FLUSHING FINANCIAL CORP - Quarter Report: 2023 September (Form 10-Q)

December 31, 2022

(Dollars in thousands)

of contracts

Commercial business and other

Total troubled debt restructurings that subsequently defaulted

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, 2023

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, 2023 was 28,904,625.

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	47
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	66
ITEM 4. Controls and Procedures	66
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings	67
ITEM 1A. Risk Factors	67
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

(Unaudited)

Item 1. Financial Statements


	September 30,		December 31,
	2023		2022

	(Dollars in thousands, except per share data)
Assets
Cash and due from banks	$	200,926	$	151,754
Securities held-to-maturity, net of allowance of $1,082 and $1,100, respectively (assets pledged of $4,319 and $4,550, respectively; fair value of $57,665 and $62,550, respectively)		73,131		73,711
Securities available for sale, at fair value (assets pledged of $141,852 and $172,235, respectively; $12,782 and $13,023 at fair value pursuant to the fair value option, respectively)		843,663		735,357
Loans, net of fees and costs		6,896,074		6,934,769
Less: Allowance for credit losses		(39,228)		(40,442)
Net loans		6,856,846		6,894,327
Interest and dividends receivable		55,660		45,048
Bank premises and equipment, net		21,302		21,750
Federal Home Loan Bank of New York stock, at cost		43,821		45,842
Bank owned life insurance		214,321		213,131
Goodwill		17,636		17,636
Core deposit intangibles		1,651		2,017
Right of use asset		41,404		43,289
Other assets		206,922		179,084
Total assets	$	8,577,283	$	8,422,946

Liabilities
Due to depositors:
Non-interest bearing	$	874,420	$	921,238
Interest-bearing		5,735,077		5,515,945
Total Due to depositors		6,609,497		6,437,183
Mortgagors' escrow deposits		72,012		48,159
Borrowed funds:
Federal Home Loan Bank advances and other borrowings		765,219		815,501
Subordinated debentures		187,462		186,965
Junior subordinated debentures, at fair value		48,329		50,507
Total borrowed funds		1,001,010		1,052,973
Operating lease liability		43,067		46,125
Other liabilities		182,556		161,349
Total liabilities		7,908,142		7,745,789

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; 28,904,625 shares and 29,476,391 shares outstanding, respectively)		341		341
Additional paid-in capital		264,486		264,332
Treasury stock, at average cost (5,182,998 shares and 4,611,232 shares, respectively)		(105,433)		(98,535)
Retained earnings		550,678		547,507
Accumulated other comprehensive loss, net of taxes		(40,931)		(36,488)
Total stockholders' equity		669,141		677,157

Total liabilities and stockholders' equity	$	8,577,283	$	8,422,946

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

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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,
	2023		2022		2023		2022

	(In thousands, except per share data)
Interest and dividend income
Interest and fees on loans	$	91,466	$	75,546	$	259,732	$	212,254
Interest and dividends on securities:
Interest		10,383		5,676		26,795		14,350
Dividends		33		17		92		36
Other interest income		2,154		506		6,095		716
Total interest and dividend income		104,036		81,745		292,714		227,356
Interest expense
Deposits		50,066		11,965		135,371		20,059
Other interest expense		9,543		8,574		24,276		17,882
Total interest expense		59,609		20,539		159,647		37,941
Net interest income		44,427		61,206		133,067		189,415
Provision for credit losses		596		2,145		9,520		5,093
Net interest income after provision for credit losses		43,831		59,061		123,547		184,322
Non-interest income
Banking services fee income		2,636		1,351		5,827		3,891
Net gain on sale of loans		—		—		108		73
Net (loss) gain from fair value adjustments		(1,246)		5,626		1,667		6,350
Federal Home Loan Bank of New York stock dividends		624		538		1,855		1,342
Life insurance proceeds		23		—		584		1,536
Bank owned life insurance		1,157		1,132		3,400		3,361
Other income		282		348		2,065		1,108
Total non-interest income		3,476		8,995		15,506		17,661
Non-interest expense
Salaries and employee benefits		17,825		21,438		58,205		66,196
Occupancy and equipment		3,371		3,541		10,698		10,905
Professional services		3,042		2,570		8,182		7,077
FDIC deposit insurance		912		738		2,832		1,773
Data processing		1,422		1,367		4,330		4,174
Depreciation and amortization of bank premises and equipment		1,482		1,488		4,474		4,395
Other real estate owned / foreclosure expense		185		143		500		259
Other operating expenses		6,176		4,349		18,176		15,171
Total non-interest expense		34,415		35,634		107,397		109,950
Income before income taxes		12,892		32,422		31,656		92,033
Provision for income taxes
Federal		2,435		5,783		5,996		16,042
State and local		1,058		3,197		2,475		9,295
Total provision for income taxes		3,493		8,980		8,471		25,337
Net income	$	9,399	$	23,442	$	23,185	$	66,696

Basic earnings per common share	$	0.32	$	0.76	$	0.77	$	2.15
Diluted earnings per common share	$	0.32	$	0.76	$	0.77	$	2.15
Dividends per common share	$	0.22	$	0.22	$	0.66	$	0.66

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

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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,
	2023		2022		2023		2022

	(In thousands)
Net income	$	9,399	$	23,442	$	23,185	$	66,696
Other comprehensive income (loss), net of tax:
Amortization of actuarial gains, net of taxes of $31 and $2, respectively, and of $93 and ($1), respectively.		(69)		(4)		(207)		(19)
Amortization of prior service credits, net of taxes of $2 and $ - for the three and nine months ended September 30, 2022.		—		(5)		—		(21)
Change in net unrealized gains on securities, net of taxes of $2,423 and $10,266, respectively, and of $2,516 and $29,925, respectively.		(5,398)		(22,797)		(5,815)		(66,658)
Net unrealized gains on cashflow hedges, net of taxes of ($132) and ($3,668), respectively, and of ($624) and ($12,544), respectively.		294		8,190		1,473		27,856
Change in fair value of liabilities related to instrument-specific credit risk, net of taxes of ($116) and $184, respectively, and of ($47) and $389, respectively.		261		(414)		106		(768)
Other comprehensive loss, net of tax:		(4,912)		(15,030)		(4,443)		(39,610)
Comprehensive net income	$	4,487	$	8,412	$	18,742	$	27,086

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

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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,
	2023		2022

	(In thousands)
Operating Activities
Net income	$	23,185	$	66,696
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		9,520		5,093
Depreciation and amortization of premises and equipment		4,474		4,395
Net gain on sales of loans		(108)		(73)
Net amortization of premiums and discounts		2,159		309
Deferred income tax provision		2,798		3,914
Net gain from fair value adjustments		(1,667)		(6,350)
Net loss from fair value adjustments of qualifying hedges		112		161
Gain from life insurance proceeds		(584)		(1,536)
Income from bank owned life insurance		(3,400)		(3,361)
Stock-based compensation expense		5,556		6,230
Deferred compensation		(2,957)		(4,870)
Amortization of core deposit intangibles		366		415
(Increase) decrease in other assets		(16,619)		6,998
Decrease in other liabilities		(11,505)		(13,294)
Net cash provided by operating activities		11,330		64,727
Investing Activities
Purchases of premises and equipment		(4,026)		(3,433)
Purchases of Federal Home Loan Bank - NY shares		(114,436)		(124,309)
Redemptions of Federal Home Loan Bank - NY shares		116,457		97,757
Purchases of securities held-to-maturity		—		(16,475)
Proceeds from prepayments of securities held-to-maturity		593		190
Purchases of securities available for sale		(171,934)		(222,810)
Proceeds from maturities and prepayments of securities available for sale		46,762		80,503
Proceeds from bank owned life insurance		3,075		3,307
Change in cash collateral		25,800		44,015
Net repayments (originations) of loans		134,166		(173,311)
Purchases of loans		(120,720)		(207,546)
Proceeds from sale of loans		9,042		29,247
Net cash used in investing activities		(75,221)		(492,865)

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Cash Flows (Contd.)

(Unaudited)



	For the nine months ended September 30,
		2023		2022

	(In thousands)
Financing Activities
Net (decrease) increase in noninterest-bearing deposits	$	(46,818)	$	24,757
Net increase (decrease) in interest-bearing deposits		218,624		(253,478)
Net increase in mortgagors' escrow deposits		23,853		18,631
Net (repayments) proceeds from short-term borrowed funds		(285,750)		750,000
Proceeds from long-term borrowing		274,469		63,710
Repayment of long-term borrowings		(39,001)		(50,000)
Purchase of treasury shares and repurchase of shares to satisfy tax obligations		(12,528)		(22,117)
Cash dividends paid		(19,786)		(20,395)
Net cash provided by financing activities		113,063		511,108
Net increase in cash and cash equivalents, and restricted cash		49,172		82,970
Cash, cash equivalents, and restricted cash, beginning of period		151,754		81,723
Cash, cash equivalents, and restricted cash, end of period	$	200,926	$	164,693
Supplemental Cash Flow Disclosure
Interest paid	$	154,896	$	32,459
Income taxes paid		6,272		24,559
Taxes paid if excess tax benefits on stock-based compensation were not tax deductible		6,274		25,142

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

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Equity

(Unaudited)


							Additional						Accumulated Other
		Shares			Common		Paid-in		Treasury		Retained		Comprehensive
(Dollars in thousands, except per share data)	Outstanding		Total		Stock		Capital		Stock		Earnings		Income (Loss)
Balance at December 31, 2022		29,476,391	$	677,157	$	341	$	264,332	$	(98,535)	$	547,507	$	(36,488)

Net income		—		5,158		—		—		—		5,158		—
Vesting of restricted stock unit awards		256,798		—		—		(5,264)		5,484		(220)		—
Purchase of treasury shares		(159,516)		(3,053)		—		—		(3,053)		—		—
Stock-based compensation expense		—		3,808		—		3,808		—		—		—
Repurchase of shares to satisfy tax obligation		(85,217)		(1,656)		—		—		(1,656)		—		—
Dividends on common stock ($0.22 per share)		—		(6,659)		—		—		—		(6,659)		—
Other comprehensive loss		—		(1,296)		—		—		—		—		(1,296)
Balance at March 31, 2023		29,488,456	$	673,459	$	341	$	262,876	$	(97,760)	$	545,786	$	(37,784)
Net income		—		8,628		—		—		—		8,628		—
Vesting of restricted stock unit awards		1,690		—		—		(30)		35		(5)		—
Purchase of treasury shares		(528,815)		(6,841)		—		—		(6,841)		—		—
Stock-based compensation expense		—		898		—		898		—		—		—
Repurchase of shares to satisfy tax obligation		(612)		(8)		—		—		(8)		—		—
Dividends on common stock ($0.22 per share)		—		(6,598)		—		—		—		(6,598)		—
Other comprehensive income		—		1,765		—		—		—		—		1,765
Balance at June 30, 2023		28,960,719	$	671,303	$	341	$	263,744	$	(104,574)	$	547,811	$	(36,019)
Net income		—		9,399		—		—		—		9,399		—
Vesting of restricted stock unit awards		5,430		—		—		(108)		111		(3)		—
Purchase of treasury shares		(59,352)		(942)		—		—		(942)		—		—
Stock-based compensation expense		—		850		—		850		—		—		—
Repurchase of shares to satisfy tax obligation		(2,172)		(28)		—		—		(28)		—		—
Dividends on common stock ($0.22 per share)		—		(6,529)		—		—		—		(6,529)		—
Other comprehensive loss		—		(4,912)		—		—		—		—		(4,912)
Balance at September 30, 2023		28,904,625	$	669,141	$	341	$	264,486	$	(105,433)	$	550,678	$	(40,931)

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

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

(Unaudited)


							Additional						Accumulated Other
		Shares			Common		Paid-in		Treasury		Retained		Comprehensive
(Dollars in thousands, except per share data)	Outstanding		Total		Stock		Capital		Stock		Earnings		Loss
Balance at December 31, 2021		30,526,353	$	679,628	$	341	$	263,375	$	(75,293)	$	497,889	$	(6,684)

Net income		—		18,219		—		—		—		18,219		—
Award of common shares released from Employee Benefit Trust		—		287		—		287		—		—		—
Vesting of restricted stock unit awards		297,626		—		—		(6,019)		6,304		(285)		—
Purchase of treasury shares		(360,000)		(8,469)		—		—		(8,469)		—		—
Stock-based compensation expense		—		4,194		—		4,194		—		—		—
Repurchase of shares to satisfy tax obligation		(97,435)		(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		30,366,544	$	675,813	$	341	$	261,837	$	(79,834)	$	508,973	$	(15,504)
Net Income				25,035		—		—		—		25,035		—
Vesting of restricted stock unit awards		2,015		—		—		(38)		43		(5)		—
Purchase of treasury shares		(387,689)		(8,534)		—		—		(8,534)		—		—
Stock-based compensation expense		—		1,061		—		1,061		—		—		—
Repurchase of shares to satisfy tax obligation		(766)		(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		29,980,104	$	670,812	$	341	$	262,860	$	(88,342)	$	527,217	$	(31,264)
Net Income				23,442		—		—		—		23,442		—
Vesting of restricted stock unit awards		3,995		—		—		(80)		86		(6)		—
Stock-based compensation expense				975		—		975		—		—		—
Repurchase of shares to satisfy tax obligation		(1,672)		(36)		—		—		(36)		—		—
Purchase of treasury shares		(131,174)		(2,685)		—		—		(2,685)		—		—
Dividends on common stock ($0.22 per share)				(6,759)		—		—		—		(6,759)		—
Other comprehensive loss				(15,030)		—		—		—		—		(15,030)
Balance at September 30, 2022		29,851,253	$	670,719	$	341	$	263,755		(90,977)	$	543,894	$	(46,294)

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

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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 and FSB Properties Inc., which are collectively herein referred to as “we,” “us,” “our” and the “Company.”

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

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

The accompanying unaudited consolidated financial statements have been prepared in conformity with the instructions to Quarterly Report on Form 10-Q and Article 10, Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

When necessary, certain reclassifications were made to prior-year amounts to conform to the current-year presentation. Such reclassifications had no effect on the 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. Management performed a qualitative review of goodwill at September 30, 2023, concluding no impairment was indicated.

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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,
	2023			2022			2023			2022

	(Dollars in thousands, except per share data)
Net income, as reported	$	9,399		$	23,442		$	23,185		$	66,696
Divided by:
Total weighted average common shares outstanding and common stock equivalents ⁽¹⁾		29,703			30,695			30,017			30,960

Basic earnings per common share	$	0.32		$	0.76		$	0.77		$	2.15
Diluted earnings per common share	$	0.32		$	0.76		$	0.77		$	2.15
Dividend Payout ratio		68.8	%		28.9	%		85.7	%		30.7	%

(1) For the three and nine months ended September 30, 2023, and 2022, there were no common stock equivalents that were anti-dilutive.

4. Securities

The following table summarizes the Company’s portfolio of securities held-to-maturity on September 30, 2023:


					Gross		Gross
	Amortized				Unrecognized		Unrecognized
	Cost		Fair Value		Gains		Losses

	(In thousands)
Municipals	$	66,353	$	51,031	$	—	$	15,322
Total municipals		66,353		51,031		—		15,322

FNMA		7,860		6,634		—		1,226
Total mortgage-backed securities		7,860		6,634		—		1,226

Allowance for credit losses		(1,082)		—		—		—
Total	$	73,131	$	57,665	$	—	$	16,548

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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 on December 31, 2022:


					Gross		Gross
	Amortized				Unrecognized		Unrecognized
	Cost		Fair Value		Gains		Losses

	(In thousands)
Municipals	$	66,936	$	55,561	$	—	$	11,375
Total municipals		66,936		55,561		—		11,375

FNMA		7,875		6,989		—		886
Total mortgage-backed securities		7,875		6,989		—		886

Allowance for credit losses		(1,100)		—		—		—
Total	$	73,711	$	62,550	$	—	$	12,261

The following table summarizes the Company’s portfolio of securities available for sale on September 30, 2023:


					Gross		Gross
	Amortized				Unrealized		Unrealized
	Cost		Fair Value		Gains		Losses

	(In thousands)
U.S. government agencies	$	83,037	$	81,481	$	138	$	1,694
Corporate		173,139		152,345		—		20,794
Mutual funds		11,066		11,066		—		—
Collateralized loan obligations		260,727		259,441		411		1,697
Other		1,451		1,451		—		—
Total other securities		529,420		505,784		549		24,185
REMIC and CMO		164,303		131,476		—		32,827
GNMA		8,678		6,542		1		2,137
FNMA		157,897		128,781		—		29,116
FHLMC		90,942		71,080		—		19,862
Total mortgage-backed securities		421,820		337,879		1		83,942
Total Securities excluding portfolio layer adjustments		951,240		843,663		550		108,127
Unallocated portfolio layer basis adjustments ⁽¹⁾		(7,721)		n/a		—		(7,721)
Total securities available for sale	$	943,519	$	843,663	$	550	$	100,406

(1) Represents the amount of portfolio layer method basis adjustments related to available for sale (“AFS”) securities hedged in a closed portfolio. Under GAAP portfolio layer method basis adjustments are not allocated to individual securities, however, the amounts impact the unrealized gains or losses for the individual securities being hedged. See Note 11 (“Derivative Financial Instruments”) of the Notes to the Consolidated Financial Statements.

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the Company’s portfolio of securities available for sale on December 31, 2022:


					Gross		Gross
	Amortized				Unrealized		Unrealized
	Cost		Fair Value		Gains		Losses

	(In thousands)
U.S. government agencies	$	83,720	$	81,103	$	2	$	2,619
Corporate		146,430		131,766		—		14,664
Mutual funds		11,211		11,211		—		—
Collateralized loan obligations		129,684		125,478		—		4,206
Other		1,516		1,516		—		—
Total other securities		372,561		351,074		2		21,489
REMIC and CMO		175,712		148,414		—		27,298
GNMA		9,193		7,317		3		1,879
FNMA		172,690		148,265		—		24,425
FHLMC		96,725		80,287		—		16,438
Total mortgage-backed securities		454,320		384,283		3		70,040
Total securities available for sale	$	826,881	$	735,357	$	5	$	91,529

The corporate securities held by the Company at September 30, 2023 and December 31, 2022, are issued by U.S. banking institutions. The CMOs held by the Company at September 30, 2023 and December 31, 2022, 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, 2023, 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	$	66,353	$	51,031
Total other securities		66,353		51,031
Mortgage-backed securities		7,860		6,634
		74,213		57,665

Allowance for credit losses		(1,082)		-
Total securities held-to-maturity	$	73,131	$	57,665

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Notes to Consolidated Financial Statements

(Unaudited)


	Amortized
Securities available for sale ⁽¹⁾:	Cost		Fair Value

	(In thousands)
Due in one year or less	$	59,934	$	58,951
Due after one year through five years		84,849		79,070
Due after five years through ten years		244,126		227,135
Due after ten years		129,445		129,562
Total other securities		518,354		494,718
Mutual funds		11,066		11,066
Mortgage-backed securities		421,820		337,879
Total securities available for sale	$	951,240	$	843,663

(1) The table above excludes the unallocated portfolio layer basis adjustments totaling $7.7 million related to AFS securities hedged in a closed portfolio at September 30, 2023. See Note 11 (“Derivative Financial Instruments”) of the Notes to the Consolidated Financial Statements.

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, 2023
		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	$	51,031	$	15,322	$	—	$	—	$	51,031	$	15,322
Total other securities	3		51,031		15,322		—		—		51,031		15,322

FNMA	1		6,634		1,226		—		—		6,634		1,226
Total mortgage-backed securities	1		6,634		1,226		—		—		6,634		1,226

Total	4	$	57,665	$	16,548	$	—	$	—	$	57,665	$	16,548

Available for sale securities ⁽¹⁾
U.S. Government Agencies & Treasury	8	$	74,192	$	1,694	$	5,316	$	26	$	68,876	$	1,668
Corporate	26		152,345		20,794		29,023		2,679		123,322		18,115
CLO	20		148,517		1,697		28,056		71		120,461		1,626
Total other securities	54		375,054		24,185		62,395		2,776		312,659		21,409

REMIC and CMO	46		131,210		32,827		—		—		131,210		32,827
GNMA	12		6,458		2,137		113		2		6,345		2,135
FNMA	47		128,781		29,116		2,085		101		126,696		29,015
FHLMC	18		71,080		19,862		—		—		71,080		19,862
Total mortgage-backed securities	123		337,529		83,942		2,198		103		335,331		83,839
Total	177	$	712,583	$	108,127	$	64,593	$	2,879	$	647,990	$	105,248

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


	At December 31, 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	$	55,561	$	11,375	$	55,561	$	11,375	$	—	$	—
Total other securities	3		55,561		11,375		55,561		11,375		—		—

FNMA	1		6,989		886		6,989		886		—		—
Total mortgage-backed securities	1		6,989		886		6,989		886		—		—

Total	4	$	62,550	$	12,261	$	62,550	$	12,261	$	—	$	—

Available for sale securities
U.S. government agencies	7	$	77,856	$	2,619	$	77,059	$	2,517	$	797	$	102
Corporate	20		131,766		14,664		45,447		3,553		86,319		11,111
CLO	19		125,478		4,206		95,518		2,916		29,960		1,290
Total other securities	46		335,100		21,489		218,024		8,986		117,076		12,503

REMIC and CMO	47		148,120		27,298		40,911		3,457		107,209		23,841
GNMA	8		7,133		1,879		64		—		7,069		1,879
FNMA	47		148,229		24,425		38,296		3,871		109,933		20,554
FHLMC	18		80,287		16,438		24,838		2,397		55,449		14,041
Total mortgage-backed securities	120		383,769		70,040		104,109		9,725		279,660		60,315
Total	166	$	718,869	$	91,529	$	322,133	$	18,711	$	396,736	$	72,818

The Company reviewed each available for sale security that had an unrealized loss at September 30, 2023, and December 31, 2022. 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 the U.S. government, and that issuers of the 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, 2023, and December 31, 2022 as part of its quarterly Current Expected Credit Loss (“CECL”) process, resulting in an allowance for credit losses of $1.1 million at each of September 30, 2023 and December 31, 2022.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

It is the Company’s policy to exclude accrued interest receivable from the calculation of the allowance for credit losses on held-to-maturity and the valuation of available for sale securities. Accrued interest receivable on held-to-maturity securities totaled $0.1 million each at September 30, 2023 and December 31, 2022 and accrued interest receivable on available for sale debt securities totaled $6.7 million and $3.7 million at September 30, 2023 and December 31, 2022, respectively.

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


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2023		2022		2023		2022

		(In thousands)
Beginning balance	$	1,079	$	1,085	$	1,100	$	862
Provision (benefit)		3		11		(18)		234
Allowance for credit losses	$	1,082	$	1,096	$	1,082	$	1,096

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, 2023 and 2022.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

5. Loans

The following represents the composition of loans as of the dates indicated:


	September 30,		December 31,
	2023		2022

	(In thousands)
Multi-family residential	$	2,614,219	$	2,601,384
Commercial real estate		1,953,243		1,913,040
One-to-four family ― mixed-use property		537,744		554,314
One-to-four family ― residential		222,874		241,246
Construction		59,903		70,951
Small Business Administration		21,896		23,275
Commercial business and other		1,487,775		1,521,548
Net unamortized premiums and unearned loan fees		9,059		9,011
Total loans, net of fees and costs excluding portfolio layer basis adjustments		6,906,713		6,934,769
Unallocated portfolio layer basis adjustments ⁽¹⁾		(10,639)		—
Total loans, net of fees and costs	$	6,896,074	$	6,934,769

(1) This amount represents portfolio layer method basis adjustments related to loans hedged in a closed portfolio. Under GAAP portfolio layer method basis adjustments are not allocated to individual loans, however, the amounts impact the net loan balance. These basis adjustments would be allocated to the amortized cost of specific loans within the pool if the hedge was de-designated. See Note 11 (“Derivative Financial Instruments”) of the Notes to the Consolidated Financial Statements.

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 an accrual basis. Accrued interest receivable totaled $42.1 million and $36.8 million at September 30, 2023, and December 31, 2022, 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,

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Notes to Consolidated Financial Statements

(Unaudited)

economic conditions, trends in delinquencies, value and adequacy of underlying collateral, volume and portfolio mix, and internal loan processes.

The Company recorded a provision for credit losses on loans totaling $0.6 million and $2.1 million for the three months ended September 30, 2023 and 2022, respectively. The provision recorded during the three months ended September 30, 2023, was driven by increasing reserves for the elevated risk presented by the current rate environment to adjustable-rate loan’s debt coverage ratios, partially offset by a fully reserved loan paid off during the quarter. The Company recorded a provision for credit losses on loans totaling $9.5 million and $4.9 million for the nine months ended September 30, 2023 and 2022, respectively. The provision recorded during the nine months ended September 30, 2023, was driven by fully reserving for two non-accrual business loans that were subsequently charged-off, and increasing reserves for the elevated risk presented by the current rate environment to adjustable-rate loan’s debt coverage ratios. During the nine months ended September 30, 2023, the reasonable and supportable forecast period and reversion period were two and four quarters, respectively unchanged, from December 31, 2022. The ACL - loans totaled $39.2 million on September 30, 2023 compared to $40.4 million on December 31, 2022. On September 30, 2023, the ACL - loans represented 0.57% of gross loans and 225.4% of non-performing loans. On December 31, 2022, the ACL - loans represented 0.58% of gross loans and 124.9% of non-performing loans.

The Company may modify 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. When modifying a loan, an assessment of whether a borrower is experiencing financial difficulty is made on the date of modification. This modification may include reducing the loan interest rate, extending the loan term, any other-than-insignificant payment delay, principal forgiveness or any combination of these types of modifications. When such modifications are performed, a change to the allowance for credit losses is generally not required as the methodologies used to estimate the allowance already capture the effect of borrowers experiencing financial difficulty. On September 30, 2023, there were no commitments to lend additional funds to borrowers who have received a loan modification as a result of financial difficulty.

On January 1, 2023, the Company adopted ASU No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” without material impact on the business operations or consolidated financial statements. See Note 14 (“New Authoritative Accounting Pronouncements”) of the Notes to the Consolidated Financial Statements.

The following tables show loan modifications made to borrowers experiencing financial difficulty during the periods indicated:


	For the three months ended, September 30, 2023
(Dollars in thousands)	Term Extension
Loan Modifications Made to Borrowers Experiencing Financial Difficulty	Number		Amortized Cost Basis	% of Total Class of Financing Receivable		Financial Effect
Commercial business and other	3	$	1,638	0.1	%	Extended Maturity to June 2025 (20 months).
Total	3	$	1,638

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Notes to Consolidated Financial Statements

(Unaudited)


	For the nine months ended, September 30, 2023
(Dollars in thousands)	Term Extension
Loan Modifications Made to Borrowers Experiencing Financial Difficulty	Number		Amortized Cost Basis	% of Total Class of Financing Receivable		Financial Effect
Commercial business and other	3	$	1,638	0.1	%	Extended Maturity to June 2025 (20 months).
Total	3	$	1,638


(Dollars in thousands)	Other-than-insignificant Payment Delay
Loan Modifications Made to Borrowers Experiencing Financial Difficulty	Number		Amortized Cost Basis	% of Total Class of Financing Receivable		Financial Effect
Small Business Administration	1	$	1,494	6.8	%	Provided twelve month payment deferral to be collected at maturity.
Total	1	$	1,494

The following table shows the payment status of borrowers experiencing financial difficulty and for which a modification has occurred at September 30, 2023:


		Payment Status of Borrowers Experiencing Financial Difficulty (Amortized Cost Basis)
(In thousands)		Current		30-89 Days Past Due		90+ Days Past Due		Total Modified
Small Business Administration	$	—	$	1,494	$	—	$	1,494
Commercial business and other		1,638		—		—		1,638
Total	$	1,638	$	1,494	$	—	$	3,132

The following table shows loans modified as Troubled Debt Restructured (“TDR”) during the periods 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

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Notes to Consolidated Financial Statements

(Unaudited)


	For the nine months ended
	September 30, 2022
(Dollars in thousands)	Number		Balance	Modification description
Small Business Administration	1	$	271	Loan 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

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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:


	December 31, 2022
	Number	Amortized
(Dollars in thousands)	of contracts	Cost
Multi-family residential	6	$	1,673
Commercial real estate	1		7,572
One-to-four family - mixed-use property	4		1,222
One-to-four family - residential	1		253
Small Business Administration	1		242
Commercial business and other	3		855
Total performing	16	$	11,817

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

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Notes to Consolidated Financial Statements

(Unaudited)

The following tables show 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 periods shown below:


	At or for the nine months September 30, 2023
(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	$	3,547	$	3,600	$	3,600	$	2	$	—
Commercial real estate		254		—		—		—		—
One-to-four family - mixed-use property		1,045		1,090		1,090		2		—
One-to-four family - residential		3,953		3,643		3,643		—		—
Small Business Administration		950		1,265		1,265		—		—
Commercial business and other		20,193		7,680		3,746		16		—
Total	$	29,942	$	17,278	$	13,344	$	20	$	—


	At or for the year ended December 31, 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	$	3,547	$	3,547	$	—	$	—
Commercial real estate		640		254		254		—		—
One-to-four family - mixed-use property ⁽¹⁾		1,582		1,045		1,045		—		—
One-to-four family - residential		7,483		3,953		3,953		—		—
Small Business Administration		952		950		950		—		—
Construction		—		—		—		—		2,600
Commercial business and other ⁽¹⁾		1,945		20,193		3,291		171		—
Total	$	15,254	$	29,942	$	13,040	$	171	$	2,600

(1) Included in the above analysis are non-accrual performing TDR one-to-four family – mixed-use property totaling $0.2 million and Commercial business and other totaling less than $0.1 million.

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Notes to Consolidated Financial Statements

(Unaudited)

The following is a summary of interest foregone on non-accrual loans for the periods indicated.


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
(In thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms	$	425	$	618	$	1,405	$	1,578
Less: Interest income included in the results of operations		2		181		20		618
Total foregone interest	$	423	$	437	$	1,385	$	960

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


	At September 30, 2023
(In thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans ⁽¹⁾
Multi-family residential	$	1,131	$	599	$	3,600	$	5,330	$	2,612,299	$	2,617,629
Commercial real estate		3,994		—		—		3,994		1,950,468		1,954,462
One-to-four family - mixed-use property		1,537		195		1,090		2,822		537,697		540,519
One-to-four family - residential		3,367		26		3,643		7,036		217,091		224,127
Construction		—		—		—		—		59,775		59,775
Small Business Administration		—		1,494		1,265		2,759		19,077		21,836
Commercial business and other		89		2,237		7,654		9,980		1,478,385		1,488,365
Total	$	10,118	$	4,551	$	17,252	$	31,921	$	6,874,792	$	6,906,713

(1) The table above excludes the unallocated portfolio layer basis adjustments totaling $10.6 million related to loans hedged in a closed pool at September 30, 2023. See Note 11 (“Derivative Financial Instruments”) of the Notes to the Consolidated Financial Statements.


	At December 31, 2022
(In thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loans
Multi-family residential	$	1,475	$	1,787	$	3,547	$	6,809	$	2,598,363	$	2,605,172
Commercial real estate		2,561		—		254		2,815		1,912,083		1,914,898
One-to-four family - mixed-use property		3,721		—		797		4,518		552,777		557,295
One-to-four family - residential		2,734		—		3,953		6,687		235,793		242,480
Construction		—		—		2,600		2,600		68,224		70,824
Small Business Administration		329		—		950		1,279		21,914		23,193
Commercial business and other		7,636		16		10,324		17,976		1,502,931		1,520,907
Total	$	18,456	$	1,803	$	22,425	$	42,684	$	6,892,085	$	6,934,769

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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 following three-month periods:


	September 30, 2023
					One-to-four		One-to-four						Commercial
	Multi-family		Commercial		family - mixed-		family -		Construction		Small Business		business and
(In thousands)	residential		real estate		use property		residential		loans		Administration		other		Total
Beginning balance	$	9,718	$	8,206	$	1,615	$	654	$	132	$	2,162	$	16,106	$	38,593
Charge-offs		—		—		—		—		—		—		(21)		(21)
Recoveries		—		—		—		6		—		48		9		63
Provision (benefit)		917		562		10		57		32		(194)		(791)		593
Ending balance	$	10,635	$	8,768	$	1,625	$	717	$	164	$	2,016	$	15,303	$	39,228


	September 30, 2022
					One-to-four		One-to-four						Commercial
	Multi-family		Commercial		family - mixed-		family -		Construction		Small Business		business and
(In thousands)	residential		real estate		use property		residential		loans		Administration		other		Total
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

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


	September 30, 2023
					One-to-four		One-to-four						Commercial
	Multi-family		Commercial		family - mixed-		family -		Construction		Small Business		business and
(In thousands)	residential		real estate		use property		residential		loans		Administration		other		Total
Beginning balance	$	9,552	$	8,184	$	1,875	$	901	$	261	$	2,198	$	17,471	$	40,442
Charge-offs		—		(8)		—		(12)		—		(7)		(11,023)		(11,050)
Recoveries		1		—		—		50		—		219		28		298
Provision (benefit)		1,082		592		(250)		(222)		(97)		(394)		8,827		9,538
Ending balance	$	10,635	$	8,768	$	1,625	$	717	$	164	$	2,016	$	15,303	$	39,228


	September 30, 2022
					One-to-four		One-to-four								Commercial
	Multi-family		Commercial		family - mixed-		family -		Construction		Small Business		Taxi		business and
(In thousands)	residential		real estate		use property		residential		loans		Administration		medallion		other		Total
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

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.

The amortized cost of substandard loans was $47.1 million at September 30, 2023, an increase of $21.4 million from $25.7 million at December 31, 2022. The increase was primarily due to a business relationship that was downgraded to substandard due to declining macroeconomic factors. The loans were individually evaluated for impairment, and it was determined no reserve was deemed necessary at September 30, 2023.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the various risk categories of mortgage and non-mortgage loans by loan portfolio segments and by class of loans by year of origination at September 30, 2023:


	For the year ended
														Revolving Loans		Revolving Loans
														Amortized Cost		converted to
(In thousands)		2023		2022		2021		2020		2019		Prior		Basis		term loans		Total
Multi-family Residential
Pass	$	171,298	$	468,879	$	279,408	$	217,501	$	306,987	$	1,127,156	$	4,075	$	—	$	2,575,304
Watch		—		881		—		1,944		—		32,691		—		—		35,516
Special Mention		—		—		—		—		—		1,461		—		—		1,461
Substandard		—		—		—		—		—		5,348		—		—		5,348
Total Multi-family Residential	$	171,298	$	469,760	$	279,408	$	219,445	$	306,987	$	1,166,656	$	4,075	$	—	$	2,617,629
Commercial Real Estate
Pass	$	134,977	$	326,545	$	177,860	$	148,835	$	218,458	$	913,106	$	—	$	—	$	1,919,781
Watch		—		—		1,443		—		9,570		23,668		—		—		34,681
Total Commercial Real Estate	$	134,977	$	326,545	$	179,303	$	148,835	$	228,028	$	936,774	$	—	$	—	$	1,954,462
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	8	$	—	$	—	$	8
1-4 Family Mixed-Use Property
Pass	$	18,557	$	43,937	$	41,987	$	31,274	$	61,270	$	335,314	$	—	$	—	$	532,339
Watch		—		—		—		—		724		5,564		—		—		6,288
Special Mention		—		—		—		—		—		636		—		—		636
Substandard		—		—		—		—		—		1,256		—		—		1,256
Total 1-4 Family Mixed-Use Property	$	18,557	$	43,937	$	41,987	$	31,274	$	61,994	$	342,770	$	—	$	—	$	540,519
1-4 Family Residential
Pass	$	5,108	$	23,319	$	8,506	$	16,857	$	38,153	$	104,508	$	7,475	$	10,252	$	214,178
Watch		—		510		274		—		740		1,527		—		1,321		4,372
Special Mention		—		—		—		—		—		204		—		197		401
Substandard		—		—		—		—		—		4,733		—		443		5,176
Total 1-4 Family Residential	$	5,108	$	23,829	$	8,780	$	16,857	$	38,893	$	110,972	$	7,475	$	12,213	$	224,127
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	12	$	—	$	—	$	12
Construction
Pass	$	5,520	$	3	$	5,793	$	—	$	—		—	$	48,459	$	—	$	59,775
Total Construction	$	5,520	$	3	$	5,793	$	—	$	—	$	—	$	48,459	$	—	$	59,775
Small Business Administration
Pass	$	806	$	3,301	$	3,166	$	3,613	$	702	$	4,006	$	—	$	—	$	15,594
Watch		—		—		—		—		48		2,876		—		—		2,924
Special Mention		—		—		1,494		—		—		349		—		—		1,843
Substandard		—		—		318		—		—		1,157		—		—		1,475
Total Small Business Administration	$	806	$	3,301	$	4,978	$	3,613	$	750	$	8,388	$	—	$	—	$	21,836
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	7	$	—	$	—	$	7
Commercial Business
Pass	$	64,537	$	124,017	$	77,139	$	33,986	$	32,087	$	62,001	$	285,765	$	—	$	679,532
Watch		266		6,437		4,015		2,433		14,664		20,105		2,747		—		50,667
Special Mention		—		—		3,925		—		27		—		2,000		—		5,952
Substandard		14,935		2,454		—		—		28		12,937		3,475		—		33,829
Doubtful		—		—		—		—		—		—		3,929		—		3,929
Total Commercial Business	$	79,738	$	132,908	$	85,079	$	36,419	$	46,806	$	95,043	$	297,916	$	—	$	773,909
Gross charge-offs	$	—	$	—	$	1,675	$	—	$	14	$	11	$	9,267	$	—	$	10,967
Commercial Business - Secured by RE
Pass	$	35,585	$	178,373	$	131,700	$	106,902	$	40,114	$	143,676	$	—	$	—	$	636,350
Watch		9,776		—		—		—		597		53,025		—		—		63,398
Special Mention		—		—		—		—		14,403		—		—		—		14,403
Total Commercial Business - Secured by RE	$	45,361	$	178,373	$	131,700	$	106,902	$	55,114	$	196,701	$	—	$	—	$	714,151
Other
Pass	$	—	$	—	$	—	$	—	$	—	$	180	$	125	$	—	$	305
Total Other	$	—	$	—	$	—	$	—	$	—	$	180	$	125	$	—	$	305
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	56	$	—	$	—	$	56
Total by Loan Type
Total Pass	$	436,388	$	1,168,374	$	725,559	$	558,968	$	697,771	$	2,689,947	$	345,899	$	10,252	$	6,633,158
Total Watch		10,042		7,828		5,732		4,377		26,343		139,456		2,747		1,321		197,846
Total Special Mention		—		—		5,419		—		14,430		2,650		2,000		197		24,696
Total Substandard		14,935		2,454		318		—		28		25,431		3,475		443		47,084
Total Doubtful		—		—		—		—		—		—		3,929		—		3,929
Total Loans ⁽¹⁾	$	461,365	$	1,178,656	$	737,028	$	563,345	$	738,572	$	2,857,484	$	358,050	$	12,213	$	6,906,713
Total Gross charge-offs	$	—	$	—	$	1,675	$	—	$	14	$	94	$	9,267	$	—	$	11,050

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Included within net loans were $4.7 million and $5.2 million at September 30, 2023 and December 31, 2022, 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, 2023				December 31, 2022
(In thousands)		Real Estate		Business Assets		Real Estate		Business Assets
Multi-family residential	$	3,600	$	—	$	3,547	$	—
Commercial real estate		—		—		254		—
One-to-four family - mixed-use property		1,090		—		1,045		—
One-to-four family - residential		3,643		—		3,953		—
Small Business Administration		—		1,265		—		950
Commercial business and other		—		7,680		2,853		17,340
Total	$	8,333	$	8,945	$	11,652	$	18,290

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 $443.2 million and $438.5 million on September 30, 2023, and December 31, 2022, 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, 2023, and 2022.


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2023		2022		2023		2022

	(In thousands)
Balance at beginning of period	$	813	$	1,444	$	970	$	1,209
Provision (benefit) ⁽¹⁾		120		(631)		(37)		(396)
Allowance for Off-Balance Sheet - Credit losses ⁽²⁾	$	933	$	813	$	933	$	813

(1) Included in “Other operating expenses” on the Consolidated Statements of Income.

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

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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, 2023 and December 31, 2022, 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, 2023
(Dollars in thousands)	Loans sold	Proceeds		Net charge-offs		Net gain
Performing loans
Commercial	2	$	2,000	$	—	$	—
Total	2	$	2,000	$	—	$	—


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


	For the nine months ended September 30, 2023
(Dollars in thousands)	Loans sold	Proceeds		Net charge-offs		Net gain
Performing loans
Commercial	2	$	2,000	$	—	$	—
Total	2	$	2,000	$	—	$	—

Delinquent and non-performing loans
Multi-family residential	7	$	3,622	$	—	$	69
Commercial	3		1,867		(8)		—
One-to-four family - mixed-use property	3		1,553		—		39
Total	13	$	7,042	$	(8)	$	108


	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

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

7. Leases

The Company has 31 operating leases for branches (including headquarters) and office spaces, 9 operating leases for vehicles, and one operating lease for equipment. Our leases have remaining lease terms ranging from one month to approximately 13 years, none of which has a renewal option reasonably certain of exercise, which has been reflected in the Company’s calculation of the 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 four agreements in 2023 and two agreements in 2022 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 are as follows:


(Dollars in thousands)	September 30, 2023			December 31, 2022
Operating lease ROU asset	$	41,404		$	43,289

Operating lease liability	$	43,067		$	46,125

Weighted-average remaining lease term-operating leases		6.3 years			6.6 years
Weighted average discount rate-operating leases		3.2	%		2.9	%

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


		For the three months ended
(In thousands)	Line Item Presented	September 30, 2023		September 30, 2022
Lease Cost
Operating lease cost	Occupancy and equipment	$	2,142	$	2,100
Operating lease cost	Other operating expenses		23		23
Short-term lease cost	Professional services, Occupancy and equipment and Other operating expenses		39		36
Variable lease cost	Occupancy and equipment		262		275
Total lease cost		$	2,466	$	2,434

Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	3,387	$	2,342
Right-of-use assets obtained in exchange for new operating lease liabilities		$	1,757	$	—


		For the nine months ended
(In thousands)	Line Item Presented	September 30, 2023		September 30, 2022
Lease Cost
Operating lease cost	Occupancy and equipment	$	6,584	$	6,299
Operating lease cost	Other operating expenses		69		71
Short-term lease cost	Professional Services, Occupancy and equipment and Other operating expenses		177		132
Variable lease cost	Occupancy and equipment		785		713
Total lease cost		$	7,615	$	7,215

Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	8,042	$	7,111
Right-of-use assets obtained in exchange for new operating lease liabilities		$	3,801	$	47

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Company’s minimum annual rental payments for Bank facilities due under non-cancelable leases are as follows as of September 30, 2023:


	Minimum Rental
	(In thousands)
Years ended December 31:
2023	$	1,794
2024		9,863
2025		9,244
2026		8,363
2027		4,286
Thereafter		14,143
Total minimum payments required		47,693
Less: implied interest		4,626
Total lease obligations	$	43,067

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, 2023, PRSUs granted in 2023 and 2022 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. As of September 30, 2023, 746,765 shares were available for future issuance under the 2014 Omnibus Plan.

For the three months ended September 30, 2023 and 2022, the Company’s net income, as reported, included $1.0 million and $0.7 million, respectively, of stock-based compensation costs, including the benefit or expense of phantom stock awards, and $0.3 million and $0.2 million of income tax benefit respectively, related to the stock-based compensation plans. For the nine months ended September 30, 2023 and 2022, the Company’s net income, as reported, included $4.6 million and $5.6 million, respectively, of stock-based compensation costs, including the benefit or expense of phantom stock awards, and $1.2 million and $1.5 million of income tax benefit, respectively, related to the stock-based compensation plans.

During the three months ended September 30, 2023 and 2022, the Company did not grant any RSU or PRSUs. During the nine months ended September 30, 2023 and 2022, the Company granted 235,850 and 212,811 of RSU awards and 79,050 and 63,250 of 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 and performance restricted stock units. Compensation cost is recognized over the vesting period of the award using the straight-line method. Forfeitures are recorded in the period they occur.

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the Company’s RSU and PRSU awards under the 2014 Omnibus Plan for the nine months ended September 30, 2023:


	RSU Awards			PRSU Awards
		Weighted-Average			Weighted-Average
		Grant-Date			Grant-Date
	Shares	Fair Value		Shares	Fair Value
Non-vested awards at December 31, 2022	275,588	$	22.30	68,800	$	20.90
Granted	235,850		19.84	79,050		19.99
Vested	(222,757)		21.19	(59,870)		20.03
Forfeited	(2,840)		22.14	—		—
Non-vested awards at September 30, 2023	285,841	$	21.14	87,980	$	20.67
Vested but unissued at September 30, 2023	253,468	$	20.78	148,505	$	20.80

As of September 30, 2023, there was $5.0 million of total unrecognized compensation cost related to RSU and PRSU awards granted. That cost is expected to be recognized over a weighted-average period of 2.7 years. The total fair value of awards vested for the three months ended September 30, 2023 and 2022, was $0.3 million, and $1,000, respectively. The total fair value of awards vested for the nine months ended September 30, 2023 and 2022 was $5.5 million and $7.1 million, respectively. The vested but unissued RSU and PRSU awards consist of awards made to employees and directors who are eligible for retirement. According to the terms of these awards, which provide for vesting upon retirement, these employees and directors have no risk of forfeiture. These shares will be issued at the original contractual vesting and settlement dates.

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

The following table summarizes the Phantom Stock Plan at or for the nine months ended September 30, 2023:


Phantom Stock Plan	Shares	Fair Value		Weighted-Average Fair Value
Outstanding at December 31, 2022	158,410	$	19.38
Granted	21,346			$	17.43
Distributions	(1,132)			$	17.27
Outstanding at September 30, 2023	178,624	$	13.13
Vested at September 30, 2023	178,624	$	13.13

The Company recorded stock-based compensation expense (benefit) for the Phantom Stock Plan of $0.2 million and ($0.3) million for the three months ended September 30, 2023 and 2022, respectively. The total fair value of the distributions from the Phantom Stock Plan was $3,000 and $6,000 for the three months ended September 30, 2023 and 2022, respectively.

The Company recorded stock-based compensation benefit for the Phantom Stock Plan of $1.0 million and $0.7 million for the nine months ended September 30, 2023 and 2022, respectively. The total fair value of the distributions from the Phantom Stock Plan was $20,000 and $23,000 for the nine months ended September 30, 2023, and 2022, respectively.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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)	2023		2022		2023		2022
Employee Pension Plan:
Interest cost	$	203	$	138	$	609	$	414
Amortization of unrecognized loss		—		1		—		3
Expected return on plan assets		(278)		(257)		(832)		(772)
Net employee pension benefit ⁽¹⁾	$	(75)	$	(118)	$	(223)	$	(355)

Outside Director Pension Plan:
Service cost	$	2	$	3	$	6	$	9
Interest cost		15		11		44		34
Amortization of unrecognized gain		(40)		(7)		(120)		(21)
Net outside director pension (benefit) expense ⁽²⁾	$	(23)	$	7	$	(70)	$	22

Other Postretirement Benefit Plans:
Service cost	$	40	$	67	$	120	$	201
Interest cost		95		70		286		209
Amortization of unrecognized gain		(60)		—		(180)		—
Amortization of past service credit		—		(7)		—		(21)
Net other postretirement expense ⁽¹⁾	$	75	$	130	$	226	$	389

(1) Reported in the Consolidated Statements of Income as part of salaries and employee benefits.

(2) Reported in the Consolidated Statements of Income as part of other operating expenses.

The Company previously disclosed in its Consolidated Financial Statements for the year ended December 31, 2022 that it expects to contribute $0.2 million to the Outside Director Pension Plan (the “Outside Director Pension Plan”) and $0.3 million to the other postretirement benefit plans (the “Other Postretirement Benefit Plans”), during the year ending December 31, 2023. The Company does not expect to make a contribution to the Employee Pension Plan. As of September 30, 2023, the Company had contributed $56,000 to the Outside Director Pension Plan and $81,000 to the Other Postretirement Benefit Plans. As of September 30, 2023, the Company has not revised its expected contributions for the year ending December 31, 2023.

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Table of Contents

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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, 2023, the Company carried financial assets and financial liabilities under the fair value option with fair values of $12.8 million and $48.3 million, respectively. At December 31, 2022, the Company carried financial assets and financial liabilities under the fair value option with fair values of $13.0 million and $50.5 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, 2023 and 2022.

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 (loss) gain from fair value adjustments, at or for the periods ended as indicated:


					Changes in Fair Values For Items Measured at Fair Value
	Fair Value		Fair Value		Pursuant to Election of the Fair Value Option
	Measurements at		Measurements at		For the three months ended September 30,				For the nine months ended September 30,
Description	September 30, 2023		December 31, 2022		2023		2022		2023		2022
(In thousands)
Mortgage-backed securities	$	266	$	295	$	1	$	(6)	$	3	$	(18)
Other securities		12,516		12,728		(338)		(661)		(422)		(1,681)
Borrowed funds		48,329		50,507		(909)		6,293		2,086		8,049
Net (loss) gain from fair value adjustments					$	(1,246)	$	5,626	$	1,667	$	6,350

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, 2023 and December 31, 2022. The fair value of borrowed funds includes accrued interest payable of $0.4 million at both September 30, 2023 and December 31, 2022.

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 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.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, Level 3 included trust preferred securities owned, and junior subordinated debentures issued by the Company.

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

The following table sets forth the Company’s assets and liabilities that are carried at fair value on a recurring basis, including those reported at fair value under the fair value option, and the level that was used to determine their fair value, at September 30, 2023 and December 31, 2022:


	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
	2023		2022		2023		2022		2023		2022		2023		2022

Assets:	(In thousands)
Securities available for sale:
Mortgage-backed securities	$	—	$	—	$	337,879	$	384,283	$	—	$	—	$	337,879	$	384,283
Other securities		11,066		11,211		493,267		338,347		1,451		1,516		505,784		351,074
Interest rate swaps		—		—		104,576		74,586		—		—		104,576		74,586

Total assets	$	11,066	$	11,211	$	935,722	$	797,216	$	1,451	$	1,516	$	948,239	$	809,943

Liabilities:
Borrowings	$	—	$	—	$	—	$	—	$	48,329	$	50,507	$	48,329	$	50,507
Interest rate swaps		—		—		22,016		18,407		—		—		22,016		18,407

Total liabilities	$	—	$	—	$	22,016	$	18,407	$	48,329	$	50,507	$	70,345	$	68,914

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following tables set 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, 2023				September 30, 2022
	Trust preferred		Junior subordinated		Trust preferred		Junior subordinated
	securities		debentures		securities		debentures

	(In thousands)
Beginning balance	$	1,434	$	47,777	$	1,662	$	55,352
Net (loss) gain from fair value adjustment of financial assets⁽¹⁾		16		—		(171)		—
Net (gain) loss from fair value adjustment of financial liabilities⁽¹⁾		—		909		—		(6,293)
Increase (decrease) in accrued interest		1		20		3		95
Change in unrealized (gains) losses included in other comprehensive loss		—		(377)		—		598
Ending balance	$	1,451	$	48,329	$	1,494	$	49,752
Changes in unrealized gains held at period end	$	—	$	2,338	$	—	$	2,177

(1) Presented in the Consolidated Statements of Income under net (loss) gain from fair value adjustments.


	For the nine months ended
	September 30, 2023				September 30, 2022
	Trust preferred		Junior subordinated		Trust preferred		Junior subordinated
	securities		debentures		securities		debentures

	(In thousands)
Beginning balance	$	1,516	$	50,507	$	1,695	$	56,472
Net (loss) gain from fair value adjustment of financial assets⁽¹⁾		(67)		—		(206)		—
Net (gain) loss from fair value adjustment of financial liabilities⁽¹⁾		—		(2,086)		—		(8,049)
Increase (decrease) in accrued interest		2		60		5		172
Change in unrealized (gains) losses included in other comprehensive loss		—		(152)		—		1,157
Ending balance	$	1,451	$	48,329	$	1,494	$	49,752
Changes in unrealized gains held at period end	$	—	$	2,338	$	—	$	2,177

(1) Presented in the Consolidated Statements of Income under net (loss) gain 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, 2023

Valuation

Input

Weighted

Fair Value

Technique

Unobservable

Range

Average

(Dollars in thousands)

Assets:

Trust preferred securities

1,451

Discounted cash flows

Spread over 3-month SOFR

n/a

4.4

Liabilities:

Junior subordinated debentures

48,329

Discounted cash flows

Spread over 3-month SOFR

n/a

4.4

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

December 31, 2022

Valuation

Input

Weighted

Fair Value

Technique

Unobservable

Range

Average

(Dollars in thousands)

Assets:

Trust preferred securities

1,516

Discounted cash flows

Spread over 3-month Libor

n/a

3.6

Liabilities:

Junior subordinated debentures

50,507

Discounted cash flows

Spread over 3-month Libor

n/a

3.6

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, 2023 and December 31, 2022, 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, 2023 and December 31, 2022:


	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
	2023		2022		2023		2022		2023		2022		2023		2022

	(In thousands)
Assets:
Certain delinquent loans	$	—	$	—	$	—	$	—	$	1,045	$	18,330	$	1,045	$	18,330

Total assets	$	—	$	—	$	—	$	—	$	1,045	$	18,330	$	1,045	$	18,330

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, 2023

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted Average

(Dollars in thousands)

Assets:

Certain delinquent loans

1,045

Discounted Cashflow

Discount Rate

4.3% to 9.8

9.4

Probability of Default

35.0% to 42.0

41.6

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)


	At December 31, 2022
	Fair Value		Valuation Technique	Unobservable Input	Range		Weighted Average

	(Dollars in thousands)
Assets:

Certain delinquent loans	$	18,189	Sales approach	Adjustment to sales comparison value	-20.0% to 0.0	%	-1.3	%
				Reduction for planned expedited disposal	10.0% to 15.0	%	13.6	%

Certain delinquent loans	$	141	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, 2023 and December 31, 2022.

The methods and assumptions used to estimate fair value at September 30, 2023 and December 31, 2022 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.

Certain Delinquent Loans:

For certain delinquent 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.

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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, 2023
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3

	(In thousands)
Assets:

Cash and due from banks	$	200,926	$	200,926	$	200,926	$	—	$	—
Securities held-to-maturity
Mortgage-backed securities		7,860		6,634		—		6,634		—
Other securities		65,271		51,031		—		—		51,031
Securities available for sale
Mortgage-backed securities		337,879		337,879		—		337,879		—
Other securities		505,784		505,784		11,066		493,267		1,451
Loans		6,896,074		6,511,963		—		—		6,511,963
FHLB-NY stock		43,821		43,821		—		43,821		—
Accrued interest receivable		55,660		55,660		—		6,723		48,937
Interest rate swaps		104,576		104,576		—		104,576		—

Liabilities:

Deposits	$	6,681,509	$	6,630,112	$	4,360,140	$	2,269,972	$	—
Borrowed Funds		1,001,010		950,476		—		902,147		48,329
Accrued interest payable		10,001		10,001		—		10,001		—
Interest rate swaps		22,016		22,016		—		22,016		—


	December 31, 2022
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3

	(In thousands)
Assets:

Cash and due from banks	$	151,754	$	151,754	$	151,754	$	—	$	—
Securities held-to-maturity
Mortgage-backed securities		7,875		6,989		—		6,989		—
Other securities		65,836		55,561		—		—		55,561
Securities available for sale
Mortgage-backed securities		384,283		384,283		—		384,283		—
Other securities		351,074		351,074		11,211		338,347		1,516
Loans		6,934,769		6,651,795		—		—		6,651,795
FHLB-NY stock		45,842		45,842		—		45,842		—
Accrued interest receivable		45,048		45,048		—		3,819		41,229
Interest rate swaps		74,856		74,856		—		74,856		—

Liabilities:

Deposits	$	6,485,342	$	6,453,978	$	4,959,004	$	1,494,974	$	—
Borrowed Funds		1,052,973		1,027,370		—		976,863		50,507
Accrued interest payable		10,034		10,034		—		10,034		—
Interest rate swaps		18,407		18,407		—		18,407		—

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

11. Derivative Financial Instruments

At September 30, 2023 and December 31, 2022, 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 and securities with $946.8 million and $273.6 million of swaps outstanding at September 30, 2023 and December 31, 2022, respectively; 2) to facilitate risk management strategies for our loan customers with $480.0 million of swaps outstanding, which include $240.0 million each with customers and bank counterparties at September 30, 2023 and $221.2 million of swaps outstanding, which include $110.6 million each with customers and bank counterparties at December 31, 2022; and 3) to mitigate exposure to rising interest rates on certain short-term advances, brokered deposits and municipal deposits with $826.8 million of swaps outstanding at September 30, 2023, and $871.5 million of swaps outstanding at December 31, 2022.

The Company adopted ASU No. 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method” in the first quarter of 2023. During the nine months ended September 30, 2023, the Company entered into portfolio layer hedges on a closed portfolio of AFS securities with a notional amount of $200.0 million and a closed portfolio of loans with a notional amount of $500.0 million. See Note 14 (“New Authoritative Accounting Pronouncements”) of the Notes to the Consolidated Financial Statements.

For non-portfolio layer method fair value hedges, the hedge basis (the amount of the change in fair value) is added to (or subtracted from) the carrying amount of the hedged item. For portfolio layer method hedges, the hedge basis does not adjust the carrying value of the hedged item and is instead maintained on a closed portfolio basis. These basis adjustments would be allocated to the amortized cost of specific loans or AFS securities within the pools if either of the hedges were de-designated. The Company did not have any portfolio layer hedges prior to the first quarter of 2023.

At September 30, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, derivatives with a combined notional amount of $480.9 million and $221.2 million, respectively, were not designated as hedges. At September 30, 2023 and December 31, 2022, derivatives with a combined notional amount of $946.8 million and $273.6 million, respectively, were designated as fair value hedges. At September 30, 2023 and December 31, 2022, derivatives with a combined notional amount of $825.8 million and $871.5 million, respectively, were designated as cash flow hedges.

For cash flow hedges, the changes in the fair value of the derivatives 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 effected earnings. During the three months ended September 30, 2023 and 2022, $7.1 million in reduced expense and $1.0 million in additional expense, respectively, was reclassified from accumulated other comprehensive loss to interest expense. During the nine months ended September 30, 2023 and 2022, $18.2 million in reduced expense and $6.1 million in additional expense 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 $25.0 million in reduced expense.

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

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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


	Assets				Liabilities
	Notional				Notional
	Amount		Fair Value ⁽¹⁾		Amount		Fair Value ⁽¹⁾

September 30, 2023	(In thousands)
Cash flow hedges:
Interest rate swaps (borrowings and deposits)	$	825,750	$	37,211	$	-	$	-
Fair value hedges:
Interest rate swaps (loans and securities)		946,825		45,346		-		-
Non hedge:
Interest rate swaps (loans and deposits)		240,974		22,019		239,974		22,016
Total	$	2,013,549	$	104,576	$	239,974	$	22,016

December 31, 2022
Cash flow hedges:
Interest rate swaps (borrowings and deposits)	$	700,750	$	31,716	$	170,750	$	210
Fair value hedges:
Interest rate swaps (loans)		273,607		24,673		-		-
Non hedge:
Interest rate swaps (loans)		110,598		18,197		110,598		18,197
Total	$	1,084,955	$	74,586	$	281,348	$	18,407

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

The following table 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, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Loans
Multi-family residential	$	77,216	$	82,613	$	(13,979)	$	(10,480)
Commercial real estate		143,327		167,353		(14,358)		(15,442)
Total	$	220,543	$	249,966	$	(28,337)	$	(25,922)

Portfolio Layer
Loans held for Investment ⁽¹⁾	$	2,615,651	$	—	$	(10,639)	$	—
Securities available for sale ⁽²⁾		273,313		—		(7,721)		—
Total	$	2,888,964	$	—	$	(18,360)	$	—

(1) Carrying amount represents the amortized cost. At September 30, 2023, the amortized cost of the portfolio layer method closed portfolio was $2.6 billion, of which $500 million was designated as hedged. The cumulative amount of basis adjustments was $10.6 million.

(2) Carrying amount represents the fair value. At September 30, 2023, the fair value of the portfolio layer method closed portfolio was $273 million, of which $200 million was designated as hedged. The cumulative amount of basis adjustments was $7.7 million.

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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
	Affected Line Item in the Statements	September 30,				September 30,
(In thousands)	Where Net Income is Presented	2023		2022		2023		2022
Financial Derivatives:
Interest rate swaps - fair value hedge (loans)	Interest and fees on loans	$	5,335	$	253	$	9,901	$	(2,068)

Interest rate swaps - fair value hedge (securities)	Interest and dividends on securities		942		—		1,787		—

Interest rate swaps - non hedge (municipal deposits)	Deposits		1		—		4		—

Interest rate swaps - cash flow hedge (short-term advances)	Other interest expense		994		64		4,336		(3,890)

Interest rate swaps - cash flow hedge (brokered deposits)	Deposits		6,060		793		13,886		842

Total net income (expense) from the effects of derivative instruments		$	13,332	$	1,110	$	29,914	$	(5,116)

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

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


			Gross Amount		Net Amount
	Gross Amounts		Offset in Statement of		Presented in Statement of		Financial		Cash
(In thousands)	Recognized		Financial Condition		Financial Condition		Instruments		Collateral		Net Amount
September 30, 2023
Assets:
Interest rate swaps	$	104,576	$	—	$	104,576	$	—	$	(110,755)	$	(6,179)
Liabilities:
Interest rate swaps		22,016		—		22,016		—		—		22,016

December 31, 2022
Assets:
Interest rate swaps	$	74,586	$	—	$	74,586	$	—	$	(72,185)	$	2,401
Liabilities:
Interest rate swaps		18,407		—		18,407		—		—		18,407

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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, 2023
	Unrealized Gains (Losses)		Unrealized Gains (Losses)				Fair Value
	on Available for Sale		on Cash flow		Defined Benefit		Option Elected
	Securities		Hedges		Pension Items		on Liabilities		Total

	(In thousands)
Beginning balance, net of tax	$	(63,523)	$	26,559	$	(413)	$	1,358	$	(36,019)

Other comprehensive income before reclassifications, net of tax		(6,928)		5,162		—		261		(1,505)

Amounts reclassified from accumulated other comprehensive income, net of tax		1,530		(4,868)		(69)		—		(3,407)

Net current period other comprehensive income, net of tax		(5,398)		294		(69)		261		(4,912)

Ending balance, net of tax	$	(68,921)	$	26,853	$	(482)	$	1,619	$	(40,931)


	For the three months ended September 30, 2022
	Unrealized Gains (Losses)		Unrealized Gains (Losses)				Fair Value
	on Available for Sale		on 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 (loss), 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)

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Notes to Consolidated Financial Statements

(Unaudited)


	For the nine months ended September 30, 2023
	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	$	(63,106)	$	25,380	$	(275)	$	1,513	$	(36,488)

Other comprehensive income before reclassifications, net of tax		(11,144)		14,050		—		106		3,012

Amounts reclassified from accumulated other comprehensive income, net of tax		5,329		(12,577)		(207)		—		(7,455)

Net current period other comprehensive income (loss), net of tax		(5,815)		1,473		(207)		106		(4,443)

Ending balance, net of tax	$	(68,921)	$	26,853	$	(482)	$	1,619	$	(40,931)


	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)

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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, 2023
	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)
Fair Value hedges:
Interest rate swaps benefit (expense)	$	(2,217)		Interest and dividend income
		687		Provision for income taxes
	$	(1,530)
Cash flow hedges:
Interest rate swaps benefit (expense)	$	7,053		Interest expense
		(2,185)		Provision for income taxes
	$	4,868
Amortization of defined benefit pension items:
Actuarial losses benefit (expense)	$	100	⁽¹⁾	Other operating expenses
		(31)		Provision for income taxes
	$	69


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 benefit (expense)	$	(1,030)		Interest expense
		320		Provision for income taxes
	$	(710)

Amortization of defined benefit pension items:
Actuarial losses benefit (expense)	$	6	⁽¹⁾	Other operating expenses
Prior service credits benefit (expense)		7	⁽¹⁾	Other operating expenses
		13		Total before tax
		(4)		Provision for income taxes
	$	9

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Notes to Consolidated Financial Statements

(Unaudited)


For the nine months ended September 30, 2023
	Amounts Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Statement
Comprehensive Income Components	Comprehensive Income			Where Net Income is Presented
(In thousands)
Fair Value hedges:
Interest rate swaps benefit (expense)	$	(7,721)		Interest and dividend income
		2,392		Provision for income taxes
	$	(5,329)
Cash flow hedges:
Interest rate swaps benefit (expense)	$	18,222		Interest expense
		(5,645)		Provision for income taxes
	$	12,577

Amortization of defined benefit pension items:
Actuarial losses benefit (expense)	$	300	⁽¹⁾	Other operating expense
		(93)		Provision for income taxes
	$	207


For the nine months ended September 30, 2022
	Amounts Reclassified from
Details about Accumulated Other	Accumulated Other			Affected Line Item in the Statement
Comprehensive Income Components	Comprehensive Income			Where Net Income is Presented
(In thousands)
Cash flow hedges:
Interest rate swaps benefit (expense)	$	(6,117)		Interest expense
		1,918		Provision for income taxes
	$	(4,199)

Amortization of defined benefit pension items:
Actuarial losses benefit (expense)	$	18	⁽¹⁾	Other operating expense
Prior service credits benefit (expense)		21	⁽¹⁾	Other operating expense
		39		Total before tax
		1		Provision for income taxes
	$	40

(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

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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, 2023, 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 6.06% and 6.37% at September 30, 2023 and December 31, 2022, respectively.

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


	September 30, 2023				December 31, 2022
			Percent of				Percent of
	Amount		Assets		Amount		Assets

	(Dollars in thousands)
Tier I (leverage) capital:
Capital level	$	918,167	10.61	%	$	915,628	10.56	%
Requirement to be well-capitalized		432,771	5.00			433,667	5.00
Excess		485,396	5.61			481,961	5.56

Common Equity Tier I risk-based capital:
Capital level	$	918,167	13.49	%	$	915,628	13.79	%
Requirement to be well-capitalized		442,255	6.50			431,734	6.50
Excess		475,912	6.99			483,894	7.29

Tier I risk-based capital:
Capital level	$	918,167	13.49	%	$	915,628	13.79	%
Requirement to be well-capitalized		544,314	8.00			531,365	8.00
Excess		373,853	5.49			384,263	5.79

Total risk-based capital:
Capital level	$	956,955	14.06	%	$	954,457	14.37	%
Requirement to be well-capitalized		680,393	10.00			664,206	10.00
Excess		276,562	4.06			290,251	4.37

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Holding Company is subject to the same regulatory capital requirements as the Bank. As of September 30, 2023, 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, 2023 and December 31, 2022 was 4.87% and 5.25%, respectively.

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


	September 30, 2023				December 31, 2022
			Percent of				Percent of
	Amount		Assets		Amount		Assets

	(Dollars in thousands)
Tier I (leverage) capital:
Capital level	$	739,364	8.54	%	$	746,880	8.61	%
Requirement to be well-capitalized		432,714	5.00			433,607	5.00
Excess		306,650	3.54			313,273	3.61

Common Equity Tier I risk-based capital:
Capital level	$	692,914	10.19	%	$	698,258	10.52	%
Requirement to be well-capitalized		442,155	6.50			431,635	6.50
Excess		250,759	3.69			266,623	4.02

Tier I risk-based capital:
Capital level	$	739,364	10.87	%	$	746,880	11.25	%
Requirement to be well-capitalized		544,191	8.00			531,243	8.00
Excess		195,173	2.87			215,637	3.25

Total risk-based capital:
Capital level	$	968,152	14.23	%	$	975,709	14.69	%
Requirement to be well-capitalized		680,239	10.00			664,054	10.00
Excess		287,913	4.23			311,655	4.69

14. New Authoritative Accounting Pronouncements

Accounting Standards Adopted in 2023:

In March 2022, FASB issued 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. The ASU was adopted on January 1, 2023 prospectively, without material impact on our business operations or to our consolidated financial statements.

In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method”, which expanded the current last-of-layer method to allow multiple hedged layers of a single closed portfolio and allow hedge accounting to be achieved using different types of derivatives and layering techniques, including the use of amortizing swaps with clarification that such a trade would be viewed as being a single layer. Under this expanded scope, both prepayable and nonrepayable financial assets may be included in a single closed portfolio hedge. This update also provides clarifications to breach requirements and disclosures. As a result of these changes, the last-of-

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Notes to Consolidated Financial Statements

(Unaudited)

layer method has been renamed the portfolio layer method. No cumulative-effect adjustment to the opening balance of retained earnings was required upon adoption of these amendments. The Company did not have any portfolio layer or last of layer hedges prior to the first quarter of 2023. The amendments related to disclosures were applied on a prospective basis. The ASU was adopted in the first quarter of 2023 – see Notes 4 (“Securities”), 5 (“Loans”) and 11 (“Derivative Financial Instruments”) of the Notes to the Consolidated Financial Statements for more information regarding the impact to our consolidated financial statements.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

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, 2022. 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, and FSB Properties Inc.

Statements contained in this Quarterly Report relating to plans, strategies, objectives, economic performance and trends, projections of results of specific activities or investments and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed elsewhere in this Quarterly Report and in other documents filed by us with the Securities and Exchange Commission from time to time, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2022. 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.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

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, 2023, 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.

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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, 2023 we reported net income of $9.4 million, or $0.32 per diluted common share, an increase of $0.8 million, or 8.9% from net income of $8.6 million, or $0.29 per diluted common share earned in the three months ended June 30, 2023. The increase in net income was primarily driven by an increase in net interest income of $1.0 million and decreases in non-interest expense and provision for credit losses of $0.9 million and $0.8 million, respectively These improvements were partially offset by lower non-interest income of $1.6 million.

During the three months ended September 30, 2023, the net interest margin increased four basis points to 2.22% from 2.18% for the three months ended June 30, 2023. Excluding net gains (losses) from qualifying hedges and purchase accounting adjustments, the net interest margin decreased three basis points to 2.14% for the three months ended September 30, 2023, from 2.17% for the three months ended June 30, 2023.

Our loan portfolio is greater than 88% collateralized by real estate with an average loan to value of less than 36%. We have a long history and foundation built upon disciplined underwriting, strong credit quality, and a resilient seasoned loan portfolio with solid asset protection. At September 30, 2023, our allowance for credit losses (“ACL”) - loans stood at 57 basis points of gross loans and 225.4% of non-performing loans. Non-performing assets at the end of the quarter were 45 basis points of total assets.

Goodwill is presumed to have an indefinite life and is tested for impairment, rather than amortized, on at least an annual basis. Quoted market prices in active markets are the best evidence of fair value and are to be used as the basis for measurement, when available. If the fair value of the reporting unit exceeds its carrying amount, there is no impairment of goodwill. At September 30, 2023, the market capitalization of our reporting unit did not exceed its carrying value, however the fair value of our reporting unit is not driven solely by the market price of our stock. For goodwill impairment testing, management has concluded that the Company has one reporting unit. We performed our impairment tests of goodwill at June 30, 2023 using a quantitative assessment and concluded that the fair value of the reporting unit exceeded its carrying value. At September 30, 2023 we reviewed goodwill again through a qualitative assessment concluding no impairment was indicated. We monitor goodwill for potential impairment triggers on a quarterly basis. Given the inherent uncertainties resulting from global macroeconomic conditions, actual results may differ from management’s current estimates and could have an adverse impact on one or more of the assumptions used in our quantitative model prepared for the reporting unit, which could result in impairment charges in subsequent periods.

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

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

The following table presents quarterly operating data highlights for the periods indicated:


	For the three months ended September 30,

	2023		2022

	(In thousands except per share data)
Quarterly operating data:
Interest income	$	104,036	$	81,745
Interest expense		59,609		20,539
Net interest income		44,427		61,206
Provision for credit losses		596		2,145
Noninterest income		3,476		8,995
Noninterest expense		34,415		35,634
Income before income tax expense		12,892		32,422
Income tax expense		3,493		8,980
Net income	$	9,399	$	23,442

Basic earnings per common share	$	0.32	$	0.76
Dividends per common share		0.32		0.76
Average diluted shares		29,703		30,695

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

General. Net income for the three months ended September 30, 2023 was $9.4 million, a decrease of $14.0 million, or 59.9%, from $23.4 million for the three months ended September 30, 2022. Diluted earnings per common share were $0.32 for the three months ended September 30, 2023, a decrease of $0.44 or 57.9%, from $0.76 for the three months ended September 30, 2022. The decrease in net income was primarily due to a decline in the net interest margin which decreased 85 basis points to 2.22% for the three months ended September 30, 2023 from 3.07% for the comparable prior year period. The decline in the net interest margin was driven by the impact Federal Reserve rate increases had on our liability sensitive balance sheet as our interest-bearing liabilities repriced quicker than our interest-earning assets. To mitigate the sensitivity and ease net interest margin compression, the Company opportunistically sought out derivative swaps to align with our strategic business plan, and to move to a more interest rate neutral position.

Return on average equity was 5.57% for the three months ended September 30, 2023 compared to 13.91% for the three months ended September 30, 2022. Return on average assets was 0.44% for the three months ended September 30, 2023 compared to 1.11% for the three months ended September 30, 2022.

Interest Income. Interest and dividend income increased $22.3 million, or 27.3%, to $104.0 million for the three months ended September 30, 2023 from $81.7 million for the three months ended September 30, 2022. The increase in interest income was primarily attributable to the 110 basis point increase in the yield on interest-earning assets to 5.20% for the three months ended September 30, 2023 compared to 4.10% for the three month ended September 30, 2022. In addition, the average balance of total interest-earning assets increased $38.4 million from 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 interest-earning assets increased 108 basis points to 5.07% for the three months ended September 30, 2023 from 3.99% for the three months ended September 30, 2022.

Interest Expense. Interest expense increased $39.1 million, or 190.2%, to $59.6 million for the three months ended September 30, 2023 from $20.5 million for the three months ended September 30, 2022. The growth in interest expense was primarily due to an increase of 227 basis points in the average cost of interest-bearing liabilities to 3.52% for the three

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months ended September 30, 2023 from 1.25% for the three months ended September 30, 2022 and the increase of $218.8 million in the average balance of interest-bearing liabilities to $6,771.9 million for the three months ended September 30, 2023 from $6,553.1 million for the comparable prior year period. Rising rates have driven the increase in our cost of funds as the Federal Reserve increased rates 225 basis points between September 30, 2022 and September 30, 2023.

Net Interest Income. Net interest income for the three months ended September 30, 2023 was $44.4 million, a decrease of $16.8 million, or 27.4%, from $61.2 million for the three months ended September 30, 2022. The decrease in net interest income was driven by the net interest margin decreasing 85 basis points to 2.22% for the three months ended September 30, 2023 from 3.07% for the three months ended September 30, 2022. In addition, net interest income was negatively impacted by a decline in net interest-earning assets totaling $180.4 million to $1,245.6 million for the quarter ended September 30, 2023. The decrease in net interest-earning assets was primarily due to limited demand for lending coupled with the average balance of non-interest-bearing deposits declining $198.6 million to $851.7 million for the three months ended September 30, 2023 compared to $1,050.3 million for the three months ended September 30, 2022. Included in net interest income for the three months ended September 30, 2023 and 2022, was prepayment penalty income totaling $0.7 million and $1.3 million, respectively, net reversals and recovered interest from non-accrual loans totaling $0.2 million and $0.1 million, respectively, net gains from fair value adjustments on qualifying hedges totaling $1.3 million and less than $0.1 million, respectively, and purchase accounting income adjustments of $0.3 million and $0.8 million, respectively. Excluding all of these items, the net interest margin for the three months ended September 30, 2023 was 2.09%, a decrease of 87 basis points, from 2.96% for the three months ended September 30, 2022.

Provision for Credit Losses. During the three months ended September 30, 2023, the provision for credit losses was $0.6 million compared to $2.1 million for the three months ended September 30, 2022. The provision recorded during the three months ended September 30, 2023, was driven by increasing reserves for the elevated risk presented by the current rate environment to adjustable-rate loan’s debt coverage ratios, partially offset by a fully reserved loan paid off during the quarter. The current average loan-to-value ratio for our non-performing assets collateralized by real estate was 50.0% at September 30, 2023. The Bank continues to maintain conservative underwriting standards.

Non-Interest Income. Non-interest income for the three months ended September 30, 2023 was $3.5 million, a decrease of $5.5 million, or 61.4% from $9.0 million in the prior year comparable period. The decrease was primarily due to net losses from fair value adjustments totaling $1.2 million in the current period compared to a net gain of $5.6 million recorded during the prior year period.

Non-Interest Expense. Non-interest expense for the three months ended September 30, 2023 was $34.4 million, a decrease of $1.2 million, or 3.4%, from $35.6 million for the three months ended September 30, 2022. The decrease was primarily due to lower salary related expense accruals, and a $3.1 million net benefit for Employee Retention Tax Credit refunds partially offset by higher other operating expenses.

Income before Income Taxes. Income before income taxes for the three months ended September 30, 2023 was $12.9 million, a decrease of $19.5 million, or 60.2%, from $32.4 million for the three months ended September 30, 2022 for the reasons discussed above.

Provision for Income Taxes. The provision for income taxes was $3.5 million for the three months ended September 30, 2023, a decrease of $5.5 million, or 61.1%, from $9.0 million for the three months ended September 30, 2022. The decrease was primarily due to the decline in income before income taxes. The effective tax rate for the three months ended September 30, 2023 was 27.1% compared to 27.7% for the three months ended September 30, 2022.

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Management’s Discussions and Analysis of

Financial Condition and Results of Operations

The following table presents operating data highlights for the periods indicated:


	For the nine months ended September 30,

	2023		2022

	(In thousands except per share data)
Operating data:
Interest income	$	292,714	$	227,356
Interest expense		159,647		37,941
Net interest income		133,067		189,415
Provision for credit losses		9,520		5,093
Noninterest income		15,506		17,661
Noninterest expense		107,397		109,950
Income before income tax expense		31,656		92,033
Income tax expense		8,471		25,337
Net income	$	23,185	$	66,696

Basic earnings per common share	$	0.77	$	2.15
Dividends per common share		0.77		2.15
Average diluted shares		30,017		30,960

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

General. Net income for the nine months ended September 30, 2023 was $23.2 million, a decrease of $43.5 million, or 65.2%, from $66.7 million for the nine months ended September 30, 2022. Diluted earnings per common share were $0.77 for the nine months ended September 30, 2023, a decrease of $1.38 or 64.2%, from $2.15 for the nine months ended September 30, 2022. The decrease in net income was primarily due to a decline in the net interest margin which decreased 104 basis points to 2.22% for the nine months ended September 30, 2023 from 3.26% for the comparable prior year period. The decline in the net interest margin was driven by the impact Federal Reserve rate increases had on our liability sensitive balance sheet as our interest-bearing liabilities repriced quicker than our interest-earning assets. To mitigate the sensitivity and ease net interest margin compression, the Company opportunistically sought out derivative swaps to align with our strategic plans.

Return on average equity was 4.56% for the nine months ended September 30, 2023 compared to 13.24% for the nine months ended September 30, 2022. Return on average assets was 0.36% for the nine months ended September 30, 2023 compared to 1.08% for the nine months ended September 30, 2022.

Interest Income. Interest and dividend income increased $65.4 million, or 28.7%, to $292.7 million for the nine months ended September 30, 2023 from $227.4 million for the nine months ended September 30, 2022. The increase in interest income was primarily attributable to the 97 basis point increase in the yield on interest-earning assets to 4.88% for the nine months ended September 30, 2023 compared to 3.91% for the comparable prior year period. In addition, the average balance of interest-earnings assets increased $235.3 million from 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 interest-earning assets, increased 103 basis points to 4.81% for the nine months ended September 30, 2023 from 3.78% for the nine months ended September 30, 2022.

Interest Expense. Interest expense increased $121.7 million, or 320.8%, to $159.6 million for the nine months ended September 30, 2023 from $37.9 million for the nine months ended September 30, 2022. The growth in interest expense was primarily due to an increase of 237 basis points in the average cost of interest-bearing liabilities to 3.16% for the nine months ended September 30, 2023 from 0.79% for the nine months ended September 30, 2022 and an increase of $372.8

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Financial Condition and Results of Operations

million in the average balance of interest-bearing liabilities to $6,744.3 million for the nine months ended September 30, 2023 from $6,371.5 million for the comparable prior year period. Rising rates have driven the increase in our cost of funds as the Federal Reserve increased rates by 225 basis points between September 30, 2022 and September 30, 2023.

Net Interest Income. Net interest income for the nine months ended September 30, 2023 was $133.1 million, a decrease of $56.3 million, or 29.7%, from $189.4 million for the nine months ended September 30, 2022. The decrease in net interest income was driven by the net interest margin decreasing 104 basis points to 2.22% for the nine months ended September 30, 2023 from 3.26% for the nine months ended September 30, 2022. In addition, net interest income was negatively impacted by a year over year decline in net interest-earning assets totaling $137.5 million to $1,255.8 million for the nine months ended September 30, 2023. The decrease in net interest-earning assets was primarily due to limited demand for lending coupled with the average balance of non-interest-bearing deposits declining $166.5 million to $865.8 million for the nine months ended September 30, 2023 compared to $1,032.3 million for the nine months ended September 30, 2022. Included in net interest income for the nine months ended September 30, 2023 and 2022, was prepayment penalty income totaling $1.6 million and $5.1 million, respectively, net reversals and recovered interest from non-accrual loans totaling $0.3 million and $0.2 million, respectively, net gains (losses) from fair value adjustments on qualifying hedges totaling $1.2 million and ($0.2) million, respectively, and purchase accounting income of $1.0 million and $2.2 million, respectively. Excluding all of these items, the net interest margin for the nine months ended September 30, 2023 was 2.15%, a decrease of 98 basis points, from 3.13% for the nine months ended September 30, 2022.

Provision for Credit Losses. During the nine months ended September 30, 2023, the provision for credit losses was $9.5 million compared to $5.1 million for the nine months ended September 30, 2022. The provision recorded during the nine months ended September 30, 2023, was driven by fully reserving for two non-accrual business loans that were subsequently charged-off, and increasing reserves for the elevated risk presented by the current rate environment to adjustable-rate loan’s debt coverage ratios. The current average loan-to-value ratio for our non-performing assets collateralized by real estate was 50.0% at September 30, 2023. The Bank continues to maintain conservative underwriting standards.

Non-Interest Income. Non-interest income for the nine months ended September 30, 2023 was $15.5 million, a decrease of $2.2 million, or 12.2% from $17.7 million in the prior year comparable period. The decrease was primarily due to net gains from fair value adjustments totaling $1.7 million in the current period compared to $6.4 million recorded during the prior year period.

Non-Interest Expense. Non-interest expense for the nine months ended September 30, 2023 was $107.4 million, a decrease of $2.6 million, or 2.3%, from $110.0 million for the nine months ended September 30, 2022. The decrease was primarily due to lower salary related expense accruals, a $6.6 million net benefit for Employee Retention Tax Credit refunds and the effects of the decreased stock price on the attendant benefits plans.

Income before Income Taxes. Income before income taxes for the nine months ended September 30, 2023 was $31.7 million, a decrease of $60.4 million, or 65.6%, from $92.0 million for the nine months ended September 30, 2022 for the previously discussed reasons.

Provision for Income Taxes. The provision for income taxes was $8.5 million for the nine months ended September 30, 2023, a decrease of $16.9 million, or 66.6%, from $25.3 million for the nine months ended September 30, 2022. The decrease was primarily due to the decline in income before income taxes. The effective tax rate for nine months ended September 30, 2023 was 26.8% compared to 27.5% for the nine months ended September 30, 2022.

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FINANCIAL CONDITION

Assets. Total assets at September 30, 2023 were $8,577.3 million, an increase of $154.3 million, or 1.8%, from $8,422.9 million at December 31, 2022. Total net loans decreased $37.5 million, or 0.5%, during the nine months ended September 30, 2023, to $6,856.8 million from $6,894.3 million at December 31, 2022. Loan originations and purchases were $573.8 million for the nine months ended September 30, 2023, a decrease of $723.0 million, or 55.8%, from $1,296.8 million for the nine months ended September 30, 2022. The decreased loan originations were a result of interest rate increases over the past year as customers adapt to the increased rate environment. 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 $363.3 million at September 30, 2023, compared to $252.2 million at December 31, 2022.

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


	For the three months ended				For the nine months ended
	September 30,				September 30,
(In thousands)	2023		2022		2023		2022
Multi-family residential	$	75,655	$	173,980	$	149,720	$	409,086
Commercial real estate		70,197		77,777		124,290		287,705
One-to-four family – mixed-use property		6,028		12,383		16,778		33,109
One-to-four family – residential		1,070		4,102		5,429		17,550
Construction ⁽¹⁾		6,971		7,170		26,374		24,291
Small Business Administration		—		46		1,138		2,796
Commercial business and other ⁽²⁾		81,549		188,202		250,067		522,229
Total	$	241,470	$	463,660	$	573,796	$	1,296,766

(1) Includes purchases of $0.7 million for the three months ended September 30, 2022. Includes purchases of $0.1 million and $2.3 million for the nine months ended September 30, 2023 and 2022, respectively.

(2) Includes purchases of $36.7 million and $109.4 million for the three months ended September 30, 2023 and 2022, respectively. Includes purchases of $120.6 million and $205.3 million for the nine months ended September 30, 2023 and 2022, respectively.

The Bank maintains its conservative underwriting standards that include, among other things, a loan-to-value ratio of 75% or less and a debt coverage ratio of at least 125%. Multi-family residential (excluding underlying co-operative mortgages), commercial real estate and one-to-four family mixed-use property mortgage loans originated and purchased during the nine months ended September 30, 2023 had an average loan-to-value ratio of 43.6% and an average debt coverage ratio of 175.0%.

The Bank’s non-performing assets totaled $38.4 million at September 30, 2023, a decrease of $15.0 million, or 28.1% from December 31, 2022. Total non-performing assets as a percentage of total assets were 0.45% at September 30, 2023 and 0.63% at December 31, 2022. The ratio of ACL – loans to total non-performing loans was 225.4% at September 30, 2023 and 124.9% at December 31, 2022.

During the nine months ended September 30, 2023 mortgage-backed securities decreased $46.4 million, or 11.8%, to $345.7 million from $392.2 million at December 31, 2022. The decrease in mortgage-backed securities during the nine months ended September 30, 2023 was primarily due to the principal repayment of securities totaling $31.8 million and a decrease in the fair value totaling $13.9 million.

During the nine months ended September 30, 2023, other securities increased $154.1 million, or 37.0%, to $571.1 million from $416.9 million at December 31, 2022. The increase in other securities during the nine months ended September 30, 2023, was primarily due to purchases of $171.7 million at an average rate of 6.55% partially offset by maturities totaling $10.0 million and a decrease in the fair value totaling $2.6 million. At September 30, 2023, 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.

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Financial Condition and Results of Operations

Liabilities. Total liabilities were $7,908.1 million at September 30, 2023, an increase of $162.4 million, or 2.1%, from $7,745.8 million at December 31, 2022. During the nine months ended September 30, 2023, due to depositors increased $172.3 million, or 2.7%, to $6,609.5 million due to an increase of certificates of deposit totaling $795.0 million partially offset by a net decrease in all other deposit accounts totaling $622.7 million. The Company has based deposit growth on certificates of deposit as they extend liabilities thus reducing interest rate risk. Included in deposits were brokered deposits totaling $1,102.6 million, an increase of $246.3 million from $856.3 million at December 31, 2022. At September 30, 2023, the Company had uninsured deposits totaling $1.9 billion, or 29% of deposits with $0.9 million of that fully collateralized by some other method leaving uninsured and uncollateralized deposits totaling $1.0 billion or 16% of deposits. Borrowed funds decreased $52.0 million during the nine months ended September 30, 2023.

Total deposits at September 30, 2023 and December 31, 2022 and the weighted average rate on deposits at September 30, 2023 and December 31, 2022, are as follows:


					Weighted		Weighted
					Average		Average
	September 30,		December 31,		Rate		Rate
	2023		2022		2023 ⁽¹⁾		2022 ⁽¹⁾

Interest-bearing deposits:	(Dollars in thousands)
Certificate of deposit accounts	$	2,321,369	$	1,526,338	4.35	%	3.03	%
Savings accounts		112,730		143,641	0.44		0.21
Money market accounts		1,551,176		2,099,776	3.76		2.47
NOW accounts		1,749,802		1,746,190	3.54		2.14
Total interest-bearing deposits		5,735,077		5,515,945
Non-interest bearing demand deposits		874,420		921,238
Total due to depositors		6,609,497		6,437,183
Mortgagors' escrow deposits		72,012		48,159
Total deposits	$	6,681,509	$	6,485,342

(1) The weighted average rate does not reflect the benefit of interest rate swaps.

Equity. Total stockholders’ equity decreased $8.0 million, or 1.2%, to $669.1 million at September 30, 2023, from $677.2 million at December 31, 2022. Stockholders’ equity decreased due to the declaration and payment of dividends on the Company’s common stock of $0.66 per common share totaling $19.8 million, the repurchase of 747,683 shares at an average cost of $14.49 per share totaling $10.8 million and a decrease of $4.4 million in accumulated other comprehensive income. These decreases were partially offset by net income of $23.2 million. Book value per common share increased to $23.15 at September 30, 2023 compared to $22.97 at December 31, 2022.

Liquidity. Liquidity is the ability to economically meet current and future financial obligations. The Company’s primary objectives in terms of managing liquidity are 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, and other types of borrowings. At September 30, 2023, the Company had available liquidity totaling $3.7 billion.

Liquidity management is both a short and long-term function of business management. During 2023, funds were provided by the Company’s operating and financing activities, which were used to fund our investing activities. Our most liquid assets are cash and cash equivalents, which include cash and due from banks, overnight interest-earning deposits and 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, 2023, cash and cash equivalents

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Financial Condition and Results of Operations

totaled $200.9 million, an increase of $49.2 million, or 32.4% from $151.8 million, at December 31, 2022. A portion of our cash and cash equivalents is restricted cash held as collateral for interest rate swaps. At September 30, 2023 and December 31, 2022, restricted cash totaled $92.1 million and $67.0 million, respectively.

The following table presents the Company’s available liquidity by source at the period indicated below


		At September 30, 2023
		Total		Amount		Net
		Available		Used		Availability

Internal Sources:		(In millions)
Free Securities	$	728.2	$	—	$	728.2
Interest Earnings Deposits		61.6		—		61.6
External Sources:
Federal Home Loan Bank		3,791.8		1,883.9		1,907.9
Other Banks		1,028.0		—		1,028.0
Total Liquidity	$	5,609.6	$	1,883.9	$	3,725.7

INTEREST RATE RISK

Economic Value of Equity Analysis. The Consolidated Statements of Financial Condition 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, 2023. Various estimates regarding prepayment assumptions are made at each level of rate shock. At September 30, 2023, the Company was within the guidelines set forth by the Board of Directors for each interest rate level.

The following table presents the change in the Company’s net portfolio value and the net portfolio value ratio as of September 30, 2023:


	Projected Percentage Change In
Change in Interest Rate		Net Portfolio Value (NPV)		Net Portfolio Value Ratio
-200 Basis points		(3.8)	%	9.8	%
-100 Basis points		(1.4)		10.2
Base interest rate		-		10.5
+100 Basis points		(1.9)		10.5
+200 Basis points		(3.6)		10.4

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Management’s Discussions and Analysis of

Financial Condition and Results of Operations

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 Asset-Liability Investment Committee (“ALCO”) 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 months’ net interest income assuming that both interest rates and the Company’s interest-sensitive assets and liabilities remain at period-end levels.

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, 2023 and 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, 2023 and 2022:


	Projected Percentage Change In Net Interest Income
	September 30,
	2023		2022
-200 Basis points	(1.0)	%	9.8	%
-100 Basis points	-		5.6
Base interest rate	-		-
+100 Basis points	(3.0)		(8.9)
+200 Basis points	(6.0)		(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 1.7% from a 100 basis point increase in rates over the next twelve months. Actual results could differ significantly from these estimates.

At September 30, 2023, the Company had a derivative portfolio with a notional value totaling $2.3 billion. This portfolio is designed to move the Company more towards interest rate neutral from changes in interest rates. See Note 11 (“Derivative Financial Instruments”) of the Notes to the Consolidated Financial Statements. The significant improvement in the rate sensitivity over the past year is primarily due to an increase in the use of interest rate hedges.

A portion of this portfolio is comprised of interest rate swaps on certain short-term advances and deposits totaling $826.8 million. At September 30, 2023, $776.8 million of the interest rate swaps are effective swaps at a weighted average rate of approximately 2.39% that mature through 2027 and $50.0 million of the interest rate swaps are forward swaps effective in 2024, at an average rate of 0.80%. The Company also has $200.0 million of portfolio layer pay fixed fair value swaps as a hedge for securities with a weighted average receive rate of 5.33% and $500.0 million of pay fixed fair value swaps as a hedge for the loan portfolio with a weighted average receive rate of 5.33%..

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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 rates 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, 2023 and 2022, 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,
	2023						2022
	Average				Yield/		Average				Yield/
	Balance		Interest		Cost		Balance		Interest		Cost

Assets	(Dollars in thousands)
Interest-earning assets:
Mortgage loans, net	$	5,314,215	$	68,931	5.19	%	$	5,340,694	$	58,374	4.37	%
Other loans, net		1,498,804		22,535	6.01			1,520,769		17,172	4.52
Total loans, net^{(1) (2)}		6,813,019		91,466	5.37			6,861,463		75,546	4.40
Taxable securities:
Mortgage-backed securities		436,181		3,031	2.78			568,854		2,466	1.73
Other securities		528,091		7,003	5.30			362,629		2,839	3.13
Total taxable securities		964,272		10,034	4.16			931,483		5,305	2.28
Tax-exempt securities: ⁽³⁾
Other securities		66,438		484	2.91			67,211		492	2.93
Total tax-exempt securities		66,438		484	2.91			67,211		492	2.93
Interest-earning deposits and federal funds sold		173,731		2,154	4.96			118,913		506	1.70
Total interest-earning assets ⁽³⁾		8,017,460		104,138	5.20			7,979,070		81,849	4.10
Other assets		486,904						463,587
Total assets	$	8,504,364					$	8,442,657
Liabilities and Equity
Interest-bearing liabilities
Deposits:
Savings accounts	$	115,437		130	0.45		$	154,545		53	0.14
NOW accounts		1,907,781		16,843	3.53			1,808,608		3,640	0.81
Money market accounts		1,584,308		14,386	3.63			2,136,829		5,280	0.99
Certificate of deposit accounts		2,290,669		18,639	3.25			1,057,733		2,948	1.11
Total due to depositors		5,898,195		49,998	3.39			5,157,715		11,921	0.92
Mortgagors' escrow accounts		69,525		68	0.39			68,602		44	0.26
Total deposits		5,967,720		50,066	3.36			5,226,317		11,965	0.92
Borrowed funds		804,140		9,543	4.75			1,326,770		8,574	2.58
Total interest-bearing liabilities		6,771,860		59,609	3.52			6,553,087		20,539	1.25
Non-interest-bearing deposits		851,677						1,050,296
Other liabilities		205,314						164,992
Total liabilities		7,828,851						7,768,375
Equity		675,513						674,282
Total liabilities and equity	$	8,504,364					$	8,442,657
Net interest income / net interest rate spread (tax equivalent) ⁽³⁾			$	44,529	1.68	%			$	61,310	2.85	%
Net interest-earning assets / net interest margin(tax equivalent) ⁽³⁾	$	1,245,600			2.22	%	$	1,425,983			3.07	%
Ratio of interest-earning assets to interest-bearing liabilities					1.18	X					1.22	X

(1) Loan interest income includes loan fee income (expense) (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $0.4 million and $1.6 million for the three months ended September 30, 2023 and 2022, respectively.

(2) Loan interest income includes net gains from fair value adjustments on qualifying hedges of $1.4 million and $28,000 for three months ended September 30, 2023 and 2022, respectively.

(3) Interest and yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented totaling $0.1 million each for the three months ended September 30, 2023 and 2022.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations


	For the nine months ended September 30,
	2023						2022
	Average				Yield/		Average				Yield/
	Balance		Interest		Cost		Balance		Interest		Cost

Assets	(Dollars in thousands)
Interest-earning assets:
Mortgage loans, net	$	5,318,616	$	194,673	4.88	%	$	5,224,289	$	167,119	4.27	%
Other loans, net		1,519,124		65,059	5.71			1,470,239		45,135	4.09
Total loans, net^{(1) (2)}		6,837,740		259,732	5.06			6,694,528		212,254	4.23
Taxable securities:
Mortgage-backed securities		447,491		8,288	2.47			581,439		6,989	1.60
Other securities		470,898		17,461	4.94			308,008		6,048	2.62
Total taxable securities		918,389		25,749	3.74			889,447		13,037	1.95
Tax-exempt securities: ⁽³⁾
Other securities		66,631		1,441	2.88			64,081		1,708	3.55
Total tax-exempt securities		66,631		1,441	2.88			64,081		1,708	3.55
Interest-earning deposits and federal funds sold		177,369		6,095	4.58			116,817		716	0.82
Total interest-earning assets ⁽³⁾		8,000,129		293,017	4.88			7,764,873		227,715	3.91
Other assets		478,170						471,197
Total assets	$	8,478,299					$	8,236,070
Liabilities and Equity
Interest-bearing liabilities
Deposits:
Savings accounts	$	124,736		396	0.42		$	155,966		152	0.13
NOW accounts		1,968,199		46,780	3.17			1,977,621		5,838	0.39
Money market accounts		1,797,398		43,113	3.20			2,206,973		8,507	0.51
Certificate of deposit accounts		2,007,954		44,927	2.98			923,301		5,510	0.80
Total due to depositors		5,898,287		135,216	3.06			5,263,861		20,007	0.51
Mortgagors' escrow accounts		79,136		155	0.26			79,192		52	0.09
Total deposits		5,977,423		135,371	3.02			5,343,053		20,059	0.50
Borrowed funds		766,919		24,276	4.22			1,028,489		17,882	2.32
Total interest-bearing liabilities		6,744,342		159,647	3.16			6,371,542		37,941	0.79
Non-interest-bearing deposits		865,777						1,032,319
Other liabilities		190,699						160,621
Total liabilities		7,800,818						7,564,482
Equity		677,481						671,588
Total liabilities and equity	$	8,478,299					$	8,236,070
Net interest income / net interest rate spread (tax equivalent) ⁽³⁾			$	133,370	1.72	%			$	189,774	3.12	%
Net interest-earning assets / net interest margin (tax equivalent) ⁽³⁾	$	1,255,787			2.22	%	$	1,393,331			3.26	%
Ratio of interest-earning assets to interest-bearing liabilities					1.19	X					1.22	X

(1) Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $0.5 million and $6.8 million for the nine months ended September 30, 2023 and 2022, respectively.

(2) Loan interest income includes net gains (losses) from fair value adjustments on qualifying hedges of $1.3 million and ($0.2) million for nine months ended September 30, 2023 and 2022, 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 $0.3 million and $0.4 million for the nine months ended September 30, 2023 and 2022, respectively.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

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)	2023		2022
Mortgage Loans
At beginning of period	$	5,380,935	$	5,200,782
Mortgage loans originated:
Multi-family residential		149,720		409,086
Commercial real estate		124,290		287,705
One-to-four family mixed-use property		16,778		33,109
One-to-four family residential		5,429		17,550
Construction		26,245		21,999
Total mortgage loans originated		322,462		769,449

Mortgage loans purchased:
Construction		129		2,292
Total mortgage loans purchased		129		2,292

Less:
Principal reductions		307,017		555,959
Mortgage loan sales		8,506		29,024
Charge-Offs		20		2
At end of period	$	5,387,983	$	5,387,538

Non-mortgage loans
At beginning of period	$	1,544,823	$	1,433,084
Loans originated:
Small Business Administration		1,138		2,796
Commercial business		126,547		314,315
Other		2,929		2,660
Total other loans originated		130,614		319,771

Non-mortgage loans purchased:
Commercial business		120,591		205,254
Total non-mortgage loans purchased		120,591		205,254

Less:
Principal reductions ⁽¹⁾		275,329		397,520
Charge-offs ⁽²⁾		11,028		380
At end of period	$	1,509,671	$	1,560,209

(1) Includes SBA PPP reductions totaling $1.3 million and $67.8 million for the nine months ended September 30, 2023 and 2022, respectively.

(2) 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.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

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 period indicated:


	December 31,
(In thousands)	2022
Accrual Status:
Multi-family residential	$	1,673
Commercial real estate		7,572
One-to-four family - mixed-use property		974
One-to-four family - residential		253
Commercial business and other		1,069
Total		11,541

Non-Accrual Status:
One-to-four family - mixed-use property		248
Commercial business and other		28
Total		276
Total performing troubled debt restructured	$	11,817

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

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



	September 30,			December 31,
(In thousands)	2023			2022
Loans 90 days or more past due and still accruing:
Construction	$	—		$	2,600
Total		—			2,600
Non-accrual loans:
Multi-family residential		3,206			3,206
Commercial real estate		—			237
One-to-four family - mixed-use property ⁽¹⁾		1,075			790
One-to-four family - residential		4,161			4,425
Small business administration		1,255			937
Commercial Business and other ⁽¹⁾		7,708			20,187
Total		17,405			29,782
Total non-performing loans		17,405			32,382
Other non-performing assets:
Held-to-maturity securities		20,981			20,981
Total		20,981			20,981

Total non-performing assets	$	38,386		$	53,363

Non-performing assets to total assets		0.45	%		0.63	%
ACL - loans to non-accrual loans		225.38	%		135.79	%
ACL - loans to non-performing assets		102.19	%		75.79	%

(1) Adopted ASU No. 2022-02 Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023; 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 $0.2 million, and commercial business loans totaling less than $0.1 million at December 31, 2022.

CRITICIZED AND CLASSIFIED ASSETS

Our policy is to review our assets, focusing primarily on the loan portfolio, other real estate owned, and the investment portfolio, 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, 2023. The amortized cost of Criticized and Classified assets were $96.7 million at September 30, 2023, an increase of $7.8 million from $88.9 million at December 31, 2022. The Company had one investment security with an amortized cost of $21.0 million classified as substandard at September 30, 2023 and December 31, 2022.

Included within net loans at September 30, 2023 and December 31, 2022, were $4.7 million and $5.2 million respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

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)		2023		2022
Balance at beginning of period	$	40,442	$	37,135
Loans- charge-off		(11,050)		(1,410)
Loans- recovery		298		686
Loans- provision		9,538		4,857
Allowance for credit losses - loans	$	39,228	$	41,268


Balance at beginning of period	$	1,100	$	862
Held-to-maturity securities- (benefit) provision		(18)		234
Allowance for HTM securities losses	$	1,082	$	1,096


Balance at beginning of period	$	970	$	1,209
Off-balance sheet- (benefit) provision		(37)		(396)
Allowance for off-balance sheet losses	$	933	$	813

Allowance for credit losses	$	41,243	$	43,177

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussions and Analysis of

Financial Condition and Results of Operations

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)	2023			2022
Balance at beginning of year	$	40,442		$	37,135
Provision for credit losses		9,538			4,857

Loans charged-off:
One-to-four family - residential		(12)			(2)
Commercial real estate		(8)			—
One-to-four family - mixed-use property		—			—
SBA		(7)			(1,054)
Commercial business and other loans		(11,023)			(354)
Total loans charged-off		(11,050)			(1,410)

Recoveries:
Multi-family residential		1			1
One-to-four family - residential		50			4
Small Business Administration		219			39
Taxi medallion		—			447
Commercial business and other		28			195
Total recoveries		298			686

Net charge-offs		(10,752)			(724)
Balance at end of year	$	39,228		$	41,268

Ratio of net charge-offs to average loans outstanding during the period		0.21	%		0.01	%
Ratio of ACL - loans to gross loans at end of period		0.57	%		0.59	%
Ratio of ACL - loans to non-performing loans at end of period		225.38	%		142.29	%

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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, 2023, 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.

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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

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, 2022, and quarterly report on Form 10-Q for the quarter ended March 31, 2023.

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, 2023:


					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, 2023	—		—	—	906,131
August 1 to August 31, 2023	59,352		15.88	59,352	846,779
September 1 to September 30, 2023	—		—	—	846,779
Total	59,352	$	15.88	59,352

On May 30, 2023, the Board of Directors approved an additional one million shares of common stock for repurchase. During the quarter ended September 30, 2023, the Company repurchased 59,352 shares of the Company’s common stock. On September 30, 2023, 846,779 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.

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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 (Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 filed September 1, 1995, Registration No. 33-96488)
3.2		Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (Incorporated by reference to Exhibit 4.2 filed with Form S-8 filed May 31, 2002)
3.3		Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (Incorporated by reference to Exhibit 3.3 filed with Form 10-K for the year ended December 31, 2011)
3.4		Amended and Restated By-Laws of Flushing Financial Corporation (Incorporated by reference to Exhibit 3.6 filed with Form 10-Q for the quarter ended June 30, 2014)
4.1		Indenture dated November 22, 2021, between Flushing Financial Corporation and Wilmington Trust, National Association, as trustee. (Incorporated by reference to Exhibit 4.1 filed with Form 8-K filed November 22, 2021)
4.2		First Supplemental Indenture, dated November 22, 2021, between Flushing Financial Corporation and Wilmington Trust, National Association, as trustee. (Incorporated by reference to Exhibit 4.2 filed with Form 8-K filed November 22, 2021)
4.3		Second Supplemental Indenture, dated August 24, 2022, between Flushing Financial Corporation and Wilmington Trust, National Association, as trustee (Incorporated by reference to Exhibit 4.2 filed with Form 8-K filed August 24, 2022)
4.4		Flushing Financial Corporation has outstanding certain long-term debt. None of such debt exceeds ten percent of Flushing Financial Corporation's total assets; therefore, copies of constituent instruments defining the rights of the holders of such debt are not included as exhibits. Copies of instruments with respect to such long-term debt will be furnished to the Securities and Exchange Commission upon request.
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith)
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith)
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 by the Chief Executive Officer (furnished herewith)
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 by the Chief Financial Officer (furnished herewith)
101.INS		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)

P Indicates a filing submitted in paper.

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

EXHIBIT INDEX


Exhibit No.		Description

3.1 P		Certificate of Incorporation of Flushing Financial Corporation (Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 filed September 1, 1995, Registration No. 33-96488)
3.2		Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (Incorporated by reference to Exhibit 4.2 filed with Form S-8 filed May 31, 2002)
3.3		Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (Incorporated by reference to Exhibit 3.3 filed with Form 10-K for the year ended December 31, 2011)
3.4		Amended and Restated By-Laws of Flushing Financial Corporation (Incorporated by reference to Exhibit 3.6 filed with Form 10-Q for the quarter ended June 30, 2014)
4.1		Indenture dated November 22, 2021, between Flushing Financial Corporation and Wilmington Trust, National Association, as trustee. (Incorporated by reference to Exhibit 4.1 filed with Form 8-K filed November 22, 2021)
4.2		First Supplemental Indenture, dated November 22, 2021, between Flushing Financial Corporation and Wilmington Trust, National Association, as trustee. (Incorporated by reference to Exhibit 4.2 filed with Form 8-K filed November 22, 2021)
4.3		Second Supplemental Indenture, dated August 24, 2022, between Flushing Financial Corporation and Wilmington Trust, National Association, as trustee (Incorporated by reference to Exhibit 4.2 filed with Form 8-K filed August 24, 2022)
4.4		Flushing Financial Corporation has outstanding certain long-term debt. None of such debt exceeds ten percent of Flushing Financial Corporation's total assets; therefore, copies of constituent instruments defining the rights of the holders of such debt are not included as exhibits. Copies of instruments with respect to such long-term debt will be furnished to the Securities and Exchange Commission upon request.
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith)
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith)
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 by the Chief Executive Officer (furnished herewith)
32.2		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 by the Chief Financial Officer (furnished herewith)
101.INS		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)

P Indicates a filing submitted in paper.

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

SIGNATURES

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

		Flushing Financial Corporation,



Dated:	November 7, 2023	By:	/s/John R. Buran
			John R. Buran
			President and Chief Executive Officer



Dated:	November 7, 2023	By:	/s/Susan K. Cullen
			Susan K. Cullen
			Senior Executive Vice President, Treasurer and
			Chief Financial Officer

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