FFIC 10-Q Quarter ended March 31, 2018

i

		March 31,				December 31,
		2018				2017
		(Dollars in thousands, except per share data)
Assets
Cash and due from banks		$	91,959			$	51,546
Securities held-to-maturity:
Mortgage-backed securities (none pledged; fair value of $7,564 and $7,810 at March 31, 2018 and December 31, 2017, respectively)			7,968				7,973
Other securities (none pledged; fair value of $21,347 and $21,889 at March 31, 2018 and December 31, 2017, respectively)			23,267				22,913
Securities available for sale, at fair value:
Mortgage-backed securities (including assets pledged of $245,531 and $148,505 at March 31, 2018 and December 31, 2017, respectively; $1,505 and $1,590 at fair value pursuant to the fair value option at March 31, 2018 and December 31, 2017, respectively)			512,781				509,650
Other securities (including assets pledged of $41,647 and $44,052 at March 31, 2018 and December 31, 2017, respectively; $12,612 and $12,685 at fair value pursuant to the fair value option at March 31, 2018 and December 31, 2017, respectively)			216,480				228,704
Loans:
Multi-family residential			2,286,803				2,273,595
Commercial real estate			1,426,847				1,368,112
One-to-four family ― mixed-use property			566,930				564,206
One-to-four family ― residential			190,115				180,663
Co-operative apartments			6,826				6,895
Construction			23,887				8,479
Small Business Administration			20,004				18,479
Taxi medallion			6,617				6,834
Commercial business and other			768,440				732,973
Net unamortized premiums and unearned loan fees			16,395				16,763
Allowance for loan losses			(20,542	)			(20,351	)
Net loans			5,292,322				5,156,648
Interest and dividends receivable			22,578				21,405
Bank premises and equipment, net			31,314				30,836
Federal Home Loan Bank of New York stock, at cost			54,045				60,089
Bank owned life insurance			130,653				131,856
Goodwill			16,127				16,127
Other assets			83,277				61,527
Total assets		$	6,482,771			$	6,299,274
Liabilities
Due to depositors:
Non-interest bearing		$	377,861			$	385,269
Interest-bearing			4,257,942				3,955,403
Mortgagors' escrow deposits			65,979				42,606
Borrowed funds:
Federal Home Loan Bank advances			1,064,641				1,198,968
Subordinated debentures			73,768				73,699
Junior subordinated debentures, at fair value			38,692				36,986
Total borrowed funds			1,177,101				1,309,653
Other liabilities			68,581				73,735
Total liabilities			5,947,464				5,766,666
Stockholders' Equity
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued)			-				-
Common stock ($0.01 par value; 100,000,000 shares authorized; 31,530,595 shares issued at March 31, 2018 and December 31, 2017; 28,546,443 shares and 28,588,266 shares outstanding at March 31, 2018 and December 31, 2017, respectively)			315				315
Additional paid-in capital			219,115				217,906
Treasury stock, at average cost (2,984,152 shares and 2,942,329 at March 31, 2018 and December 31, 2017, respectively)			(60,737	)			(57,675	)
Retained earnings			387,793				381,048
Accumulated other comprehensive loss, net of taxes			(11,179	)			(8,986	)
Total stockholders' equity			535,307				532,608
Total liabilities and stockholders' equity		$	6,482,771			$	6,299,274

- 1 -

		For the three months
		ended March 31,
(Dollars in thousands, except per share data)		2018				2017
Interest and dividend income
Interest and fees on loans		$	55,017			$	50,885
Interest and dividends on securities:
Interest			5,468				6,095
Dividends			14				121
Other interest income			287				153
Total interest and dividend income			60,786				57,254
Interest expense
Deposits			12,110				8,980
Other interest expense			6,067				4,885
Total interest expense			18,177				13,865
Net interest income			42,609				43,389
Provision for loan losses			153				-
Net interest income after provision for loan losses			42,456				43,389
Non-interest income
Banking services fee income			948				874
Net (loss) gain on sale of loans			(263	)			210
Net loss from fair value adjustments			(100	)			(378	)
Federal Home Loan Bank of New York stock dividends			876				823
Gain from life insurance proceeds			776				1,161
Bank owned life insurance			762				795
Other income			201				204
Total non-interest income			3,200				3,689
Non-interest expense
Salaries and employee benefits			18,455				17,104
Occupancy and equipment			2,577				2,496
Professional services			2,185				1,996
FDIC deposit insurance			500				326
Data processing			1,401				1,203
Depreciation and amortization			1,389				1,165
Other real estate owned/foreclosure expense			96				351
Net gain from sales of real estate owned			-				(50	)
Other operating expenses			4,691				4,973
Total non-interest expense			31,294				29,564
Income before income taxes			14,362				17,514
Provision for income taxes
Federal			2,607				4,749
State and local			343				505
Total taxes			2,950				5,254
Net income		$	11,412			$	12,260
Basic earnings per common share		$	0.39			$	0.42
Diluted earnings per common share		$	0.39			$	0.42
Dividends per common share		$	0.20			$	0.18

- 2 -

		For the three months ended
		March 31,
(In thousands)		2018				2017
Net income		$	11,412			$	12,260
Other comprehensive income (loss), net of tax:
Amortization of actuarial losses, net of taxes of ($41) and ($64) for the three months ended March 31, 2018 and 2017, respectively.			91				87
Amortization of prior service credits, net of taxes of $3 and $4 for the three months ended March 31, 2018 and 2017, respectively.			(7	)			(7	)
Net unrealized (losses) gains on securities, net of taxes of $3,055 and ($811) for the three months ended March 31, 2018 and 2017, respectively.			(6,640	)			1,148
Net unrealized gain on cash flow hedges, net of taxes of ($2,604) for the three months ended March 31, 2018.			5,661				-
Total other comprehensive income (loss), net of tax			(895	)			1,228
Comprehensive income		$	10,517			$	13,488

- 3 -

		For the three months ended
		March 31,
(In thousands)		2018				2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		$	11,412			$	12,260
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			153				-
Depreciation and amortization of bank premises and equipment			1,389				1,165
Amortization of premium, net of accretion of discount			2,018				1,903
Net loss from fair value adjustments			100				378
Net loss (gain) from sale of loans			263				(210	)
Net gain from sale of OREO			-				(50	)
Income from bank owned life insurance			(762	)			(795	)
Gain from life insurance proceeds			(776	)			(1,161	)
Stock-based compensation expense			3,452				3,085
Deferred compensation			(1,238	)			(1,431	)
Deferred income tax expense			350				2,501
Increase in other liabilities			(118	)			2,709
Decrease (increase) in other assets			(955	)			(4,314	)
Net cash provided by operating activities			15,288				16,040
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of bank premises and equipment			(1,867	)			(630	)
Net redemptions of Federal Home Loan Bank of New York shares			6,044				1,789
Purchases of securities held-to-maturity			(353	)			-
Proceeds from maturities of securities held-to-maturity			-				1,330
Purchases of securities available for sale			(32,646	)			(40,581	)
Proceeds from sales and calls of securities available for sale			10,000				-
Proceeds from maturities and prepayments of securities available for sale			20,943				18,691
Proceeds from bank owned life insurance			2,741				651
Net originations of loans			(83,734	)			(129,764	)
Purchases of loans			(68,818	)			(15,621	)
Proceeds from sale of real estate owned			-				583
Proceeds from sale of loans			2,464				5,190
Net cash used in investing activities			(145,226	)			(158,362	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in non-interest bearing deposits			(7,408	)			10,865
Net increase in interest-bearing deposits			302,438				172,471
Net increase in mortgagors' escrow deposits			23,373				21,612
Net repayments from short-term borrowed funds			(10,500	)			(68,500	)
Proceeds from long-term borrowings			-				80,000
Repayment of long-term borrowings			(123,794	)			(51,254	)
Purchases of treasury stock			(7,963	)			(2,268	)
Cash dividends paid			(5,795	)			(5,246	)
Net cash provided by financing activities			170,351				157,680
Net increase in cash and cash equivalents			40,413				15,358
Cash and cash equivalents, beginning of period			51,546				35,857
Cash and cash equivalents, end of period		$	91,959			$	51,215
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid		$	15,233			$	12,491
Income taxes paid			1,103				1,000
Taxes paid if excess tax benefits were not tax deductible			1,691				2,194
Non-cash activities:
Loans transferred to Other Real Estate Owned or Other Assets			744				-

- 4 -

(Dollars in thousands, except per share data)		Total				Common Stock				Additional Paid-in Capital				Retained Earnings				Treasury Stock				Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2017		$	532,608			$	315			$	217,906			$	381,048			$	(57,675	)		$	(8,986	)
Reclassification of the Income Tax Effects of the Tax Cuts and Jobs Act from Accumulated Other Comprehensive Income (Loss) to Retained Earnings			-				-				-				2,073				-				(2,073	)
Impact of adoption of Accounting Standard Update 2016-01			-				-				-				(775	)			-				775
Net Income			11,412				-				-				11,412				-				-
Award of common shares released from Employee Benefit Trust (116,229 shares)			2,488				-				2,488				-				-				-
Vesting of restricted stock unit awards (248,877 shares)			-				-				(4,731	)			(170	)			4,901				-
Stock-based compensation expense			3,452				-				3,452				-				-				-
Purchase of treasury shares (217,863 shares)			(5,913	)			-				-				-				(5,913	)			-
Repurchase of shares to satisfy tax obligation (72,837 shares)			(2,050	)			-				-				-				(2,050	)			-
Dividends on common stock ($0.20 per share)			(5,795	)			-				-				(5,795	)			-				-
Other comprehensive loss			(895	)			-				-				-				-				(895	)
Balance at March 31, 2018		$	535,307			$	315			$	219,115			$	387,793			$	(60,737	)		$	(11,179	)
Balance at December 31, 2016		$	513,853			$	315			$	214,462			$	361,192			$	(53,754	)		$	(8,362	)
Net Income			12,260				-				-				12,260				-				-
Award of common shares released from Employee Benefit Trust (107,605 shares)			2,280				-				2,280				-				-				-
Vesting of restricted stock unit awards (256,810 shares)			-				-				(4,536	)			(262	)			4,798				-
Stock-based compensation expense			3,295				-				3,295				-				-				-
Repurchase of shares to satisfy tax obligation (78,554 shares)			(2,268	)			-				-				-				(2,268	)			-
Dividends on common stock ($0.18 per share)			(5,246	)			-				-				(5,246	)			-				-
Other comprehensive income			1,228				-				-				-				-				1,228
Balance at March 31, 2017		$	525,402			$	315			$	215,501			$	367,944			$	(51,224	)		$	(7,134	)

- 5 -

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

1.

Basis of Presentation

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

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

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

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

The accompanying unaudited consolidated financial statements have been prepared in conformity with the instructions to Quarterly Report on Form 10-Q and Article 10, Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

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

2.	Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Estimates that are particularly susceptible to change in the near term are used in connection with the determination of the allowance for loan losses (“ALLL”), the evaluation of goodwill for impairment, the review of the need for a valuation allowance of the Company’s deferred tax assets, the fair value of financial instruments and the evaluation of other-than-temporary impairment (“OTTI”) on securities. Actual results could differ from these estimates.

3.	Earnings Per Share

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

(1)

For the three months ended March 31, 2018 and 2017, there were no common stock equivalents that were anti-dilutive.

- 6 -

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

4.	Debt and Equity Securities

The Company did not hold any trading securities at March 31, 2018 and December 31, 2017. Securities available for sale are recorded at fair value. Securities held-to-maturity are recorded at amortized cost.

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

The following table summarizes the Company’s portfolio of securities held-to-maturity at December 31, 2017:

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

The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2017:

Mortgage-backed securities shown in the table above include one private issue collateralized mortgage obligation (“CMO”) that is collateralized by commercial real estate mortgages with an amortized cost and market value of $21,000 at December 31, 2017. We did not hold any private issue CMO that is collateralized by commercial real estate mortgages at March 31, 2018.

The corporate securities held by the Company at March 31, 2018 and December 31, 2017 are issued by U.S. banking institutions.

The following tables detail the amortized cost and fair value of the Company’s securities classified as held-to-maturity and available for sale at March 31, 2018, 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.

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:

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

The Company reviewed each investment that had an unrealized loss at March 31, 2018 and December 31, 2017. The unrealized losses in held-to-maturity municipal securities at March 31, 2018 and December 31, 2017 were caused by illiquidity in the market and movements in interest rates. The unrealized losses in held-to-maturity FNMA securities at March 31, 2018 and December 31, 2017 were caused by movements in interest rates. The unrealized losses in securities available for sale at March 31, 2018 and December 31, 2017 were caused by movements in interest rates.

It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment. Each of these securities is performing according to its terms and, in the opinion of management, will continue to perform according to its terms. The Company does not have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before recovery of the securities’ amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital requirements and contractual and regulatory obligations, none of which the Company believes would cause the sale of the securities. Therefore, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2018 and December 31, 2017.

The Company did not sell any securities during the three months ended March 31, 2018 and 2017.

5.

Loans

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

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

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

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

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

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

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

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

The Company segregated its loans into two portfolios based on year of origination. One portfolio was reviewed for loans originated after December 31, 2009 and a second portfolio for loans originated prior to January 1, 2010. Our decision to segregate the portfolio based upon origination dates was based on changes made in our underwriting standards during 2009. By the end of 2009, all loans were being underwritten based on revised and tightened underwriting standards. Loans originated prior to 2010 have a higher delinquency rate and loss history. Each of the years in the portfolio for loans originated prior to 2010 has a similar delinquency rate. For the three months ended March 31, 2018, the Company used a loss emergence period of 1.33 years. The Company’s Board of Directors reviews and approves management’s evaluation of the adequacy of the allowance for loan losses on a quarterly basis.

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

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

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

The allocation of a portion of the allowance for loan losses for a performing TDR loan is based upon the present value of the future expected cash flows discounted at the loan’s original effective rate, or for a non-performing TDR which is collateral dependent, the fair value of the collateral. At March 31, 2018, there were no commitments to lend additional funds to borrowers whose loans were modified to a TDR. The modification of loans to a TDR did not have a significant effect on our operating results, nor did it require a significant allocation of the allowance for loan losses.

The Company did not modify any loans as TDR during the three months ended March 31, 2018 and March 31, 2017.

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

During the three months ended March 31, 2018, we sold one commercial real estate TDR totaling $1.8 million, for a loss of $0.3 million and foreclosed on one taxi medallion TDR of $0.1 million, which is included in “Other Assets”. There were no TDRs that defaulted during the period, which were within 12 months of their modification date.

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

During the three months ended March 31, 2018, one taxi medallion TDR was foreclosed upon and transferred to non-performing status. There were no TDR loans transferred to non-performing status during the three months ended March 31, 2017.

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

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

The following tables show an age analysis of our recorded investment in loans, including loans past maturity, at the periods indicated:

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

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

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

The following table shows our average recorded investment and interest income recognized for impaired loans for the three months ended March 31, 2018 and 2017:

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

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

Commitments to extend credit (principally real estate mortgage loans) and lines of credit (principally home equity lines of credit and business lines of credit) amounted to $79.6 million and $254.8 million, respectively, at March 31, 2018.