on stock-based compensation were not tax deductible		25,142		21,083

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

-5-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Equity

(Unaudited)


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


Balance at December 31, 2021	$	679,628	$	341	$	263,375	$	497,889	$	(75,293)	$	(6,684)

Net income		18,219		—		—		18,219		—		—
Award of common shares released from Employee Benefit Trust (17,964 shares)		287		—		287		—		—		—
Vesting of restricted stock unit awards (297,626 shares)		—		—		(6,019)		(285)		6,304		—
Purchase of treasury shares (360,000 shares)		(8,469)		—		—		—		(8,469)		—
Stock-based compensation expense		4,194		—		4,194		—		—		—
Repurchase of shares to satisfy tax obligation (97,435 shares)		(2,376)		—		—		—		(2,376)		—
Dividends on common stock ($0.22 per share)		(6,850)		—		—		(6,850)		—		—
Other comprehensive loss		(8,820)		—		—		—		—		(8,820)
Balance at March 31, 2022	$	675,813	$	341	$	261,837	$	508,973	$	(79,834)	$	(15,504)
Net income		25,035		—		—		25,035		—		—
Purchase of treasury shares (387,689 shares)		(8,534)		—		—		—		(8,534)		—
Vesting of restricted stock unit awards (2,015 shares)		—		—		(38)		(5)		43		—
Stock-based compensation expense		1,061		—		1,061		—		—		—
Repurchase of shares to satisfy tax obligation (766 shares)		(17)		—		—		—		(17)		—
Dividends on common stock ($0.22 per share)		(6,786)		—		—		(6,786)		—		—
Other comprehensive loss		(15,760)										(15,760)
Balance at June 30, 2022	$	670,812	$	341	$	262,860	$	527,217	$	(88,342)	$	(31,264)
Net income		23,442		—		—		23,442		—		—
Purchase of treasury shares (131,174 shares)		(2,685)		—		—		—		(2,685)		—
Vesting of restricted stock unit awards (3,995 shares)		—		—		(80)		(6)		86		—
Stock-based compensation expense		975		—		975		—		—		—
Repurchase of shares to satisfy tax obligation (1,672 shares)		(36)		—		—		—		(36)		—
Dividends on common stock ($0.22 per share)		(6,759)		—		—		(6,759)		—		—
Other comprehensive loss		(15,030)										(15,030)
Balance at September 30, 2022	$	670,719	$	341	$	263,755	$	543,894	$	(90,977)	$	(46,294)

-6-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Equity

(Unaudited


					Additional						Accumulated Other
			Common		Paid-in		Retained		Treasury		Comprehensive
(Dollars in thousands, except per share data)	Total		Stock		Capital		Earnings		Stock		Income (Loss)
Balance at December 31, 2020	$	618,997	$	341	$	261,533	$	442,789	$	(69,400)	$	(16,266)

Net Income		19,039		—		—		19,039		—		—
Award of common shares released from Employee Benefit Trust (5,682 shares)		74		—		74		—		—		—
Vesting of restricted stock unit awards (248,896 shares)		—		—		(5,058)		(153)		5,211		—
Stock-based compensation expense		3,470		—		3,470		—		—		—
Repurchase of shares to satisfy tax obligation (70,292 shares)		(1,290)		—		—		—		(1,290)		—
Dividends on common stock ($0.21 per share)		(6,652)		—		—		(6,652)		—		—
Other comprehensive income		5,563		—		—		—		—		5,563
Balance at March 31, 2021	$	639,201	$	341	$	260,019	$	455,023	$	(65,479)	$	(10,703)
Net Income		19,258		—		—		19,258		—		—
Award of common shares released from Employee Benefit Trust (6,445 shares)		91		—		91		—		—		—
Vesting of restricted stock unit awards (10,932 shares)		—		—		(221)		(8)		229		—
Stock-based compensation expense		1,069		—		1,069		—		—		—
Repurchase of shares to satisfy tax obligation (3,886 shares)		(85)		—		—		—		(85)		—
Dividends on common stock ($0.21 per share)		(6,653)		—		—		(6,653)		—		—
Other comprehensive income		2,286		—		—		—		—		2,286
Balance at June 30, 2021	$	655,167	$	341	$	260,958	$	467,620	$	(65,335)	$	(8,417)
Net Income		25,413		—		—		25,413		—		—
Award of common shares released from Employee Benefit Trust (5,493 shares)		74		—		74		—		—		—
Vesting of restricted stock unit awards		—		—		—		—		—		—
Stock-based compensation expense		977		—		977		—		—		—
Purchase of treasury shares (285,643 shares)		(6,403)		—		—		—		(6,403)		—
Dividends on common stock ($0.21 per share)		(6,615)		—		—		(6,615)		—		—
Other comprehensive income		(517)		—		—		—		—		(517)
Balance at September 30, 2021	$	668,096	$	341	$	262,009	$	486,418	$	(71,738)	$	(8,934)

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

-7-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

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

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

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

2. Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Estimates that are particularly susceptible to change in the near term are used in connection with the determination of the allowance for credit losses, the evaluation of goodwill for impairment, the review of the need for a valuation allowance of the Company’s deferred tax assets, and the fair value of financial instruments. A review of goodwill was performed at September 30, 2022 and no impairment was indicated.

-8-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

3. Earnings Per Share

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


	For the three months ended						For the nine months ended
	September 30,						September 30,
	2022			2021			2022			2021

	(Dollars in thousands, except per share data)
Net income, as reported	$	23,442		$	25,413		$	66,696		$	63,710
Divided by:
Total weighted average common shares outstanding and common stock equivalents ⁽¹⁾		30,695			31,567			30,960			31,616
Basic earnings per common share	$	0.76		$	0.81		$	2.15		$	2.02
Diluted earnings per common share	$	0.76		$	0.81		$	2.15		$	2.02
Dividend Payout ratio		28.9	%		25.9	%		30.7	%		31.2	%

(1)	For the three and nine months ended September 30, 2022 and 2021, there were no common stock equivalents that were anti-dilutive.

4. Securities

The Company did not hold any trading securities at September 30, 2022 and December 31, 2021. Securities available for sale are recorded at fair value. Securities held-to-maturity (“HTM”) are recorded at amortized cost.

The following table summarizes the Company’s portfolio of securities held-to-maturity at September 30, 2022:


					Gross		Gross
	Amortized				Unrecognized		Unrecognized
	Cost		Fair Value		Gains		Losses

	(In thousands)
Securities held-to-maturity:
Municipals	$	67,128	$	52,727	$	—	$	14,401
Total municipals		67,128		52,727		—		14,401

FNMA		7,880		6,986		—		894
Total mortgage-backed securities		7,880		6,986		—		894

Allowance for Credit Losses		(1,096)		—		—		—
Total	$	73,912	$	59,713	$	—	$	15,295

-9-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the Company’s portfolio of securities held-to-maturity at December 31, 2021:


					Gross		Gross
	Amortized				Unrecognized		Unrecognized
	Cost		Fair Value		Gains		Losses

	(In thousands)
Securities held-to-maturity:
Municipals	$	50,836	$	53,362	$	2,526	$	—
Total municipals		50,836		53,362		2,526		—

FNMA		7,894		8,667		773		—
Total mortgage-backed securities		7,894		8,667		773		—

Allowance for Credit Losses		(862)		—		—		—
Total	$	57,868	$	62,029	$	3,299	$	—

The following table summarizes the Company’s portfolio of securities available for sale at September 30, 2022:


					Gross		Gross
	Amortized				Unrealized		Unrealized
	Cost		Fair Value		Gains		Losses

	(In thousands)
U.S. government agencies	$	84,400	$	81,591	$	11	$	2,820
Corporate		146,428		132,499		—		13,929
Mutual funds		11,131		11,131		—		—
Collateralized loan obligations		130,371		124,780		—		5,591
Other		1,494		1,494		—		—
Total other securities		373,824		351,495		11		22,340
REMIC and CMO		181,595		155,954		—		25,641
GNMA		9,385		7,400		4		1,989
FNMA		204,305		174,122		—		30,183
FHLMC		156,524		130,890		—		25,634
Total mortgage-backed securities		551,809		468,366		4		83,447
Total securities available for sale	$	925,633	$	819,861	$	15	$	105,787

-10-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2021:


					Gross		Gross
	Amortized				Unrealized		Unrealized
	Cost		Fair Value		Gains		Losses

	(In thousands)
U.S. government agencies	$	5,599	$	5,590	$	—	$	9
Corporate		107,423		104,370		136		3,189
Mutual funds		12,485		12,485		—		—
Collateralized loan obligations		81,166		80,912		1		255
Other		1,695		1,695		—		—
Total other securities		208,368		205,052		137		3,453
REMIC and CMO		210,948		208,509		1,217		3,656
GNMA		10,572		10,286		30		316
FNMA		203,777		202,938		1,321		2,160
FHLMC		152,760		150,451		326		2,635
Total mortgage-backed securities		578,057		572,184		2,894		8,767
Total securities available for sale	$	786,425	$	777,236	$	3,031	$	12,220

The corporate securities held by the Company at September 30, 2022 and December 31, 2021 are issued by U.S. banking institutions. The CMOs held by the Company at September 30, 2022 and December 31, 2021 are either fully guaranteed or issued by a government sponsored enterprise.

The following tables detail the amortized cost and fair value of the Company’s securities classified as held-to-maturity and available for sale at September 30, 2022, by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized
Securities held-to-maturity:	Cost		Fair Value

	(In thousands)
Due after ten years	$	67,128	$	52,727
Total other securities		67,128		52,727
Mortgage-backed securities		7,880		6,986
		75,008		59,713

Allowance for credit losses		(1,096)		-
Total securities held-to-maturity	$	73,912	$	59,713


	Amortized
Securities available for sale:	Cost		Fair Value

	(In thousands)
Due in one year or less	$	10,016	$	9,907
Due after one year through five years		134,500		127,090
Due after five years through ten years		195,895		181,787
Due after ten years		22,282		21,580
Total other securities		362,693		340,364
Mutual funds		11,131		11,131
Mortgage-backed securities		551,809		468,366
Total securities available for sale	$	925,633	$	819,861

-11-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


	At September 30, 2022
		Total				Less than 12 months				12 months or more
				Unrealized				Unrealized				Unrealized
	Count	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

	(Dollars in thousands)
Held-to-maturity securities

Municipals	3	$	52,727	$	14,401	$	52,727	$	14,401	$	—	$	—
Total other securities	3		52,727		14,401		52,727		14,401		—		—

FNMA	1		6,986		894		6,986		894		—		—
Total mortgage-backed securities	1		6,986		894		6,986		894		—		—

Total	4	$	59,713	$	15,295	$	59,713	$	15,295	$	—	$	—

Available for sale securities
U.S. government agencies	7	$	77,678	$	2,820	$	77,678	$	2,820	$	—	$	—
Corporate	19		119,999		13,929		43,114		3,386		76,885		10,543
CLO	19		124,780		5,591		104,671		4,448		20,109		1,143
Total other securities	45		322,457		22,340		225,463		10,654		96,994		11,686

REMIC and CMO	47		155,637		25,641		61,979		5,523		93,658		20,118
GNMA	9		7,237		1,989		337		31		6,900		1,958
FNMA	51		174,122		30,183		58,057		7,479		116,065		22,704
FHLMC	26		130,891		25,634		40,649		4,754		90,242		20,880
Total mortgage-backed securities	133		467,887		83,447		161,022		17,787		306,865		65,660
Total	178	$	790,344	$	105,787	$	386,485	$	28,441	$	403,859	$	77,346


	At December 31, 2021
		Total				Less than 12 months				12 months or more
				Unrealized				Unrealized				Unrealized
	Count	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses

	(Dollars in thousands)
Available for sale securities
U.S. government agencies	2	$	5,577	$	9	$	1,130	$	5	$	4,447	$	4
Corporate	13		94,234		3,189		65,453		1,970		28,781		1,219
CLO	4		31,012		255		10,000		1		21,012		254
Total other securities	19		130,823		3,453		76,583		1,976		54,240		1,477

REMIC and CMO	15		124,131		3,656		105,959		2,800		18,172		856
GNMA	4		9,924		316		1,138		16		8,786		300
FNMA	25		171,109		2,160		153,657		1,587		17,452		573
FHLMC	18		129,115		2,635		98,297		1,448		30,818		1,187
Total mortgage-backed securities	62		434,279		8,767		359,051		5,851		75,228		2,916
Total	81	$	565,102	$	12,220	$	435,634	$	7,827	$	129,468	$	4,393

-12-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Company reviewed each available for sale security that had an unrealized loss at September 30, 2022 and December 31, 2021. 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. If the Company identifies any decline in the fair value due to credit loss factors and evaluation indicates that a credit loss exists, then the present value of cash flows that is expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. All of these securities are rated investment grade or above and have a long history of no credit losses. It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment.

In determining the risk of loss for available for sale securities, the Company considered that mortgage-backed securities are either fully guaranteed or issued by a government sponsored enterprise, which has a credit rating and perceived credit risk comparable to U.S. government, the tranche of the purchased collateralized loan obligations (“CLO”) and the issuer of Corporate securities are global systematically important banks. Each of these securities is performing according to its terms and, in the opinion of management, will continue to perform according to its terms. Based on this review, management believes that the unrealized losses have resulted from other factors not deemed credit-related and no allowance for credit loss was recorded.

The Company reviewed each held-to-maturity security at September 30, 2022 as part of its quarterly Current Expected Credit Loss (“CECL”) process, with an allowance for credit losses of $1.1 million and $0.9 million at September 30, 2022 and December 31, 2021, respectively.

It is the Company’s policy to exclude accrued interest receivable from the calculation of the allowance for credit losses on HTM and valuation of AFS securities. Accrued interest receivable on held-to-maturity securities totaled $0.1 million each at September 30, 2022 and December 31, 2021 and accrued interest receivable on available for sale debt securities totaled $3.0 million and $1.5 million at September 30, 2022 and December 31, 2021, respectively.

The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity.


	Other Securities
	For the three months ended				For the nine months ended
	September 30,				September 30,
	2022		2021		2022		2021

	(In thousands)
Beginning balance	$	1,085	$	844	$	862	$	907
Provision (benefit)		11		(1)		234		(64)
Allowance for credit losses	$	1,096	$	843	$	1,096	$	843

During the three months ended September 30, 2022, the Company modified one investment security totaling $21.0 million as troubled debt restructured (“TDR”) by granting a payment forbearance until January 2023. At September 30, 2022, this security is non-accrual and non-performing.

Realized gains and losses on the sales of securities are determined using the specific identification method. The Company did not sell any securities during the three and nine months ended September 30, 2022. The Company sold $20.0 million and $45.0 million in corporate securities during the three and nine months ended September 30, 2021, respectively.

-13-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2022		2021		2022		2021

Gross gains from the sale of securities	$	—	$	—	$	—	$	123
Gross losses from the sale of securities		—		(10)		—		(10)
Net gains from the sale of securities	$	—	$	(10)	$	—	$	113

5. Loans

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

Interest on loans is recognized on the accrual basis. Accrued interest receivable totaled $36.1 million and $35.8 million at September 30, 2022 and December 31, 2021, respectively, and was reported in “Interest and dividends receivable” on the Consolidated Statements of Financial Condition. The accrual of income on loans is generally discontinued when certain factors, such as contractual delinquency of 90 days or more, indicate reasonable doubt as to the timely collectability of such income. Uncollected interest previously recognized on non-accrual loans is reversed from interest income at the time the loan is placed on non-accrual status. A non-accrual loan can be returned to accrual status when contractual delinquency returns to less than 90 days delinquent. Payments received on non-accrual loans that do not bring the loan to less than 90 days delinquent are recorded on a cash basis. Payments can also be applied first as a reduction of principal until all principal is recovered and then subsequently to interest, if in management’s opinion, it is evident that recovery of all principal due is likely to occur.

Allowance for credit losses

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

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

During the three months ended September 30, 2022, the Company recorded a provision for credit losses on loans totaling $2.1 million, compared to a benefit for credit losses on loans totaling $6.9 million for the three months ended September 30, 2021. The Company recorded a provision for credit losses on loans totaling $4.9 million for the nine months ended September 30, 2022 compared to a benefit of $5.6 million for the nine months ended September 30, 2021. The provision recorded during the nine months ended September 30, 2022 was driven by loan growth, increased reserves on two previously identified credits, coupled with the ongoing environmental uncertainty resulting from high and rising inflation including increasing interest rates. During the nine months ended September 30, 2022, the Company made no changes to

-14-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

the reasonable and supportable forecast period and decreased the reversion period from six quarters to two quarters in order to revert back to our historical losses sooner as the economic forecast in the model is more favorable than the current conditions. The ACL - loans totaled $41.3 million at September 30, 2022 compared to $37.1 million at December 31, 2021. At September 30, 2022, the ACL - loans represented 0.59% of gross loans and 142.3% of non-performing loans. At December 31, 2021, the ACL - loans represented 0.56% of gross loans and 248.7% of non-performing loans.

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

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

The allocation of a portion of the ACL for a performing TDR loan is based upon the present value of the future expected cash flows discounted at the loan’s original effective rate, or for a non-performing TDR loan which is collateral dependent, the fair value of the collateral. At September 30, 2022, 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 ACL.

During the three months ended September 30, 2022 and 2021, there were no TDR loans that defaulted within 12 months of their modification date. During the nine months ended September 30, 2022, there were no TDR loans that defaulted within 12 months of their modification date. During the nine months ended September 30, 2021 there was one commercial business TDR loan totaling $3.0 million that defaulted within 12 months of its modification date.

-15-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table shows loans modified as TDR during the period indicated:


	For the three months ended
	September 30, 2022
(Dollars in thousands)	Number	Balance		Modification description

Commercial business and other	1	$	2,982	Amortization extension.
Total	1	$	2,982



	For the nine months ended
	September 30, 2022
(Dollars in thousands)	Number	Balance		Modification description
Small Business Administration	1	$	271	Amortization extension.
Commercial business and other	5		8,204	One loan received a below market interest rate and four loans had an amortization extension.
Total	6	$	8,475


	For the nine months ended
	September 30, 2021
(Dollars in thousands)	Number	Balance		Modification description
Commercial business and other	2	$	674	Amortization extensions.
Total	2	$	674

-16-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


	September 30, 2022			December 31, 2021
	Number	Amortized		Number	Amortized
(Dollars in thousands)	of contracts	Cost		of contracts	Cost
Multi-family residential	6	$	1,677	6	$	1,690
Commercial real estate	1		7,572	1		7,572
One-to-four family - mixed-use property ⁽¹⁾	4		1,237	5		1,636
One-to-four family - residential	1		257	3		483
Small Business Administration	1		255	—		—
Commercial business and other ⁽¹⁾	6		3,805	5		1,381
Total performing	19	$	14,803	20	$	12,762

(1)

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

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

There were no loans classified as TDR that were not performing according to their modified agreement as of December 31, 2021.

-17-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


	At or for the nine months ended September 30, 2022
(In thousands)		Non-accrual amortized cost beginning of the reporting period		Non-accrual amortized cost end of the reporting period		Non-accrual with no related allowance		Interest income recognized		Loans ninety days or more past due and still accruing
Multi-family residential	$	2,652	$	3,715	$	3,715	$	—	$	—
Commercial real estate		640		1,908		1,908		—		—
One-to-four family - mixed-use property ⁽¹⁾		1,582		1,046		1,046		—		—
One-to-four family - residential		7,482		4,191		4,191		—		—
Small Business Administration		952		950		950		—		—
Commercial business and other ⁽¹⁾		1,945		18,252		4,882		159		2,000
Total	$	15,253	$	30,062	$	16,692	$	159	$	2,000

(1)

Included in the above analysis are non-accrual performing TDR one-to-four family – mixed-use property totaling $0.2 million. Commercial business and other contains a non-accrual performing TDR totaling $2.9 million.


	At or for the year ended December 31, 2021
(In thousands)		Non-accrual amortized cost beginning of the reporting period		Non-accrual amortized cost end of the reporting period		Non-accrual with no related allowance		Interest income recognized		Loans ninety days or more past due and still accruing
Multi-family residential	$	2,576	$	2,652	$	2,652	$	19	$	—
Commercial real estate		1,766		640		640		—		—
One-to-four family - mixed-use property ⁽¹⁾		1,706		1,582		1,582		6		—
One-to-four family - residential		5,313		7,482		7,482		1		—
Small Business Administration		1,168		952		952		—		—
Taxi medallion⁽²⁾		2,758		—		—		—		—
Commercial business and other⁽¹⁾		5,660		1,945		305		78		—
Total	$	20,947	$	15,253	$	13,613	$	104	$	—

(1)

Included in the above analysis are non-accrual performing TDR one-to-four family – mixed-use property totaling $0.3 million. Commercial business and other contains a non-accrual performing TDR totaling less than $0.1 million.

(2)

Taxi medallions were completely charged-off during the year ended December 31, 2021.

-18-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
(In thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms	$	618	$	415	$	1,578	$	1,330
Less: Interest income included in the results of operations		181		156		618		480
Total foregone interest	$	437	$	259	$	960	$	850

The following tables show the aging analysis of the amortized cost basis of loans at the period indicated by class of loans:


	September 30, 2022
					Greater
	30 - 59 Days		60 - 89 Days		than		Total Past
(In thousands)	Past Due		Past Due		90 Days		Due		Current		Total Loans
Multi-family residential	$	4,920	$	1,077	$	3,715	$	9,712	$	2,601,630	$	2,611,342
Commercial real estate		—		4,066		3,908		7,974		1,908,038		1,916,012
One-to-four family - mixed-use property		2,311		318		796		3,425		560,359		563,784
One-to-four family - residential		99		229		4,191		4,519		237,121		241,640
Construction		—		—		—		—		63,487		63,487
Small Business Administration		—		—		950		950		26,607		27,557
Commercial business and other		325		9,597		2,343		12,265		1,520,587		1,532,852
Total	$	7,655	$	15,287	$	15,903	$	38,845	$	6,917,829	$	6,956,674


	December 31, 2021
					Greater
	30 - 59 Days		60 - 89 Days		than		Total Past
(In thousands)	Past Due		Past Due		90 Days		Due		Current		Total Loans
Multi-family residential	$	3,652	$	4,193	$	2,652	$	10,497	$	2,508,730	$	2,519,227
Commercial real estate		5,743		—		640		6,383		1,770,992		1,777,375
One-to-four family - mixed-use property		2,319		—		1,321		3,640		571,296		574,936
One-to-four family - residential		163		224		7,483		7,870		269,942		277,812
Construction		—		—		—		—		59,473		59,473
Small Business Administration		—		—		952		952		90,884		91,836
Commercial business and other		101		40		1,386		1,527		1,335,919		1,337,446
Total	$	11,978	$	4,457	$	14,434	$	30,869	$	6,607,236	$	6,638,105

-19-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


	September 30, 2022
					One-to-four
					family -		One-to-four								Commercial
	Multi-family		Commercial		mixed-use		family -		Construction		Small Business		Taxi		business and
(In thousands)	residential		real estate		property		residential		loans		Administration		medallion		other		Total
Allowance for credit losses:
Beginning balance	$	9,405	$	8,443	$	1,959	$	866	$	300	$	2,118	$	—	$	16,333	$	39,424
Charge-offs		—		—		—		(2)		—		—		—		(322)		(324)
Recoveries		—		—		—		—		—		12		—		22		34
Provision (benefit)		355		(29)		3		(59)		(44)		(68)		—		1,976		2,134
Ending balance	$	9,760	$	8,414	$	1,962	$	805	$	256	$	2,062	$	—	$	18,009	$	41,268


	September 30, 2021
					One-to-four
					family -		One-to-four								Commercial
	Multi-family		Commercial		mixed-use		family -		Construction		Small Business		Taxi		business and
(In thousands)	residential		real estate		property		residential		loans		Administration		medallion		other		Total
Allowance for credit losses:
Beginning balance	$	6,559	$	5,868	$	1,492	$	716	$	185	$	2,302	$	—	$	25,548	$	42,670
Charge-offs		—		—		—		—		—		—		—		(1,019)		(1,019)
Recoveries		—		—		123		147		—		8		1,235		125		1,638
Provision (benefit)		(161)		(112)		(169)		(232)		(17)		(646)		(1,235)		(4,354)		(6,926)
Ending balance	$	6,398	$	5,756	$	1,446	$	631	$	168	$	1,664	$	—	$	20,300	$	36,363

-20-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables show the activity in the ACL on loans for the nine month periods indicated:


	September 30, 2022
					One-to-four
					family -		One-to-four								Commercial
	Multi-family		Commercial		mixed-use		family -		Construction		Small Business		Taxi		business and
(In thousands)	residential		real estate		property		residential		loans		Administration		medallion		other		Total
Allowance for credit losses:
Beginning balance	$	8,185	$	7,158	$	1,755	$	784	$	186	$	1,209	$	—	$	17,858	$	37,135
Charge-offs		—		—		—		(2)		—		(1,054)		—		(354)		(1,410)
Recoveries		1		—		—		4		—		39		447		195		686
Provision (benefit)		1,574		1,256		207		19		70		1,868		(447)		310		4,857
Ending balance	$	9,760	$	8,414	$	1,962	$	805	$	256	$	2,062	$	—	$	18,009	$	41,268


	September 30, 2021
					One-to-four
					family -		One-to-four								Commercial
	Multi-family		Commercial		mixed-use		family -		Construction		Small Business		Taxi		business and
(In thousands)	residential		real estate		property		residential		loans		Administration		medallion		other		Total
Allowance for credit losses:
Beginning balance	$	6,557	$	8,327	$	1,986	$	869	$	497	$	2,251	$	—	$	24,666	$	45,153
Charge-offs		(43)		(64)		(32)		—		—		—		(2,758)		(2,230)		(5,127)
Recoveries		10		—		133		154		—		27		1,457		198		1,979
Provision (Benefit)		(126)		(2,507)		(641)		(392)		(329)		(614)		1,301		(2,334)		(5,642)
Ending balance	$	6,398	$	5,756	$	1,446	$	631	$	168	$	1,664	$	—	$	20,300	$	36,363

-21-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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

-22-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the risk category of mortgage and non-mortgage loans by loan portfolio segments and class of loans by year of origination at September 30, 2022:


														Revolving Loans		Revolving Loans
														Amortized Cost		converted to
(In thousands)		2022		2021		2020		2019		2018		Prior		Basis		term loans		Total
1-4 Family Residential
Pass	$	14,376	$	8,756	$	18,790	$	42,039	$	29,191	$	99,631	$	7,588	$	13,558	$	233,929
Watch		—		289		—		732		—		1,330		63		841		3,255
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		4,010		—		446		4,456
Total 1-4 Family Residential	$	14,376	$	9,045	$	18,790	$	42,771	$	29,191	$	104,971	$	7,651	$	14,845	$	241,640
1-4 Family Mixed-Use
Pass	$	38,477	$	44,662	$	32,958	$	64,949	$	67,082	$	304,622	$	—	$	—	$	552,750
Watch		—		—		888		741		—		7,207		—		—		8,836
Special Mention		—		—		—		—		—		962		—		—		962
Substandard		—		—		—		—		—		1,236		—		—		1,236
Total 1-4 Family Mixed-Use	$	38,477	$	44,662	$	33,846	$	65,690	$	67,082	$	314,027	$	—	$	—	$	563,784
Commercial Real Estate
Pass	$	302,056	$	182,756	$	153,420	$	234,022	$	245,188	$	763,516	$	—	$	—	$	1,880,958
Watch		—		1,605		—		8,602		6,784		10,081		—		—		27,072
Special Mention		—		—		—		—		—		4,066		—		—		4,066
Substandard		—		—		—		2,000		—		1,916		—		—		3,916
Total Commercial Real Estate	$	302,056	$	184,361	$	153,420	$	244,624	$	251,972	$	779,579	$	—	$	—	$	1,916,012
Construction
Pass	$	1,984	$	15,769	$	13,814	$	—		—	$	—	$	22,870	$	—	$	54,437
Watch		—		—		—		—		6,450		—		—		—		6,450
Special Mention		—		—		—		—		—		2,600		—		—		2,600
Substandard		—		—		—		—		—		—		—		—		—
Total Construction	$	1,984	$	15,769	$	13,814	$	—	$	6,450	$	2,600	$	22,870	$	—	$	63,487
Multi-family
Pass	$	417,745	$	290,993	$	226,506	$	318,909	$	385,967	$	925,965	$	6,175	$	—	$	2,572,260
Watch		—		1,117		1,462		—		14,810		15,927		—		—		33,316
Special Mention		—		—		—		—		725		568		—		—		1,293
Substandard		—		—		—		—		2,882		1,591		—		—		4,473
Total Multi-family	$	417,745	$	292,110	$	227,968	$	318,909	$	404,384	$	944,051	$	6,175	$	—	$	2,611,342
Commercial Business - Secured by RE
Pass	$	167,534	$	141,946	$	89,845	$	34,367	$	56,849	$	96,077	$	—	$	—	$	586,618
Watch		—		—		20,842		49,095		17,976		57,727		—		—		145,640
Special Mention		—		—		—		576		—		—		—		—		576
Substandard		—		—		—		—		—		3,513		—		—		3,513
Total Commercial Business - Secured by RE	$	167,534	$	141,946	$	110,687	$	84,038	$	74,825	$	157,317	$	—	$	—	$	736,347
Commercial Business
Pass	$	142,249	$	97,440	$	44,163	$	42,581	$	46,191	$	61,019	$	265,892	$	—	$	699,535
Watch		2,336		—		488		22,117		16,096		18,538		4,236		—		63,811
Special Mention		—		2,461		4,727		37		1,919		481		59		—		9,684
Substandard		1,454		1,435		72		31		2,862		1,869		14,855		—		22,578
Doubtful		—		—		—		—		—		—		792		—		792
Total Commercial Business	$	146,039	$	101,336	$	49,450	$	64,766	$	67,068	$	81,907	$	285,834	$	—	$	796,400
Small Business Administration
Pass	$	2,709	$	9,533	$	4,727	$	686	$	1,304	$	1,887	$	—	$	—	$	20,846
Watch		—		—		—		53		2,517		2,893		—		—		5,463
Special Mention		—		—		—		—		—		42		—		—		42
Substandard		—		—		—		—		—		1,206		—		—		1,206
Total Small Business Administration	$	2,709	$	9,533	$	4,727	$	739	$	3,821	$	6,028	$	—	$	—	$	27,557
Other
Pass	$	—	$	—	$	—	$	—	$	—	$	22	$	83	$	—	$	105
Total Other	$	—	$	—	$	—	$	—	$	—	$	22	$	83	$	—	$	105
Total by Loan Type
Total Pass	$	1,087,130	$	791,855	$	584,223	$	737,553	$	831,772	$	2,252,739	$	302,608	$	13,558	$	6,601,438
Total Watch		2,336		3,011		23,680		81,340		64,633		113,703		4,299		841		293,843
Total Special Mention		—		2,461		4,727		613		2,644		8,719		59		—		19,223
Total Substandard		1,454		1,435		72		2,031		5,744		15,341		14,855		446		41,378
Total Doubtful		—		—		—		—		—		—		792		—		792
Total Loans	$	1,090,920	$	798,762	$	612,702	$	821,537	$	904,793	$	2,390,502	$	322,613	$	14,845	$	6,956,674

-23-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Included within net loans as of September 30, 2022 and December 31, 2021 were $5.3 million and $8.7 million, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction.

A loan is considered collateral dependent when the borrower is experiencing financial difficulties and repayment is expected to be substantially provided by the operation or sale of the collateral. The following table presents types of collateral-dependent loans by class of loans as of the periods indicated:



	Collateral Type
	September 30, 2022				December 31, 2021
(In thousands)		Real Estate		Business Assets		Real Estate		Business Assets
Multi-family residential	$	3,715	$	—	$	2,652	$	—
Commercial real estate		2,402		—		1,158		—
One-to-four family - mixed-use property		1,046		—		1,582		—
One-to-four family - residential		4,191		—		7,482		—
Small Business Administration		—		950		—		952
Commercial business and other		—		17,758		—		1,427
Total	$	11,354	$	18,708	$	12,874	$	2,379

Off-Balance Sheet Credit Losses

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

Commitments to extend credit (principally real estate mortgage loans) and lines of credit (principally home equity lines of credit and business lines of credit) totaled $412.3 million and $472.9 million at September 30, 2022 and December 31, 2021, respectively.

The following table presents the activity in the allowance for off balance sheet credit losses for the three and nine months ended September 30, 2022 and 2021.


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2022		2021		2022		2021

	(In thousands)
Balance at beginning of period	$	1,444	$	1,570	$	1,209	$	1,815
Off-Balance Sheet- Benefit		(631)		(259)		(396)		(504)
Allowance for Off-Balance Sheet - Credit losses ⁽¹⁾	$	813	$	1,311	$	813	$	1,311

(1)

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

-24-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

6. Loans held for sale

Loans held for sale are carried at the lower of cost or estimated fair value. At September 30, 2022 and December 31, 2021, the Bank did not have any loans held for sale.

The following table shows loans sold during the periods indicated:


	For the three months ended September 30, 2022
				Net
(Dollars in thousands)	Loans sold	Proceeds		charge-offs		Net gain
Performing loans
Multi-family residential	1	$	10,682	$	—	$	—
Total	1	$	10,682	$	—	$	—


	For the three months ended September 30, 2021
				Net
(Dollars in thousands)	Loans sold	Proceeds		charge-offs		Net gain
Delinquent and non-performing loans
Multi-family residential	2	$	1,316	$	—	$	15
Commercial real estate	1	$	4,344	$	—	$	87
One-to-four family - mixed-use property	3		723		—		29
Total	6	$	6,383	$	—	$	131


	For the nine months ended September 30, 2022
(Dollars in thousands)	Loans sold	Proceeds		Net charge-offs		Net gain
Performing loans
Multi-family residential	5	$	20,818	$	—	$	—
Commercial	1		4,312		—		—
Total	6	$	25,130	$	—	$	—

Delinquent and non-performing loans
Commercial	1		3,687		—		73
One-to-four family - mixed-use property	1		430		—		—
Total	2	$	4,117	$	—	$	73


	For the nine months ended September 30, 2021
(Dollars in thousands)	Loans sold	Proceeds		Net charge-offs		Net gain
Delinquent and non-performing loans
Multi-family residential	10	$	12,069	$	(43)	$	78
Commercial	4		7,380		(64)		104
One-to-four family - mixed-use property	13		5,518		(14)		107
Total	27	$	24,967	$	(121)	$	289

-25-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

7. Leases

The Company has 28 operating leases for branches (including headquarters) and office spaces, 10 operating leases for vehicles, and one operating lease for equipment. Our leases have remaining lease terms ranging from three months to approximately 14 years, none of which has a renewal option reasonably certain of exercise, which has been reflected in the Company’s calculation of lease term.

The Company has elected the short-term lease recognition exemption such that the Company will not recognize Right of Use (“ROU”) assets or lease liabilities for leases with a term of less than 12 months from the commencement date. The Company has two agreements in 2022 and one agreement in 2021 that qualified as short-term leases.

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

Supplemental balance sheet information related to leases was as follows:


(Dollars in thousands)	September 30, 2022			December 31, 2021

Operating lease ROU asset	$	44,885		$	50,200

Operating lease liability	$	48,330		$	54,155

Weighted-average remaining lease term-operating leases		6.8 years			7.4 years
Weighted average discount rate-operating leases		3.1	%		3.1	%

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


		For the three months ended
(Dollars in thousands)	Line Item Presented	September 30, 2022		September 30, 2021

Lease Cost
Operating lease cost	Occupancy and equipment	$	2,100	$	2,197
Operating lease cost	Other operating expenses		23		20
Short-term lease cost	Professional Services and Other operating expenses		36		34
Variable lease cost	Occupancy and equipment		275		230
Total lease cost		$	2,434	$	2,481

Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases		$	2,342	$	2,435
Right-of-use assets obtained in exchange for new operating lease liabilities		$	—	$	28

-26-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


		For the nine months ended
(Dollars in thousands)	Line Item Presented	September 30, 2022		September 30, 2021

Lease Cost
Operating lease cost	Occupancy and equipment	$	6,299	$	6,503
Operating lease cost	Other operating expenses		71		62
Short-term lease cost	Professional Services and Other operating expenses		132		129
Variable lease cost	Occupancy and equipment		713		826
Total lease cost		$	7,215	$	7,520

Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases		$	7,111	$	10,483
Right-of-use assets obtained in exchange for new operating lease liabilities		$	47	$	4,827

The Company’s minimum annual rental payments for Bank facilities due under non-cancelable leases are as follows as of September 30, 2022:


	Minimum Rental
	(In thousands)
Years ended December 31:
2022	$	2,084
2023		9,502
2024		9,336
2025		8,662
2026		7,769
Thereafter		16,277
Total minimum payments required		53,630
Less: implied interest		5,300
Total lease obligations	$	48,330

8. Stock-Based Compensation

The Company has a long-term incentive compensation program for certain Company executive officers that includes grants of performance-based restricted stock units (“PRSUs”) in addition to time-based restricted stock units (“RSU”). Under the terms of the PRSU Agreement, the number of PRSUs that may be earned depends on the extent to which performance goals for the award are achieved over a three-year performance period, as determined by the Compensation Committee of the Board. As of September 30, 2022, PRSUs granted in 2022 and 2020 are being accrued at target and PRSUs granted in 2021 are being accrued above target. The different levels of accrual are commensurate with the projected performance of the respective grant.

-27-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

On May 18, 2021, stockholders approved an amendment to the 2014 Omnibus Plan (the “Amendment”) authorizing an additional 1,100,000 shares available for future issuance. Including the additional shares authorized from the Amendment, 968,657 shares were available for future issuance under the 2014 Omnibus Plan at September 30, 2022.

For the three months ended September 30, 2022 and 2021, the Company’s net income, as reported, included $0.7 million and $1.2 million, respectively, of stock-based compensation costs, including the benefit or expense of phantom stock awards, and $0.2 million and $0.3 million of income tax benefit respectively, related to the stock-based compensation plans. For the nine months ended September 30, 2022 and 2021, the Company’s net income, as reported, included $5.6 million and $6.3 million, respectively, of stock-based compensation costs, including the benefit or expense of phantom stock awards, and $1.5 million and $1.7 million of income tax benefit, respectively, related to the stock-based compensation plans.

During the three months ended September 30, 2022 and 2021, the Company did not grant any RSU or PRSUs. During the nine months ended September 30, 2022 and 2021, the Company granted 212,811 and 238,985 RSU awards and 63,250 and 62,790 PRSU awards, respectively.

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

The following table summarizes the Company’s RSU and PRSU awards at or for the nine months ended September 30, 2022:


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

Non-vested at December 31, 2021	310,430	$	21.49	102,920	$	20.02
Granted	212,811		24.83	63,250		25.11
Vested	(219,873)		23.62	(71,390)		23.48
Forfeited	(1,895)		23.99	—		—
Non-vested at September 30, 2022	301,473	$	22.28	94,780	$	20.81
Vested but unissued at September 30, 2022	227,051	$	22.41	118,245	$	20.76

As of September 30, 2022, there was $5.2 million of total unrecognized compensation cost related to RSU and PRSU awards granted. That cost is expected to be recognized over a weighted-average period of 2.6 years. The total fair value of awards vested for the three months ended September 30, 2021 was $0.4 million. The total fair value of awards vested for the nine months ended September 30, 2022 and 2021 was $7.1 million and $5.4 million, respectively. The vested but unissued RSU and PRSU awards consist of awards made to employees and directors who are eligible for retirement. According to the terms of these awards, which provide for vesting upon retirement, these employees and directors have no risk of forfeiture. These shares will be issued at the original contractual vesting and settlement dates.

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

-28-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the Phantom Stock Plan at or for the nine months ended September 30, 2022:


Phantom Stock Plan	Shares	Fair Value
Outstanding at December 31, 2021	128,881	$	24.30
Granted	28,762		23.94
Distributions	(993)		23.36
Outstanding at September 30, 2022	156,650	$	19.37
Vested at September 30, 2022	156,407	$	19.37

The Company recorded stock-based compensation (benefit) expense for the Phantom Stock Plan of ($0.3) million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively. The total fair value of the distributions from the Phantom Stock Plan was $6,000 and $2,000 for each of the three months ended September 30, 2022 and 2021, respectively.

The Company recorded stock-based compensation (benefit) expense for the Phantom Stock Plan of ($0.7) million and $0.8 million for the nine months ended September 30, 2022 and 2021, respectively. The total fair value of the distributions from the Phantom Stock Plan was $23,000 and $50,000 for the nine months ended September 30, 2022, and 2021, respectively.

9. Pension and Other Postretirement Benefit Plans

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


	Three months ended				Nine months ended
	September 30,				September 30,
(In thousands)	2022		2021		2022		2021

Employee Pension Plan:
Interest cost	$	138	$	128	$	414	$	384
Amortization of unrecognized loss		1		122		3		366
Expected return on plan assets		(257)		(274)		(772)		(822)
Net employee pension benefit	$	(118)	$	(24)	$	(355)	$	(72)

Outside Director Pension Plan:
Service cost	$	3	$	4	$	9	$	12
Interest cost		11		12		34		36
Amortization of unrecognized gain		(7)		(5)		(21)		(15)
Net outside director pension expense	$	7	$	11	$	22	$	33

Other Postretirement Benefit Plans:
Service cost	$	67	$	73	$	201	$	219
Interest cost		70		58		209		174
Amortization of actuarial gain		—		8		—		24
Amortization of past service credit		(7)		(21)		(21)		(63)
Net other postretirement expense	$	130	$	118	$	389	$	354

-29-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Company previously disclosed in its Consolidated Financial Statements for the year ended December 31, 2021 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, 2022. The Company does not expect to make a contribution to the Employee Pension Plan (the “Employee Pension Plan”). As of September 30, 2022, the Company had contributed $0.1 million to the Outside Director Pension Plan and $18,000 to the Other Postretirement Benefit Plans. As of September 30, 2022, the Company has not revised its expected contributions for the year ending December 31, 2022.

10. Fair Value of Financial Instruments

The Company carries certain financial assets and financial liabilities at fair value in accordance with GAAP which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP permits entities to choose to measure many financial instruments and certain other items at fair value. At September 30, 2022, the Company carried financial assets and financial liabilities under the fair value option with fair values of $12.9 million and $49.8 million, respectively. At December 31, 2021, the Company carried financial assets and financial liabilities under the fair value option with fair values of $14.6 million and $56.5 million, respectively. The Company did not elect to carry any additional financial assets or financial liabilities under the fair value option during the three and nine months ended September 30, 2022 and 2021.

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


	Fair Value		Fair Value		Changes in Fair Values For Items Measured at Fair Value
	Measurements		Measurements		Pursuant to Election of the Fair Value Option
	at September 30,		at December 31,		Three Months Ended				Nine Months Ended
Description	2022		2021		September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
(In thousands)
Mortgage-backed securities	$	317	$	388	$	(6)	$	(1)	$	(18)	$	(3)
Other securities		12,625		14,180		(661)		6		(1,681)		7
Borrowed funds		49,752		56,472		6,293		(1,849)		8,049		(8,837)
Net gain (loss) from fair value adjustments ⁽¹⁾					$	5,626	$	(1,844)	$	6,350	$	(8,833)

(1)	The net gain (loss) from fair value adjustments presented in the above table does not include net gains (losses) of ($0.4) million for the three months ended September 30, 2021 and $1.0 million for the nine months ended September 30, 2021, from the change in the fair value of interest rate swaps.

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

The borrowed funds had a contractual principal amount of $61.9 million at both September 30, 2022 and December 31, 2021. The fair value of borrowed funds includes accrued interest payable of $0.3 million and $0.1 million at September 30, 2022 and December 31, 2021, respectively.

The Company generally holds its earning assets 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

-30-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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.

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

Level 1 – when quoted market prices are available in an active market. At September 30, 2022 and December 31, 2021, 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 September 30, 2022 and December 31, 2021, Level 2 included mortgage-backed securities, CLOs, corporate debt, municipals, and interest rate swaps.

Level 3 – when there is limited activity or less transparency around inputs to the valuation, financial instruments are classified as Level 3. At September 30, 2022 and December 31, 2021, 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.

-31-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table sets forth the Company’s assets and liabilities that are carried at fair value on a recurring basis, including those reported at fair value under the fair value option, and the level that was used to determine their fair value, at September 30, 2022 and December 31, 2021:


	Quoted Prices
	in Active Markets				Significant Other				Significant Other
	for Identical Assets				Observable Inputs				Unobservable Inputs				Total carried at fair value
	(Level 1)				(Level 2)				(Level 3)				on a recurring basis
	2022		2021		2022		2021		2022		2021		2022		2021

	(In thousands)
Assets:
Securities available for sale
Mortgage-backed
Securities	$	—	$	—	$	468,366	$	572,184	$	—	$	—	$	468,366	$	572,184
Other securities		11,131		12,485		338,870		190,872		1,494		1,695		351,495		205,052
Interest rate swaps		—		—		83,280		10,683		—		—		83,280		10,683

Total assets	$	11,131	$	12,485	$	890,516	$	773,739	$	1,494	$	1,695	$	903,141	$	787,919


Liabilities:
Borrowings	$	—	$	—	$	—	$	—	$	49,752	$	56,472	$	49,752	$	56,472
Interest rate swaps		—		—		18,698		25,071		—		—		18,698		25,071

Total liabilities	$	—	$	—	$	18,698	$	25,071	$	49,752	$	56,472	$	68,450	$	81,543

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


	For the three months ended
	September 30, 2022				September 30, 2021
	Trust preferred		Junior subordinated		Trust preferred		Junior subordinated
	securities		debentures		securities		debentures

	(In thousands)
Beginning balance	$	1,662	$	55,352	$	1,495	$	49,814
Net (loss) gain from fair value adjustment of financial assets⁽¹⁾		(171)		—		53		—
Net (gain) loss from fair value adjustment of financial liabilities⁽¹⁾		—		(6,293)		—		1,850
Increase (decrease) in accrued interest		3		95		—		(1)
Change in unrealized (gains) losses included in other comprehensive loss		—		598		—		(85)
Ending balance	$	1,494	$	49,752	$	1,548	$	51,578
Changes in unrealized gains held at period end	$	—	$	2,177	$	—	$	3,058

-32-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


	For the nine months ended
	September 30, 2022				September 30, 2021
	Trust preferred		Junior subordinated		Trust preferred		Junior subordinated
	securities		debentures		securities		debentures

	(In thousands)
Beginning balance	$	1,695	$	56,472	$	1,295	$	43,136
Net (loss) gain from fair value adjustment of financial assets⁽¹⁾		(206)		—		254		—
Net (gain) loss from fair value adjustment of financial liabilities⁽¹⁾		—		(8,049)		—		8,837
Increase (decrease) in accrued interest		5		172		(1)		(6)
Change in unrealized (gains) losses included in other comprehensive loss		—		1,157		—		(389)
Ending balance	$	1,494	$	49,752	$	1,548	$	51,578
Changes in unrealized gains held at period end	$	—	$	2,177	$	—	$	3,058

(1)

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

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

September 30, 2022

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)

Assets:

Trust preferred securities

1,494

Discounted cash flows

Spread over 3-month Libor

n/a

3.7

Liabilities:

Junior subordinated debentures

49,752

Discounted cash flows

Spread over 3-month Libor

n/a

3.7

December 31, 2021

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)

Assets:

Trust preferred securities

1,695

Discounted cash flows

Spread over 3-month Libor

n/a

2.2

Liabilities:

Junior subordinated debentures

56,472

Discounted cash flows

Spread over 3-month Libor

n/a

2.2

-33-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The significant unobservable inputs used in the fair value measurement of the Company’s trust preferred securities and junior subordinated debentures valued under Level 3 at September 30, 2022 and December 31, 2021, are the effective yields used in the cash flow models. Significant increases or decreases in the effective yield in isolation would result in a significantly lower or higher fair value measurement.

The following table sets forth the Company’s assets and liabilities that are carried at fair value on a non-recurring basis and the level that was used to determine their fair value at September 30, 2022 and December 31, 2021:


	Quoted Prices
	in Active Markets				Significant Other				Significant Other
	for Identical Assets				Observable Inputs				Unobservable Inputs				Total carried at fair value
	(Level 1)				(Level 2)				(Level 3)				on a non-recurring basis
	2022		2021		2022		2021		2022		2021		2022		2021

	(In thousands)
Assets:
Non-accrual loans	$	—	$	—	$	—	$	—	$	19,033	$	11,026	$	19,033	$	11,026

Total assets	$	—	$	—	$	—	$	—	$	19,033	$	11,026	$	19,033	$	11,026

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:


	At September 30, 2022
	Fair Value		Valuation Technique	Unobservable Input	Range		Weighted Average

	(Dollars in thousands)
Assets:

Non-accrual loans	$	18,875	Sales approach	Adjustment to sales comparison value	-11.5% to 0.0	%	0.4	%
				Reduction for planned expedited disposal	8.0% to 15.0	%	13.6	%

Non-accrual loans	$	158	Discounted Cashflow	Discount Rate	4.3	%	4.3	%
				Probability of Default	35.0	%	35.0	%


	At December 31, 2021
	Fair Value		Valuation Technique	Unobservable Input	Range		Weighted Average

	(Dollars in thousands)
Assets:

Non-accrual loans	$	10,579	Sales approach	Reduction for planned expedited disposal	8.0% to 15.0	%	11.9	%


Non-accrual loans	$	447	Discounted Cashflow	Discount Rate	4.3	%	4.3	%
				Probability of Default	35.0	%	35.0	%

The Company did not have any liabilities that were carried at fair value on a non-recurring basis at September 30, 2022 and December 31, 2021.

-34-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The methods and assumptions used to estimate fair value at September 30, 2022 and December 31, 2021 are as follows:

Securities:

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

Non-accrual Loans:

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

Junior Subordinated Debentures:

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

Interest Rate Swaps:

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

-35-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables set forth the carrying amounts and estimated fair values of selected financial instruments based on the assumptions described above used by the Company in estimating fair value at the periods indicated:


	September 30, 2022
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3

	(In thousands)
Assets:

Cash and due from banks	$	164,693	$	164,693	$	164,693	$	—	$	—
Securities held-to-maturity
Mortgage-backed securities		7,880		6,986		—		6,986		—
Other securities		66,032		52,727		—		—		52,727
Securities available for sale
Mortgage-backed securities		468,366		468,366		—		468,366		—
Other securities		351,495		351,495		11,131		338,870		1,494
Loans		6,956,674		6,794,125		—		—		6,794,125
FHLB-NY stock		62,489		62,489		—		62,489		—
Accrued interest receivable		42,571		42,571		—		3,093		39,478
Interest rate swaps		83,280		83,280		—		83,280		—

Liabilities:

Deposits	$	6,125,305	$	6,092,158	$	5,089,198	$	1,002,960	$	—
Borrowed Funds		1,572,830		1,547,433		—		1,497,681		49,752
Accrued interest payable		8,628		8,628		—		8,628		—
Interest rate swaps		18,698		18,698		—		18,698		—


	December 31, 2021
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3

	(In thousands)
Assets:

Cash and due from banks	$	81,723	$	81,723	$	81,723	$	—	$	—
Securities held-to-maturity
Mortgage-backed securities		7,894		8,667		—		8,667		—
Other securities		49,974		53,362		—		—		53,362
Securities available for sale
Mortgage-backed securities		572,184		572,184		—		572,184		—
Other securities		205,052		205,052		12,485		190,872		1,695
Loans		6,638,105		6,687,125		—		—		6,687,125
FHLB-NY stock		35,937		35,937		—		35,937		—
Accrued interest receivable		38,698		38,698		—		1,574		37,124
Interest rate swaps		10,683		10,683		—		10,683		—

Liabilities:

Deposits	$	6,385,445	$	6,385,276	$	5,438,870	$	946,406	$	—
Borrowed Funds		815,544		816,012		—		759,540		56,472
Accrued interest payable		4,777		4,777		—		4,777		—
Interest rate swaps		25,071		25,071		—		25,071		—

11. Derivative Financial Instruments

At September 30, 2022 and December 31, 2021, the Company’s derivative financial instruments consisted 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 certain fixed rate loans totaling $287.1 million and $299.6 million at September 30, 2022 and December 31, 2021, respectively; 2) to facilitate risk management strategies for our loan customers with $222.9 million of swaps

-36-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

outstanding, which include $111.4 million with customers and $111.4 million with bank counterparties at September 30, 2022 and $228.0 million of swaps outstanding, which include $114.0 million with customers and $114.0 million with bank counterparties at December 31, 2021; and 3) to mitigate exposure to rising interest rates on certain short-term advances and brokered deposits totaling $871.5 million at September 30, 2022, and $996.5 at December 31, 2021.

At September 30, 2022 and December 31, 2021, we held derivatives designated as cash flow hedges, fair value hedges and certain derivatives not designated as hedges.

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

At September 30, 2022 and December 31, 2021, derivatives with a combined notional amount of $222.9 million and $228.0 million, respectively, were not designated as hedges. At September 30, 2022 and December 31, 2021, derivatives with a combined notional amount of $287.1million and $299.6 million, respectively, were designated as fair value hedges. At September 30, 2022 and December 31, 2021, derivatives with a combined notional amount of $871.5 million and $996.5 million, respectively, were designated as cash flow hedges.

For cash flow hedges, the changes in the fair value of the derivative are reported in accumulated other comprehensive income (loss), net of tax. Amounts in accumulated other comprehensive loss are reclassified into earnings in the same period during which the hedged forecasted transaction effects earnings. During the three months ended September 30, 2022 and 2021, $1.0 million and $2.6 million, respectively, was reclassified from accumulated other comprehensive loss to interest expense. The estimated amount to be reclassified in the next 12 months out of accumulated other comprehensive loss is $4.1 million.

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

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


	September 30, 2022				December 31, 2021
	Notional				Notional
	Amount		Fair Value ⁽¹⁾		Amount		Fair Value ⁽¹⁾

	(In thousands)
Interest rate swaps (cash flow hedge)	$	871,500	$	38,361	$	355,000	$	7,328
Interest rate swaps (fair value hedge)		287,085		26,221		—		—
Interest rate swaps (non-hedge)		111,446		18,698		113,988		3,355

Interest rate swaps (fair value hedge)		—		—		299,555		(12,329)
Interest rate swaps (cash flow hedge)		—		—		641,500		(9,387)
Interest rate swaps (non-hedge)		111,446		(18,698)		113,988		(3,355)
Total derivatives	$	1,381,477	$	64,582	$	1,524,031	$	(14,388)

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

-37-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table presents information regarding the Company’s fair value hedged items for the periods indicated:


						Cumulative Amount
						of the Fair Hedging Adjustment
Line Item in the Consolidated Statement		Carrying Amount of the				Included in the Carrying Amount of
of Financial Condition in Which		Hedged				the Hedged
the Hedged Item Is Included		Assets/(Liabilities)				Assets/(Liabilities)
(In thousands)		September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Loans
Multi-family residential	$	92,692	$	113,730	$	(11,412)	$	7,608
Commercial real estate		168,117		192,694		(16,105)		3,477
Commercial business and other		—		6,298		—		122
Total	$	260,809	$	312,722	$	(27,517)	$	11,207

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


		For the three months ended				For the nine months ended
		September 30,				September 30,
(In thousands)	Affected Line Item in the Statements Where Net Income is Presented	2022		2021		2022		2021
Financial Derivatives:
	Other interest expense	$	—	$	(33)	$	—	$	(305)
	Net gain (loss) from fair value adjustments		—		(445)		—		978
Interest rate swaps (non-hedge)			—		(478)		—		673

Interest rate swaps (fair value hedge)	Interest and fees on loans		253		(1,206)		(2,068)		(3,231)

	Other interest expense		64		(2,737)		(3,890)		(7,942)
	Deposit		793		—		842		—
Interest rate swaps (cash flow hedge)			857		(2,737)		(3,048)		(7,942)

Net income (loss)		$	1,110	$	(4,421)	$	(5,116)	$	(10,500)

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

-38-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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

September 30, 2022

Gross Amounts Not Offset in the

Consolidated Statements of

Gross Amount Offset in

Net Amount of Assets

Financial Condition

Gross Amount of

the Statements

Presented in the

Financial

Cash Collateral

(In thousands)

Recognized Assets

of Condition

Statements of Condition

Instruments

Received

Net Amount

Interest rate swaps

83,280

—

83,280

—

50,505

32,775

Gross Amounts Not Offset in the

Consolidated Statements of

Gross Amount of

Gross Amount Offset in

Net Amount of Liabilities

Financial Condition

Recognized

the Statements

Presented in the

Financial

Cash Collateral

(In thousands)

Liabilities

of Condition

Statements of Condition

Instruments

Pledged

Net Amount

Interest rate swaps

18,698

—

18,698

—

18,698

December 31, 2021

Gross Amounts Not Offset in the

Consolidated Statements of

Gross Amount Offset in

Net Amount of Assets

Financial Condition

Gross Amount of

the Statements

Presented in the

Financial

Cash Collateral

(In thousands)

Recognized Assets

of Condition

Statements of Condition

Instruments

Received

Net Amount

Interest rate swaps

10,683

—

10,683

—

10,683

Gross Amounts Not Offset in the

Consolidated Statements of

Gross Amount of

Gross Amount Offset in

Net Amount of Liabilities

Financial Condition

Recognized

the Statements

Presented in the

Financial

Cash Collateral

(In thousands)

Liabilities

of Condition

Statements of Condition

Instruments

Pledged

Net Amount

Interest rate swaps

25,071

—

25,071

—

21,527

3,544

-39-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

12. Accumulated Other Comprehensive Income (Loss):

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


	For the three months ended September 30, 2022
	Unrealized Gains		Unrealized Gains
	(Losses) on		(Losses) on				Fair Value
	Available for Sale		Cash flow		Defined Benefit		Option Elected
	Securities		Hedges		Pension Items		on Liabilities		Total

	(In thousands)

Beginning balance, net of tax	$	(50,133)	$	18,260	$	(1,313)	$	1,922	$	(31,264)

Other comprehensive income before reclassifications, net of tax		(22,797)		7,480		—		(414)		(15,731)

Amounts reclassified from accumulated other comprehensive income, net of tax		—		710		(9)		—		701

Net current period other comprehensive income, net of tax		(22,797)		8,190		(9)		(414)		(15,030)

Ending balance, net of tax	$	(72,930)	$	26,450	$	(1,322)	$	1,508	$	(46,294)

-40-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


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

	(In thousands)

Beginning balance, net of tax	$	485	$	(9,202)	$	(1,741)	$	2,041	$	(8,417)

Other comprehensive income before reclassifications, net of tax		(2,645)		179		—		58		(2,408)

Amounts reclassified from accumulated other comprehensive income, net of tax		7		1,812		72		—		1,891

Net current period other comprehensive income (loss), net of tax		(2,638)		1,991		72		58		(517)

Ending balance, net of tax	$	(2,153)	$	(7,211)	$	(1,669)	$	2,099	$	(8,934)


	For the nine months ended September 30, 2022
	Unrealized Gains		Unrealized Gains
	(Losses) on		(Losses) on				Fair Value
	Available for Sale		Cash flow		Defined Benefit		Option Elected
	Securities		Hedges		Pension Items		on Liabilities		Total

	(In thousands)

Beginning balance, net of tax	$	(6,272)	$	(1,406)	$	(1,282)	$	2,276	$	(6,684)

Other comprehensive income before reclassifications, net of tax		(66,658)		23,657		—		(768)		(43,769)

Amounts reclassified from accumulated other comprehensive income, net of tax		—		4,199		(40)		—		4,159

Net current period other comprehensive income (loss), net of tax		(66,658)		27,856		(40)		(768)		(39,610)

Ending balance, net of tax	$	(72,930)	$	26,450	$	(1,322)	$	1,508	$	(46,294)

-41-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


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

	(In thousands)

Beginning balance, net of tax	$	1,290	$	(17,521)	$	(1,884)	$	1,849	$	(16,266)

Other comprehensive income before reclassifications, net of tax		(3,365)		4,885		—		250		1,770

Amounts reclassified from accumulated other comprehensive income, net of tax		(78)		5,425		215		—		5,562

Net current period other comprehensive income (loss), net of tax		(3,443)		10,310		215		250		7,332

Ending balance, net of tax	$	(2,153)	$	(7,211)	$	(1,669)	$	2,099	$	(8,934)

-42-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


For the three months ended September 30, 2022
	Amounts Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Statement
Comprehensive Loss Components	Comprehensive Loss			Where Net Income is Presented
(In thousands)
Cash flow hedges:
Interest rate swaps	$	(1,030)		Interest expense
		320		Provision for income taxes
	$	(710)		Net of tax
Amortization of defined benefit pension items:
Actuarial losses	$	6	⁽¹⁾	Other expense
Prior service credits		7	⁽¹⁾	Other expense
		13		Total before tax
		(4)		Provision for income taxes
	$	9		Net of tax

(1)	These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 9 (“Pension and Other Postretirement Benefit Plans”) for additional information


For the three months ended September 30, 2021
	Amounts Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Statement
Comprehensive Loss Components	Comprehensive Loss			Where Net Income is Presented
(In thousands)

Unrealized losses on available for sale securities	$	(10)		Net loss on sale of securities
		3		Provision for income taxes
	$	(7)		Net of tax

Cash flow hedges:
Interest rate swaps	$	(2,640)		Interest expense
		828		Provision for income taxes
	$	(1,812)		Net of tax

Amortization of defined benefit pension items:
Actuarial losses	$	(125)	⁽¹⁾	Other operating expenses
Prior service credits		21	⁽¹⁾	Other operating expenses
		(104)		Total before tax
		32		Provision for income taxes
	$	(72)		Net of tax

(1)	These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 9 (“Pension and Other Postretirement Benefit Plans”) for additional information

-43-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


For the nine months ended September 30, 2022
	Amounts Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Statement
Comprehensive Loss Components	Comprehensive Loss			Where Net Income is Presented
(In thousands)
Cash flow hedges:
Interest rate swaps	$	(6,117)		Interest expense
		1,918		Provision for income taxes
	$	(4,199)		Net of tax
Amortization of defined benefit pension items:
Actuarial losses	$	18	⁽¹⁾	Other expense
Prior service credits		21	⁽¹⁾	Other expense
		39		Total before tax
		1		Provision for income taxes
	$	40		Net of tax

(1)	These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 9 (“Pension and Other Postretirement Benefit Plans”) for additional information


For the nine months ended September 30, 2021
	Amounts Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Statement
Comprehensive Loss Components	Comprehensive Loss			Where Net Income is Presented
(In thousands)

Unrealized losses on available for sale securities	$	113		Net loss on sale of securities
		(35)		Provision for income taxes
	$	78		Net of tax

Cash flow hedges:
Interest rate swaps	$	(7,883)		Interest expense
		2,458		Provision for income taxes
	$	(5,425)		Net of tax

Amortization of defined benefit pension items:
Actuarial losses	$	(375)	⁽¹⁾	Other operating expenses
Prior service credits		63	⁽¹⁾	Other operating expenses
		(312)		Total before tax
		97		Provision for income taxes
	$	(215)		Net of tax

(1)	These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 9 (“Pension and Other Postretirement Benefit Plans”) for additional information

-44-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

13. Regulatory Capital

Under current capital regulations, the Bank is required to comply with four separate capital adequacy standards and a Capital Conservation Buffer (“CCB”). As of September 30, 2022, the Bank 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 Bank was 5.44% and 6.13% at September 30, 2022 and December 31, 2021, respectively.

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


	September 30, 2022				December 31, 2021
			Percent of				Percent of
	Amount		Assets		Amount		Assets

	(Dollars in thousands)
Tier I (leverage) capital:
Capital level	$	859,779	10.03	%	$	840,105	10.39	%
Requirement to be well-capitalized		428,594	5.00			404,366	5.00
Excess		431,185	5.03			435,739	5.39

Common Equity Tier I risk-based capital:
Capital level	$	859,779	12.85	%	$	840,105	13.58	%
Requirement to be well-capitalized		434,966	6.50			402,100	6.50
Excess		424,813	6.35			438,005	7.08

Tier I risk-based capital:
Capital level	$	859,779	12.85	%	$	840,105	13.58	%
Requirement to be well-capitalized		535,343	8.00			494,892	8.00
Excess		324,436	4.85			345,213	5.58

Total risk-based capital:
Capital level	$	899,274	13.44	%	$	874,400	14.13	%
Requirement to be well-capitalized		669,179	10.00			618,615	10.00
Excess		230,095	3.44			255,785	4.13

The Holding Company is subject to the same regulatory capital requirements as the Bank. As of September 30, 2022, the Holding Company continues to be categorized as “well-capitalized” under the prompt corrective action regulations and continues to exceed all regulatory capital requirements. The CCB for the Holding Company at September 30, 2022 and December 31, 2021 was 5.20% and 5.75%, respectively.

-45-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


	September 30, 2022				December 31, 2021
			Percent of				Percent of
	Amount		Assets		Amount		Assets

	(Dollars in thousands)
Tier I (leverage) capital:
Capital level	$	749,526	8.74	%	$	726,174	8.98	%
Requirement to be well-capitalized		428,619	5.00			404,422	5.00
Excess		320,907	3.74			321,752	3.98

Common Equity Tier I risk-based capital:
Capital level	$	701,532	10.49	%	$	671,494	10.86	%
Requirement to be well-capitalized		434,803	6.50			401,836	6.50
Excess		266,729	3.99			269,658	4.36

Tier I risk-based capital:
Capital level	$	749,526	11.20	%	$	726,174	11.75	%
Requirement to be well-capitalized		535,143	8.00			494,568	8.00
Excess		214,383	3.20			231,606	3.75

Total risk-based capital:
Capital level	$	979,021	14.64	%	$	885,469	14.32	%
Requirement to be well-capitalized		668,928	10.00			618,210	10.00
Excess		310,093	4.64			267,259	4.32

14. New Authoritative Accounting Pronouncements

Accounting Standards Pending Adoption:

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (Topic 326), which replaces the recognition and measurement guidance related to TDRs for creditors that have adopted ASC Topic 326 (commonly referred to as “CECL”) with the recognition and measurement guidance contained in Accounting Standards Codification (“ASC”) 310-20, to determine whether a modification results in a new loan or a continuation of an existing loan. This ASU also enhances disclosures about loan modifications for borrowers who are experiencing financial difficulty. The guidance also requires public business entities to present gross write-offs by year of origination in their vintage disclosures. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments in this ASU should be applied on a prospective basis; however, institutions have the option to apply a modified retrospective transition method as it relates to the recognition and measurement of TDRs, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. We do not believe this ASU will have a material impact on our business operations or consolidated financial statements.

In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform” (Topic 848), which clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by discounting transition. ASU 2021-01 was effective upon issuance and generally can be applied through December 31, 2022.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform” (Topic 848), which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions

-46-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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

-47-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

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, 2021. 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 Service Corporation, FSB Properties Inc., and Flushing Preferred Funding Corporation, which was dissolved as of June 30, 2021.

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, 2021. 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.

-48-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

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-chartered 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. At September 30, 2022, the Bank owns two subsidiaries: 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, 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 can also be significantly affected by changes in the fair value of financial assets and financial liabilities for which changes in value are recorded through earnings and our periodic provision for credit losses.

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.

-49-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

We carry a portion of our financial assets and financial liabilities under the fair value option and record changes in their fair value through earnings in non-interest income on our Consolidated Statements of Income and Comprehensive Income. A description of the financial assets and financial liabilities that are carried at fair value through earnings can be found in Note 10 (“Fair Value of Financial Instruments”) of the Notes to the Consolidated Financial Statements.

For the three months ended September 30, 2022 we reported net income of $23.4 million, or $0.76 per diluted common share, and reported net interest income totaling $61.2 million. The net interest income was driven by a $238.4 million increase in average interest-earning assets during the quarter, offset by an increase of 64 basis points in the cost of interest-bearing liabilities, which resulted in the net interest margin declining 28 basis points compared to the three months ended June 30, 2022.

During the three months ended September 30, 2022, the yield on interest-earning assets increased 25 basis points, while the cost of interest-bearing liabilities increased 65 basis points from the three months ended June 30, 2022, which resulted in a decrease of 28 basis points in net interest margin to 3.07% from 3.35% for the three months ended June 30, 2022. Excluding net gains (losses) from qualifying hedges and purchase accounting adjustments, the net interest margin decreased 30 basis points to 3.03% for the three months ended September 30, 2022 from 3.33% for the three months ended June 30, 2022.

Our loan portfolio is greater than 88% collateralized by real estate with an average loan to value of less than 37%. We have a long history and foundation built upon disciplined underwriting, good credit quality, and a resilient seasoned loan portfolio with strong asset protection. At September 30, 2022, our allowance for credit losses (“ACL”) - loans stood at 59 basis points of gross loans and 142.3% of non-performing loans. Non-performing assets at the end of the quarter were 58 basis points of total assets.

The Bank and Company remain well-capitalized under current capital regulations and are subject to the same regulatory capital requirements. See Note 13 (“Regulatory Capital”) of the Notes to the Consolidated Financial Statements.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

General. Net income for the three months ended September 30, 2022 was $23.4 million, a decrease of $2.0 million, or 7.8%, from $25.4 million for the three months ended September 30, 2021. Diluted earnings per common share were $0.76 for the three months ended September 30, 2022, a decrease of $0.05 or 6.2%, from $0.81 for the three months ended September 30, 2021.

Return on average equity was 13.91% for the three months ended September 30, 2022 compared to 15.42% for the three months ended September 30, 2021. Return on average assets was 1.11% for the three months ended September 30, 2022 compared to 1.26% for the three months ended September 30, 2021.

Interest Income. Interest and dividend income increased $8.8 million, or 12.1%, to $81.7 million for the three months ended September 30, 2022 from $73.0 million for the three months ended September 30, 2021. The increase in interest income was primarily attributable to the 26 basis point increase in the yield on interest-earning assets to 4.10% for the three months ended September 30, 2022 compared to 3.84% for the comparable prior year period. Excluding prepayment penalty income from loans, net recoveries/reversals of interest from non-accrual loans, net gains (losses) from fair value adjustments on qualifying hedges, and purchase accounting adjustments, the yield on total loans, net, increased 31 basis points to 4.27% for the three months ended September 30, 2022 from 3.96% for the three months ended September 30, 2021.

-50-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

Interest Expense. Interest expense increased $11.0 million, or 114.2%, to $20.5 million for the three months ended September 30, 2022 from $9.6 million for the three months ended September 30, 2021. The growth in interest expense was primarily due to an increase of 64 basis points in the average cost of interest-bearing liabilities to 1.25% for the three months ended September 30, 2022 from 0.61% for the three months ended September 30, 2021 and the increase of $242.2 million in the average balance of interest-bearing liabilities to $6,553.1 million for the three months ended September 30, 2022 from $6,310.9 million for the comparable prior year period.

Net Interest Income. Net interest income for the three months ended September 30, 2022 was $61.2 million, a decrease of $2.2 million, or 3.4%, from $63.4 million for the three months ended September 30, 2021. The decrease in net interest income was primarily due to the cost of interest-bearing liabilities rising faster than the yield on interest-earning assets, partially offset by net interest-earning assets growing $128.5 million year over year to $1,426.0 million for the quarter ended September 30, 2022. This caused a decrease of 27 basis points in the net interest margin to 3.07% during the same period. Included in net interest income was prepayment penalty income, net reversals and recovered interest from non-accrual loans totaling $1.4 million and $2.1 million for the three months ended September 30, 2022 and 2021, respectively, net (gains) losses from fair value adjustments on qualifying hedges totaling less than $0.1 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively, and purchase accounting income adjustments of $0.8 million and $1.1 million for the three months ended September 30, 2022 and 2021, respectively. Excluding all of these items, the net interest margin for the three months ended September 30, 2022 was 2.96%, a decrease of 19 basis points, from 3.15% for the three months ended September 30, 2021.

Provision (Benefit) for Credit Losses. During the three months ended September 30, 2022, the provision for credit losses was $2.1 million compared to a benefit for credit losses of $6.9 million for the three months ended September 30, 2021. The provision recorded during the three months ended September 30, 2022 was primarily due to increased reserves on two previously identified credits and loan growth during the quarter. The current average loan-to-value ratio for our non-performing assets collateralized by real estate was 50.9% at September 30, 2022. The Bank continues to maintain conservative underwriting standards.

Non-Interest Income. Non-interest income for the three months ended September 30, 2022 was $9.0 million, an increase of $8.1 million from $0.9 million in the prior year comparable period. The increase was primarily due to the prior year period inclusion of net losses from fair value adjustments totaling $2.3 million compared to net gains totaling $5.6 million recorded during the three months ended September 30, 2022. Additionally, non-interest income for the three months ended September 30, 2022 included life insurance proceeds totaling $1.5 million.

Non-Interest Expense. Non-interest expense for the three months ended September 30, 2022 was $35.6 million, a decrease of $0.7 million, or 2.0%, from $36.3 million for the three months ended September 30, 2021. The decrease in non-interest expense was primarily due to a reduction in reserves for unfunded off-balance sheet commitments.

Income before Income Taxes. Income before income taxes for the three months ended September 30, 2022 was $32.4 million, a decrease of $2.4 million, or 6.9%, from $34.8 million for the three months ended September 30, 2021 for the reasons discussed above.

Provision for Income Taxes. The provision for income taxes was $9.0 million for the three months ended September 30, 2022, a decrease of $0.4 million, or 4.5%, from $9.4 million for the three months ended September 30, 2021. The decrease was primarily due to the decline in income before income taxes and an increase in the effective tax rate. The effective tax rate for three months ended September 30, 2022 was 27.7% compared to 27.0% for the three months ended September 30, 2021. The increase in the effective tax rate was primarily due to the loss of certain New York State and City tax deductions in 2022.

-51-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

General. Net income for the nine months ended September 30, 2022 was $66.7 million, an increase of $3.0 million, or 4.7%, from $63.7 million for the nine months ended September 30, 2021. Diluted earnings per common share were $2.15 for the nine months ended September 30, 2022, an increase of $0.13, or 6.4%, from $2.02 for the nine months ended September 30, 2021.

Return on average equity was 13.24% for both the nine months ended September 30, 2022 and September 30, 2021. Return on average assets was 1.08% for the nine months ended September 30, 2022 compared to 1.04% for the nine months ended September 30, 2021.

Interest Income. Interest and dividend income increased $10.5 million, or 4.9%, to $227.4 million for the nine months ended September 30, 2022 from $216.8 million for the nine months ended September 30, 2021. The increase in interest income was primarily attributable to the 14 basis points increase in the yield on interest-earning assets to 3.91%, for the nine months ended September 30, 2022, compared to 3.77% for the comparable prior year period. Excluding prepayment penalty income from loans, net recoveries/reversals of interest from non-accrual loans, net gains (losses) from fair value adjustments on qualifying hedges, and purchase accounting adjustments, the yield on total loans, net, increased 13 basis points to 4.18% for the nine months ended September 30, 2022 from 4.05% for the nine months ended September 30, 2021.

Interest Expense. Interest expense increased $6.4 million, or 20.3%, to $37.9 million for the nine months ended September 30, 2022 from $31.5 million for the nine months ended September 30, 2021. The increase in interest expense was primarily due to the 14 basis point increase in the average cost of interest-bearing liabilities to 0.79% for the nine months ended September 30, 2022 from 0.65% for the nine months ended September 30, 2021, which was driven by our liabilities repricing up as the Federal Reserve raised interest rates during the current period. This was partially offset by a decrease of $68.4 million in the average balance of interest-bearing liabilities to $6,371.5 million for the nine months ended September 30, 2022 from $6,439.9 million for the comparable prior year period.

Net Interest Income. Net interest income for the nine months ended September 30, 2022 was $189.4 million, an increase of $4.1 million, or 2.2%, from $185.3 million for the nine months ended September 30, 2021. The increase in net interest income was primarily due to an increase in net interest-earning assets of $144.9 million to $1,393.3 million for the nine months ended September 30, 2022 compared to $1,248.4 million for the prior year, an increase of 4 basis points in the net interest margin to 3.26% during the same period. Included in net interest income was prepayment penalty income, net of reversals and recovered interest from non-accrual loans totaling $5.4 million and $5.1 million for the nine months ended September 30, 2022 and 2021, respectively, net (losses) gains from fair value adjustments on qualifying hedges totaling ($0.2) million and $1.0 million for the nine months ended September 30, 2022 and 2021, respectively, and purchase accounting income adjustments of $2.2 million and $2.6 million for the nine months ended September 30, 2022 and 2021, respectively. Excluding all of these items, the net interest margin for the nine months ended September 30, 2022 was 3.13%, an increase of 6 basis points, from 3.07% for the nine months ended September 30, 2021.

Provision (Benefit) for Credit Losses. During the nine months ended September 30, 2022, the provision for credit losses was $5.1 million, compared to a (benefit) for credit losses of ($5.7) million for the nine months ended September 30, 2021. The provision recorded during the nine months ended September 30, 2022 was driven by loan growth, increased reserves on two previously identified credits, coupled with the ongoing environmental uncertainty resulting from high and rising inflation including increasing interest rates. The current average loan-to-value ratio for our non-performing assets collateralized by real estate was 37.6% at September 30, 2022. The Bank continues to maintain conservative underwriting standards.

Non-Interest Income. Non-interest income for the nine months ended September 30, 2022 was $17.7 million, an increase of $13.7 million from $4.0 million in the prior year comparable period. The increase was primarily due to the prior year period including net losses from fair value adjustments totaling $7.9 million compared to net gains totaling $6.4 million

-52-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

recorded in the current year period. Additionally, non-interest income for the nine months ended September 30, 2022 included life insurance proceeds totaling $1.5 million.

Non-Interest Expense. Non-interest expense for the nine months ended September 30, 2022 was $110.0 million, an increase of $1.4 million, or 1.3%, from $108.5 million for the nine months ended September 30, 2021. The increase in non-interest expense was primarily due to operational growth of the Company.

Income before Income Taxes. Income before income taxes for the nine months ended September 30, 2022 was $92.0 million, an increase of $5.6 million, or 6.5%, from $86.5 million for the nine months ended September 30, 2021 for the previously discussed reasons.

Provision for Income Taxes. The provision for income taxes was $25.3 million for the nine months ended September 30, 2022, an increase of $2.6 million, or 11.4%, from $22.7 million for the nine months ended September 30, 2021. The increase was primarily due to the growth in income before income taxes, and an increase in the effective tax rate. The effective tax rate for nine months ended September 30, 2022 was 27.5% compared to 26.3% for the nine months ended September 30, 2021. The increase in the effective tax rate was primarily due to the loss of certain New York State and City tax deductions in 2022.

FINANCIAL CONDITION

Assets. Total assets at September 30, 2022 were $8,557.4 million, an increase of $511.5 million, or 6.4%, from $8,045.9 million at December 31, 2021. Total loans net increased $314.4 million, or 4.8%, during the nine months ended September 30, 2022, to $6,915.4 million from $6,601.0 million at December 31, 2021. The increase was primarily due to loan originations which exceeded satisfactions. Loan originations and purchases were $1,296.8 million for the nine months ended September 30, 2022, an increase of $405.5 million, or 45.5%, from $891.2 million for the nine months ended September 30, 2021. We continue to focus on the origination of multi-family residential, commercial real estate and commercial business loans with a full banking relationship. The loan pipeline was $309.1 million at September 30, 2022, compared to $429.3 million at December 31, 2021.

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


	For the three months				For the nine months
	ended September 30,				ended September 30,
(In thousands)	2022		2021		2022		2021
Multi-family residential	$	173,980	$	41,850	$	409,086	$	167,316
Commercial real estate		77,777		48,447		287,705		103,566
One-to-four family – mixed-use property		12,383		12,823		33,109		28,670
One-to-four family – residential		4,102		2,761		17,550		65,386
Construction ⁽¹⁾		7,170		8,687		24,291		21,091
Small Business Administration⁽²⁾		46		415		2,796		143,093
Commercial business and other ⁽³⁾		188,202		128,946		522,229		362,100
Total	$	463,660	$	243,929	$	1,296,766	$	891,222

(1)	(CRE) Includes purchases of $13.9 million for the three months ended September 30, 2021. Includes purchases of $13.9 million for the nine months ended September 30, 2021.

(2)	(1-4 Res) Includes purchases of $58.0 million for the nine months ended September 30, 2021.

(3)	(Construction) Includes purchases of $0.7 million and $2.3 million for the three months ended September 30, 2022, and 2021, respectively. Includes purchases of $2.3 million and $9.2 million for the nine months ended September 2022, and 2021, respectively.

(4)	(PPP) Includes $138.7 million of SBA PPP loans for the nine months ended September 30, 2021.

(5)	(Comm Bus) Includes purchases of $109.4 million and $45.8 million for the three months ended September 30, 2022 and 2021, respectively. Includes purchases of $205.3 million and $111.6 million for the nine months ended September 30, 2022 and 2021, respectively.

-53-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

The Bank maintains its conservative underwriting standards that include, among other things, a loan-to-value ratio of 75% or less and a debt coverage ratio of at least 125%. Multi-family residential (excluding underlying co-operative mortgages), commercial real estate and one-to-four family mixed-use property mortgage loans originated and purchased during the nine months ended September 30, 2022 had an average loan-to-value ratio of 54.2% and an average debt coverage ratio of 168.5%.

The Bank’s non-performing assets totaled $50.0 million at September 30, 2022, an increase of $35.1 million, or 234.7%, from December 31, 2021. Total non-performing assets as a percentage of total assets were 0.58% at September 30, 2022 and 0.19% at December 31, 2021. The ratio of ACL - loans to total non-performing loans was 142.3% at September 30, 2022 and 248.7% at December 31, 2021.

During the nine months ended September 30, 2022, mortgage-backed securities decreased $103.8 million, or 17.9%, to $476.2 million from $580.1 million at December 31, 2021. The decrease in mortgage-backed securities during the nine months ended September 30, 2022 was primarily due to the principal repayment of securities totaling $79.1 million and the decrease in the fair value of the securities totaling $77.6 million partially offset by the purchase of securities totaling $54.5 million at an average rate of 2.67%.

During the nine months ended September 30, 2022, other securities increased $162.5 million, or 63.7%, to $417.5 million from $255.0 million at December 31, 2021. The increase in other securities during the nine months ended September 30, 2022, was primarily due to purchases of $184.8 million at an average rate of 3.20% partially offset by a decrease in the fair value of other securities totaling $20.7 million, and maturities, sales and calls totaling $2.0 million. At September 30, 2022, other securities primarily consisted of securities issued by mutual or bond funds that invest in government and government agency securities, municipal bonds, corporate bonds, and CLOs.

Liabilities. Total liabilities were $7,886.7 million at September 30, 2022, an increase of $520.4 million, or 7.1%, from $7,366.3 million at December 31, 2021. During the nine months ended September 30, 2022, due to depositors decreased $278.8 million, or 4.4%, to $6,054.8 million due to a decrease of $303.5 million in NOW, money market accounts and certificates of deposit. The decrease in NOW, money market accounts and certificates of deposit was due to several large withdrawals at the end of the quarter, as certain depositors sought out higher rates. Included in deposits were brokered deposits totaling $682.3 million, an increase of $56.0 million from $626.3 million at December 31, 2021. Borrowed funds increased $757.3 million during the nine months ended September 30, 2022. Included in the increase in borrowed funds are $65.0 million of 6.0% fixed-to-floating rate subordinated notes due in 2032 issued on August 24, 2022.

Equity. Total stockholders’ equity decreased $8.9 million, or 1.3%, to $670.7 million at September 30, 2022, from $679.6 million at December 31, 2021. Stockholders’ equity decreased due to a decline in accumulated other comprehensive income of $39.6 million, the declaration and payment of dividends on the Company’s common stock of $0.66 per common share totaling $22.4 million and 878,863 shares repurchased totaling $19.7 million. These decreases were partially offset by net income of $66.7 million. Book value per common share increased to $22.47 at September 30, 2022 compared to $22.26 at December 31, 2021.

Liquidity. Liquidity is the ability to economically meet current and future financial obligations. The Company’s primary objectives in terms of managing liquidity is to maintain the ability to originate and purchase loans, repay borrowings as they mature, satisfy financial obligations that arise in the normal course of business and meet our customer’s deposit withdrawal needs. Our primary sources of funds are deposits, borrowings, principal and interest payments on loans, mortgage-backed and other securities, and proceeds from sales of securities and loans. Deposit flows and mortgage prepayments, however, are greatly influenced by general interest rates, economic conditions, and competition. The Company has other sources of liquidity, including unsecured overnight lines of credit, brokered deposits and other types of borrowings.

Liquidity management is both a short and long-term function of business management. During 2022, funds were provided by the Company’s operating activities, which were used to fund our investing and financing activities. Our most liquid assets are cash and cash equivalents, which include cash and due from banks, overnight interest-earning deposits and

-54-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

federal funds sold with original maturities of 90 days or less. The level of these assets is dependent on our operating, financing, lending, and investing activities during any given period. At September 30, 2022, cash and cash equivalents totaled $164.7 million, an increase of $83.0 million from December 31, 2021. We also held unencumbered securities available for sale totaling $576.0 million at September 30, 2022.

At September 30, 2022, the Bank was able to borrow up to $3,751.7 million from the FHLB-NY in Federal Home Loan Bank advances and letters of credit. As of September 30, 2022, the Bank had $2,233.3 million outstanding in combined balances of FHLB-NY advances and letters of credit. At September 30, 2022, the Bank also had unsecured lines of credit with other commercial banks totaling $958 million, and an outstanding amount of $150.0 million. In addition, at September 30, 2022, the Holding Company had subordinated debentures with a principal balance totaling $190.0 million and junior subordinated debentures with a face amount of $61.9 million and a carrying amount of $49.8 million. Management believes its available sources of funds are sufficient to fund current operations.

INTEREST RATE RISK

Economic Value of Equity Analysis. 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 fluctuate 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 quantifies the net portfolio value should interest rates immediately go up or down 100 or 200 basis points, assuming the yield curves of the rate shocks will be parallel to each other. 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. The changes in value are measured as percentage changes from the net portfolio value at the base interest rate scenario. The base interest rate scenario assumes interest rates at September 30, 2022. Various estimates regarding prepayment assumptions are made at each level of rate shock. At September 30, 2022, the Company was within the guidelines set forth by the Board of Directors for each interest rate level.

The following table presents the Company’s interest rate shock as of September 30, 2022:


	Projected Percentage Change In
Change in Interest Rate	Net Portfolio Value		Net Portfolio Value Ratio
-200 Basis points	7.8	%	15.2	%
-100 Basis points	4.5		15.1
Base interest rate	—		14.7
+100 Basis points	(6.1)		14.1
+200 Basis points	(12.2)		13.5

Income Simulation Analysis. 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 provides a report for review by the ALCO Investment Committee of the Board of Directors. This report quantifies the potential changes in net interest income through various interest rate scenarios.

The starting point for the net interest income simulation is an estimate of the next twelve month’s net interest income assuming that both interest rates and the Company’s interest-sensitive assets and liabilities remain at period-end levels.

-55-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

The report quantifies the potential changes in net interest income should interest rates go up or down 100 or 200 basis points (shocked), assuming the yield curves of the rate shocks will be parallel to each other. All changes in income are measured as percentage changes from the projected net interest income at the base interest rate scenario. The base interest rate scenario assumes interest rates at September 30, 2022. 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.

The following table presents the Company’s interest rate shock as of September 30, 2022:


	Projected Percentage Change In
Change in Interest Rate	Net Interest Income
-200 Basis points	9.8	%
-100 Basis points	5.6
Base interest rate	—
+100 Basis points	(8.9)
+200 Basis points	(17.8)

Another net interest income simulation assumes that changes in interest rates change gradually in equal increments over the twelve-month period. Prepayment penalty income is also excluded from this analysis. Based on these assumptions, net interest income would be reduced by 4.9% from a 100 basis point increase in rates over the next twelve months. Actual results could differ significantly from these estimates.

At September 30 2022, the Company had a derivative portfolio with a notional value totaling $1.4 billion. This portfolio is designed to provide protection against rising interest rates. See Note 11 (“Derivative Financial Instruments”) of the Notes to the Consolidated Financial Statements.

A portion of this portfolio is comprised of interest rate swaps on certain short-term advances and brokered deposits totaling $871.5 million. At September 30, 2022, $591.5 million of the interest rate swaps are effective swaps at a weighted average rate of approximately 1.74% that largely mature by early 2024 and $280.0 million of the interest rate swaps are forward swaps effective at different points through 2023 and 2024, at an average rate of 0.72%.

The net interest income simulation incorporates the next twelve months (through September 30, 2023) and only a portion of the effective swap maturities and the forward starting swaps are included in this period. Assuming another equal increment ramp of 100 basis points increase in rates in the second year (through September 30, 2024), for a total of 200 basis points over two years, the total derivative portfolio has a 1.8% benefit to net interest income (versus the base case) in the first year and a cumulative benefit of 4.6% by the second year..

-56-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

AVERAGE BALANCES

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the relative amount of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them. The following tables sets forth certain information relating to the Company’s Consolidated Statements of Financial Condition and Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021, and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average balances are derived from average daily balances. The yields include amortization of fees which are considered adjustments to yields.


	For the three months ended September 30,
	2022						2021
	Average				Yield/		Average				Yield/
	Balance		Interest		Cost		Balance		Interest		Cost

Assets	(Dollars in thousands)
Interest-earning assets:
Mortgage loans, net	$	5,340,694	$	58,374	4.37	%	$	5,158,213	$	55,114	4.27	%
Other loans, net		1,520,769		17,172	4.52			1,475,088		14,084	3.82
Total loans, net^{(1) (2)}		6,861,463		75,546	4.40			6,633,301		69,198	4.17
Taxable securities:
Mortgage-backed securities		568,854		2,466	1.73			590,732		2,279	1.54
Other securities		362,629		2,839	3.13			217,763		1,008	1.85
Total taxable securities		931,483		5,305	2.28			808,495		3,287	1.63
Tax-exempt securities: ⁽³⁾
Other securities		67,211		492	2.93			50,832		539	4.24
Total tax-exempt securities		67,211		492	2.93			50,832		539	4.24
Interest-earning deposits and federal funds sold		118,913		506	1.70			115,689		42	0.15
Total interest-earning assets		7,979,070		81,849	4.10			7,608,317		73,066	3.84
Other assets		463,587						464,601
Total assets	$	8,442,657					$	8,072,918
Liabilities and Equity
Interest-bearing liabilities
Deposits:
Savings accounts	$	154,545		53	0.14		$	153,120		61	0.16
NOW accounts		1,808,608		3,640	0.81			2,107,866		1,227	0.23
Money market accounts		2,136,829		5,280	0.99			2,107,473		1,683	0.32
Certificate of deposit accounts		1,057,733		2,948	1.11			1,037,964		1,734	0.67
Total due to depositors		5,157,715		11,921	0.92			5,406,423		4,705	0.35
Mortgagors' escrow accounts		68,602		44	0.26			68,562		—	—
Total deposits		5,226,317		11,965	0.92			5,474,985		4,705	0.34
Borrowed funds		1,326,770		8,574	2.58			835,874		4,884	2.34
Total interest-bearing liabilities		6,553,087		20,539	1.25			6,310,859		9,589	0.61
Non-interest-bearing deposits		1,050,296						933,443
Other liabilities		164,992						169,328
Total liabilities		7,768,375						7,413,630
Equity		674,282						659,288
Total liabilities and equity	$	8,442,657					$	8,072,918
Net interest income / net interest rate spread (tax equivalent) ⁽³⁾			$	61,310	2.85	%			$	63,477	3.23	%
Net interest-earning assets / net interest margin(tax equivalent)	$	1,425,983			3.07	%	$	1,297,458			3.34	%
Ratio of interest-earning assets to interest-bearing liabilities					1.22	X					1.21	X

(1)

Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $1.6 million and $3.4 million for the three months ended September 30, 2022 and 2021, respectively.

(2)

Loan interest income includes net (losses) gains from fair value adjustments on qualifying hedges of ($28,000) and $0.2 million for three month periods ended September 30, 2022 and 2021.

-57-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

(3)

Interest and yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented totaling $0.1 million each for the three months ended September 30, 2022 and 2021.


	For the nine months ended September 30,
	2022						2021
	Average				Yield/		Average				Yield/
	Balance		Interest		Cost		Balance		Interest		Cost

Assets	(Dollars in thousands)
Interest-earning assets:
Mortgage loans, net	$	5,224,289	$	167,119	4.27	%	$	5,148,204	$	163,320	4.23	%
Other loans, net		1,470,239		45,135	4.09			1,525,105		42,898	3.75
Total loans, net^{(1) (2)}		6,694,528		212,254	4.23			6,673,309		206,218	4.12
Taxable securities:
Mortgage-backed securities		581,439		6,989	1.60			534,836		6,210	1.55
Other securities		308,008		6,048	2.62			249,899		3,008	1.60
Total taxable securities		889,447		13,037	1.95			784,735		9,218	1.57
Tax-exempt securities: ⁽³⁾
Other securities		64,081		1,708	3.55			50,830		1,604	4.21
Total tax-exempt securities		64,081		1,708	3.55			50,830		1,604	4.21
Interest-earning deposits and federal funds sold		116,817		716	0.82			179,480		129	0.10
Total interest-earning assets		7,764,873		227,715	3.91			7,688,354		217,169	3.77
Other assets		471,197						472,767
Total assets	$	8,236,070					$	8,161,121
Liabilities and Equity
Interest-bearing liabilities
Deposits:
Savings accounts	$	155,966		152	0.13		$	158,708		202	0.17
NOW accounts		1,977,621		5,838	0.39			2,182,660		4,432	0.27
Money market accounts		2,206,973		8,507	0.51			2,019,497		5,843	0.39
Certificate of deposit accounts		923,301		5,510	0.80			1,061,293		5,869	0.74
Total due to depositors		5,263,861		20,007	0.51			5,422,158		16,346	0.40
Mortgagors' escrow accounts		79,192		52	0.09			75,171		3	0.01
Total deposits		5,343,053		20,059	0.50			5,497,329		16,349	0.40
Borrowed funds		1,028,489		17,882	2.32			942,599		15,188	2.15
Total interest-bearing liabilities		6,371,542		37,941	0.79			6,439,928		31,537	0.65
Non-interest-bearing deposits		1,032,319						904,522
Other liabilities		160,621						175,317
Total liabilities		7,564,482						7,519,767
Equity		671,588						641,354
Total liabilities and equity	$	8,236,070					$	8,161,121
Net interest income / net interest rate spread (tax equivalent) ⁽³⁾			$	189,774	3.12	%			$	185,632	3.12	%
Net interest-earning assets / net interest margin(tax equivalent)	$	1,393,331			3.26	%	$	1,248,426			3.22	%
Ratio of interest-earning assets to interest-bearing liabilities					1.22	X					1.19	X

(1)

Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $6.8 million and $8.2 million for the nine months ended September 30, 2022 and 2021, respectively.

(2)

Loan interest income includes net gains (losses) from fair value adjustments on qualifying hedges of ($0.2) million and $1.0 million for the nine months ended September 30, 2022 and 2021, respectively.

(3)

Interest and yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented totaling $0.4 million and $0.3 million for the nine months ended September 30, 2022 and 2021.

-58-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

LOANS

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


	For the nine months ended September 30,
(In thousands)	2022		2021

Mortgage Loans
At beginning of period	$	5,200,782	$	5,228,271
Mortgage loans originated:
Multi-family residential		409,086		167,316
Commercial real estate		287,705		89,678
One-to-four family mixed-use property		33,109		28,670
One-to-four family residential		17,550		7,434
Construction		21,999		11,865
Total mortgage loans originated		769,449		304,963

Mortgage loans purchased:
One-to-four family mixed-use property		—		13,888
One-to-four family residential		—		57,952
Construction		2,292		9,226
Total mortgage loans purchased		2,292		81,066

Less:
Principal reductions		555,959		406,720
Mortgage loan sales		29,024		23,895
Charge-offs		2		139
At end of period	$	5,387,538	$	5,183,546

Non-mortgage loans
At beginning of period	$	1,433,084	$	1,473,358
Loans originated:
Small Business Administration ⁽¹⁾		2,796		143,093
Commercial business		314,315		247,025
Other		2,660		3,436
Total other loans originated		319,771		393,554

Non-mortgage loans purchased:
Commercial business		205,254		111,639
Total non-mortgage loans purchased		205,254		111,639

Less:
Principal reductions ⁽²⁾		397,520		530,020
Charge-offs ⁽³⁾		380		4,988
At end of period	$	1,560,209	$	1,443,543

(1)	Includes SBA PPP originations totaling $138.7 million for the nine months ended September 30, 2021.

(2)	Includes SBA PPP reductions totaling $67.8 million and $159.8 million for the nine months ended September 30, 2022 and 2021, respectively.

(3)	Does not include charge-offs totaling $1.0 million on the guaranteed portion of SBA receivables deemed uncollectible during the nine months ended September 30, 2022.

-59-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

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

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


	September 30,		December 31,
(In thousands)	2022		2021
Accrual Status:
Multi-family residential	$	1,677	$	1,690
Commercial real estate		7,572		7,572
One-to-four family - mixed-use property		987		1,375
One-to-four family - residential		257		483
Commercial business and other		1,132		1,340
Total		11,625		12,460

Non-Accrual Status:
One-to-four family - mixed-use property		250		261
Commercial business and other		2,928		41
Total		3,178		302
Total performing troubled debt restructured	$	14,803	$	12,762

-60-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

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



	September 30,			December 31,
(In thousands)	2022			2021

Loans 90 days or more past due and still accruing:
Commercial Business and other	$	2,000		$	—
Total		2,000			—
Non-accrual loans:
Multi-family residential		3,414			2,431
Commercial real estate		1,851			613
One-to-four family - mixed-use property ⁽¹⁾		790			1,309
One-to-four family - residential		4,655			7,725
Construction		—			—
Small business administration		937			937
Commercial Business and other ⁽¹⁾		15,356			1,918
Total		27,003			14,933
Total non-performing loans		29,003			14,933
Other non-performing assets:
Held-to-maturity securities		20,981			—
Total		20,981			—

Total non-performing assets	$	49,984		$	14,933

Non-performing assets to total assets		0.58	%		0.19	%
ACL - loans to non-accrual loans		142.29	%		248.66	%
ACL - loans to non-performing assets		82.56	%		248.66	%

(1) Not included in the above analysis are the following non-accrual TDRs that are performing according to their restructured terms: one-to-four family mixed-use property loans totaling $0.3 million at both September 30, 2022 and December 31, 2021, respectively, and commercial business loans totaling $5.9 million and less than $0.1 million at September 30, 2022 and December 31, 2021, respectively.

CRITICIZED AND CLASSIFIED ASSETS

Our policy is to review our assets, focusing primarily on the loan portfolio, other real estate owned, and the investment portfolios, to ensure that credit quality is maintained at the highest levels. See Note 5 (“Loans”) of the Notes to the Consolidated Financial Statements for a description of how loans are determined to be criticized or classified and a table displaying criticized and classified loans at September 30, 2022 and December 31, 2021. Our total Criticized and Classified assets were $82.7 million at September 30, 2022, an increase of $4.1 million from $78.6 million at December 31, 2021. The Company had one investment security with an amortized cost of $21.0 million classified as substandard at September 30, 2022. This same security was reported as special mention at December 31, 2021.

-61-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

ALLOWANCE FOR CREDIT LOSSES

The following table shows allowance for credit losses at the period indicated:


	For the nine months ended September 30,
(In thousands)		2022		2021

Balance at beginning of period	$	37,135	$	45,153
Loans- Charge-off		(1,410)		(5,127)
Loans- Recovery		686		1,979
Loans- Provision		4,857		(5,642)
Allowance for Credit Losses - Loans	$	41,268	$	36,363


Balance at beginning of period	$	862	$	907
HTM Securities- Provision (Benefit)		234		(64)
Allowance for HTM Securities losses	$	1,096	$	843


Balance at beginning of period	$	1,209	$	1,815
Off-Balance Sheet- (Benefit) Provision		(396)		(504)
Allowance for Off-Balance Sheet losses	$	813	$	1,311

Allowance for Credit Losses	$	43,177	$	38,517

-62-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

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


	For the nine months ended September 30,
(Dollars in thousands)	2022			2021

Balance at beginning of year	$	37,135		$	45,153
Provision (Benefit) for credit losses		4,857			(5,642)

Loans charged-off:
Multi-family residential		—			(43)
Commercial real estate		—			(64)
One-to-four family mixed-use property		(2)			(32)
SBA		(1,054)			—
Taxi medallion		—			(2,758)
Commercial business and other loans		(354)			(2,230)
Total loans charged-off		(1,410)			(5,127)

Recoveries:
Multi-family residential		1			10
One-to-four family - mixed-use property		—			133
One-to-four family - residential		4			154
Small Business Administration		38			27
Taxi medallion		447			1,457
Commercial business and other		196			198
Total recoveries		686			1,979

Net charge-offs		(724)			(3,148)
Balance at end of year	$	41,268		$	36,363

Ratio of net charge-offs to average loans outstanding during the period		0.01	%		0.06	%
Ratio of ACL - loans to gross loans at end of period		0.59	%		0.31	%
Ratio of ACL - loans to non-performing loans at end of period		142.29	%		179.86	%

The increase in non-performing assets is due to two relationships. One of the loan relationships is collateralized by non-real estate collateral, including credit insurance. The non-performing investment security and attendant loan are collateralized by a commercial property located in Manhattan with a combined LTV of approximately 63%.

-63-

Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

The Company carried out, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2022, 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.

-64-

Table of Contents

PART II – OTHER INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

Except as set forth below there 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, 2021.

Changes in Interest Rates, Including Recent and Perhaps Future Increases Fueled by Inflation, May Significantly Impact Our Financial Condition and Results of Operations

Our primary source of income is net interest income, which is the difference between the interest income generated by our interest-earning assets (consisting primarily of multi-family residential loans, commercial business loans and commercial real estate mortgage loans) and the interest expense generated by our interest-bearing liabilities (consisting primarily of deposits). The level of net interest income is primarily a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by such external factors as the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the FRB (the “FOMC”), and market interest rates.

It is currently expected that during the remainder of 2022, and perhaps beyond, the FOMC will increase interest rates to reduce the rate of inflation to the extent necessary to reduce inflation to the rate that the FOMC believes is appropriate. In March 2022, the FOMC commenced increasing the target range for the federal funds rate by implementing a 25-basis point increase to a range of 0.25% to 0.50%. In May 2022, the FOMC implemented a 50-basis point increase to a range of 0.75% to 1.00%. In June 2022, the FOMC implemented a 75-basis point increase to a range of 1.50% to 1.75%. In July 2022, the FOMC implemented a 75-basis point increase to a rate of 2.25% to 2.50%. In September 2022, the FOMC implemented a 75-basis point increase to a rate of 3.00% to 3.25%. At its most recent meeting, in November 2022, the FOMC further added a 75-basis point increase to a range of 3.75% to 4.00%. All of these increases were expressly made in response to inflationary pressures, which are currently expected to continue. In its October 2022 “Beige Book”, the FRB noted that national economic activity had expanded at a modest pace on net since the previous report, while conditions varied across industries and districts. Rising mortgage rates and elevated housing prices further weakened single-family starts, while commercial real estate slowed in both construction and sales amid supply shortages and elevated construction and borrowing costs, and there were scattered reports of declining property prices. More locally, the New York district, the district in which the Company’s primary operations are located, stated economic activity continued to contract at a modest pace and that conditions in the broad finance sector deteriorated, and regional banks reported widening loan spreads and weakening loan demand.

There can be no assurances as to any future FOMC conduct. If the FOMC further increases the targeted federal funds rates, overall interest rates likely will rise, which will positively impact our interest income but may further negatively impact the entire national economy, including the housing industry in the markets we serve, by reducing refinancing activity and new home purchases. In addition, deflationary pressures, while possibly lowering our operational costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of collateral securing loans, which could negatively affect our financial performance. A significant portion of our loans have fixed interest rates (or, if adjustable, are initially fixed for periods of five to 10 years) and longer terms than our deposits and borrowings. Our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans. Our interest rate risk is exacerbated in the short term by the fact that approximately 69% of our certificates of deposit accounts and borrowings will reprice or mature during the next year. While the higher payments we would receive on adjustable-rate loans in a rising interest rate environment may increase our interest income, nonetheless (notwithstanding our stress testing) some borrowers ultimately may be unable to afford

-65-

Table of Contents

PART II – OTHER INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

the higher payment amounts, which could result in a higher rate of default. Rising interest rates also may reduce the demand for loans and the value of fixed-rate investment securities. These effects from interest rate changes or from other sustained economic stress or a recession, among other matters, could have a material adverse effect on our business, financial condition, liquidity, and results of operations.

As a result of our historical focus on the origination of multi-family residential mortgage loans, commercial business loans and commercial real estate mortgage loans, most of our loans are adjustable rate, however, many adjust at periods of five to 10 years. In addition, a large percentage of our investment securities and mortgage-backed securities have fixed interest rates and are classified as available for sale. As is the case with many financial institutions, our emphasis on increasing the development of core deposits, those with no stated maturity date, has resulted in our interest-bearing liabilities having a shorter duration than our interest-earning assets. This imbalance can create significant earnings volatility because interest rates change over time. As interest rates increase, including as noted above, our cost of funds will increase more rapidly than the yields on a substantial portion of our interest-earning assets. In addition, the market value of our fixed-rate assets for example, our investment and mortgage-backed securities portfolios, would decline if interest rates increase. In line with the foregoing, we have experienced and may continue to experience an increase in the cost of interest-bearing liabilities primarily due to raising the rates we pay on some of our deposit products to stay competitive within our market and an increase in borrowing costs from increases in the federal funds rate.

Prevailing interest rates also affect the extent to which borrowers repay and refinance loans. In a declining interest rate environment, the number of loan prepayments and loan refinancing may increase, as well as prepayments of mortgage-backed securities. Call provisions associated with our investment in U.S. government agency and corporate securities may also adversely affect yield in a declining interest rate environment. Such prepayments and calls may adversely affect the yield of our loan portfolio and mortgage-backed and other securities as we reinvest the prepaid funds in a lower interest rate environment. However, we typically receive additional loan fees when existing loans are refinanced, which partially offset the reduced yield on our loan portfolio resulting from prepayments. In periods of low interest rates, our level of core deposits also may decline if depositors seek higher-yielding instruments or other investments not offered by us, which in turn may increase our cost of funds and decrease our net interest margin to the extent alternative funding sources are utilized. An increasing interest rate environment would tend to extend the average lives of lower yielding fixed rate mortgages and mortgage-backed securities, which could adversely affect net interest income. Also, in an increasing interest rate environment, mortgage loans and mortgage-backed securities may prepay at slower rates than experienced in the past, which could result in a reduction of prepayment penalty income. In addition, depositors tend to open longer term, higher costing certificate of deposit accounts which could adversely affect our net interest income if rates were to subsequently decline. Additionally, adjustable-rate mortgage loans and mortgage-backed securities generally contain interim and lifetime caps that limit the amount the interest rate can increase or decrease at repricing dates. Significant increases in prevailing interest rates may significantly affect demand for loans and the value of bank collateral. See “— Local Economic Conditions” disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2021.

-66-

Table of Contents

PART II – OTHER INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

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 September 30, 2022:


					Maximum
				Total Number of	Number of
	Total			Shares Purchased	Shares That May
	Number			as Part of Publicly	Yet Be Purchased
	of Shares	Average Price		Announced Plans	Under the Plans
Period	Purchased	Paid per Share		or Programs	or Programs
July 1 to July 31, 2022	—	$	—	—	1,100,498
August 1 to August 31, 2022	—		—	—	1,100,498
September 1 to September 30, 2022	131,174		20.47	131,174	969,324
Total	131,174	$	22.01	131,174

During the quarter ended September 30, 2022, the Company repurchased 131,174 shares of the Company’s common stock. On September 30, 2022, 969,324 shares remained to be repurchased under the currently authorized stock repurchase programs. Stock will be purchased under the current stock repurchase programs from time to time, in the open market or through private transactions, subject to market conditions. There is no expiration or maximum dollar amount under these authorizations.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

-67-

Table of Contents

PART II – OTHER INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

ITEM 6. EXHIBITS


Exhibit No.		Description

3.1 P		Certificate of Incorporation of Flushing Financial Corporation (1)
3.2		Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (3)
3.3		Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (5)
3.4		Certificate of Designations of Series A Junior Participating Preferred Stock of Flushing Financial Corporation (4)
3.5		Certificate of Increase of Shares Designated as Series A Junior Participating Preferred Stock of Flushing Financial Corporation (2)
3.6		Amended and Restated By-Laws of Flushing Financial Corporation (6)
4.1		Indenture dated November 22, 2021, between Flushing Financial Corporation and Wilmington Trust, National Association, as trustee. (8)
4.2		First Supplemental Indenture, dated November 22, 2021, between Flushing Financial Corporation and Wilmington Trust, National Association, as trustee. (8)
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.
4.4		First Supplemental Indenture, dated August 24, 2022, between Flushing Financial Corporation and Wilmington Trust, National Association, as trustee. (9)
10.1		Amended Flushing Financial Corporation 2014 Omnibus Plan (7)
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		Inline XBRL Instance Document -the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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

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

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

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

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

September 30, 2002.

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

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

(7)	Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2021.

(8)	Incorporated by reference to Exhibits filed with Form 8-K filed November 22, 2021.

(9)	Incorporated by reference to Exhibits filed with Form 8-K filed August 24, 2022.

-68-

Table of Contents

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

EXHIBIT INDEX


Exhibit No.		Description

3.1 P		Certificate of Incorporation of Flushing Financial Corporation (1)
3.2		Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (3)
3.3		Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (5)
3.4		Certificate of Designations of Series A Junior Participating Preferred Stock of Flushing Financial Corporation (4)
3.5		Certificate of Increase of Shares Designated as Series A Junior Participating Preferred Stock of Flushing Financial Corporation (2)
3.6		Amended and Restated By-Laws of Flushing Financial Corporation (6)
4.1		Indenture dated November 22, 2021, between Flushing Financial Corporation and Wilmington Trust, National Association, as trustee. (8)
4.2		First Supplemental Indenture, dated November 22, 2021, between Flushing Financial Corporation and Wilmington Trust, National Association, as trustee. (8)
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.
4.4		First Supplemental Indenture, dated August 24, 2022, between Flushing Financial Corporation and Wilmington Trust, National Association, as trustee. (9)
10.1		Amended Flushing Financial Corporation 2014 Omnibus Plan (7)
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		Inline XBRL Instance Document -the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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

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

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

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

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

September 30, 2002.

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

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

(7)	Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2021.

(8)	Incorporated by reference to Exhibits filed with Form 8-K filed November 22, 2021.

(9)	Incorporated by reference to Exhibits filed with Form 8-K filed August 24, 2022.

-69-

Table of Contents

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

SIGNATURES

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

		Flushing Financial Corporation,



Dated:	November 8, 2022	By:	/s/John R. Buran
			John R. Buran
			President and Chief Executive Officer



Dated:	November 8, 2022	By:	/s/Susan K. Cullen
			Susan K. Cullen
			Senior Executive Vice President, Treasurer and
			Chief Financial Officer

-70-