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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
THE SECURITIES EXCHANGE ACT OF
For the quarterly period ended
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
(Address of principal executive offices)
(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 |
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
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
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 __ | |
Non-accelerated filer __ | |
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
The number of shares of the registrant’s Common Stock outstanding as of July 29, 2022 was
TABLE OF CONTENTS
PAGE | |
PART I — FINANCIAL INFORMATION | |
1 | |
2 | |
3 | |
4 | |
6 | |
7 | |
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 47 |
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk | 63 |
63 | |
PART II — OTHER INFORMATION | |
64 | |
64 | |
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds | 66 |
66 | |
66 | |
66 | |
67 | |
69 |
i
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Consolidated Statements of Financial Condition
Item 1. Financial Statements
June 30, | December 31, | |||||
2022 | 2021 | |||||
(Unaudited) | ||||||
(Dollars in thousands, except per share data) | ||||||
Assets |
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Cash and due from banks | $ | | $ | | ||
Securities held-to-maturity: |
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Mortgage-backed securities (include assets pledged of $ |
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Other securities, net of allowance of $ |
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Securities available for sale, at fair value: |
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Mortgage-backed securities (including assets pledged of $ |
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Other securities (including |
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Loans: |
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Multi-family residential | | | ||||
Commercial real estate | | | ||||
One-to-four family --- mixed used property | | | ||||
One-to-four family --- residential | | | ||||
Construction | | | ||||
Small Business Administration | | | ||||
Commercial business and other | | | ||||
Net unamortized premiums and unearned loan fees | | | ||||
Less: Allowance for credit losses |
| ( |
| ( | ||
Net loans |
| |
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Interest and dividends receivable |
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Bank premises and equipment, net |
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Federal Home Loan Bank of New York stock, at cost |
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Bank owned life insurance |
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Goodwill |
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Core deposit intangibles | | | ||||
Right of use asset | |
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Other assets |
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Total assets | $ | | $ | | ||
Liabilities |
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Due to depositors: |
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Non-interest bearing | $ | | $ | | ||
Interest-bearing |
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Total Due to depositors | | | ||||
Mortgagors' escrow deposits |
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Borrowed funds: |
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Federal Home Loan Bank advances and other borrowings |
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Subordinated debentures |
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Junior subordinated debentures, at fair value |
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Total borrowed funds |
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Operating lease liability | | | ||||
Other liabilities |
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Total liabilities |
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Stockholders' Equity |
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Preferred stock ($ |
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Common stock ($ |
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Additional paid-in capital |
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Treasury stock, at average cost ( |
| ( |
| ( | ||
Retained earnings |
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Accumulated other comprehensive loss, net of taxes |
| ( |
| ( | ||
Total stockholders' equity |
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Total liabilities and stockholders' equity | $ | | $ | | ||
The accompanying notes are an integral part of these consolidated financial statements.
-1-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
For the three months ended | For the six months ended | |||||||||||
| June 30, | June 30, | ||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(In thousands, except per share data) | ||||||||||||
Interest and dividend income | ||||||||||||
Interest and fees on loans | $ | | $ | | $ | | $ | | ||||
Interest and dividends on securities: |
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Interest |
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Dividends |
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Other interest income | |
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Total interest and dividend income |
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Interest expense |
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Deposits |
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Other interest expense |
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Total interest expense |
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Net interest income |
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Provision (benefit) for credit losses |
| |
| ( |
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Net interest income after provision (benefit) for credit losses |
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Non-interest income (loss) |
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Banking services fee income |
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Net gain on sale of loans |
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Net gain on disposition of assets | — | — | — | | ||||||||
Net gain on sale of securities |
| — |
| |
| — |
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Net gain (loss) from fair value adjustments |
| |
| ( |
| |
| ( | ||||
Federal Home Loan Bank of New York stock dividends |
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Life insurance proceeds |
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| — |
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| — | ||||
Bank owned life insurance |
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Other income |
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Total non-interest income (loss) |
| |
| ( |
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Non-interest expense |
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Salaries and employee benefits |
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Occupancy and equipment |
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Professional services |
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FDIC deposit insurance |
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Data processing |
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Depreciation and amortization of bank premises and equipment |
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Other real estate owned / foreclosure expense |
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Other operating expenses |
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Total non-interest expense |
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Income before income taxes |
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Provision for income taxes | ||||||||||||
Federal |
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State and local |
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Total provision for income taxes |
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Net income | $ | | $ | | $ | | $ | | ||||
Basic earnings per common share | $ | | $ | | $ | | $ | | ||||
Diluted earnings per common share | $ | | $ | | $ | | $ | | ||||
Dividends per common share | $ | | $ | | $ | | $ | | ||||
The accompanying notes are an integral part of these consolidated financial statements.
-2-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
For the three months ended | For the six months ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(In thousands) | ||||||||||||
Net income | $ | | $ | | $ | | $ | | ||||
Other comprehensive income (loss), net of tax: |
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Amortization of actuarial (gains) losses, net of taxes of ($ |
| ( |
| |
| ( |
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Amortization of prior service credits, net of taxes of ($ |
| ( |
| ( |
| ( |
| ( | ||||
Net unrealized (losses) gains on securities, net of taxes of $ |
| ( |
| |
| ( |
| ( | ||||
Reclassification adjustment for net losses included in income, net of taxes of $ |
| — |
| ( |
| — |
| ( | ||||
Net unrealized gains on cash flow hedges, net of taxes of ($ |
| |
| |
| |
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Change in fair value of liabilities related to instrument-specific credit risk, net of taxes of $ |
| ( |
| |
| ( |
| | ||||
Total other comprehensive income (loss), net of tax |
| ( |
| |
| ( |
| | ||||
Comprehensive net income | $ | | $ | | $ | | $ | | ||||
The accompanying notes are an integral part of these consolidated financial statements.
-3-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the six months ended June 30, | ||||||
| 2022 |
| 2021 | |||
(In thousands) | ||||||
Operating Activities | ||||||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
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| ||
Provision for credit losses |
| |
| | ||
Depreciation and amortization of premises and equipment |
| |
| | ||
Net gain on sales of loans |
| ( |
| ( | ||
Net amortization of premiums and (accretion) of discounts |
| |
| ( | ||
Net gain from disposition of assets |
| |
| ( | ||
Net gain from sale of securities | | ( | ||||
Deferred income tax provision (benefit) |
| |
| ( | ||
Gain from life insurance proceeds | ( | | ||||
Net loss (gain) from fair value adjustments of qualifying hedges |
| |
| ( | ||
Net (gain) loss from fair value adjustments | ( | | ||||
Income from bank owned life insurance |
| ( |
| ( | ||
Stock-based compensation expense |
| |
| | ||
Deferred compensation |
| ( |
| ( | ||
Amortization of core deposit intangibles | | | ||||
Decrease (increase) in other assets |
| |
| ( | ||
Decrease in other liabilities |
| ( |
| ( | ||
Net cash provided by operating activities | | | ||||
Investing Activities |
|
|
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| ||
Purchases of premises and equipment |
| ( |
| ( | ||
Net (purchases) redemptions of Federal Home Loan Bank-NY shares |
| ( |
| | ||
Purchases of securities held-to-maturity |
| ( |
| | ||
Proceeds from life insurance |
| |
| | ||
Purchases of securities available for sale |
| ( |
| ( | ||
Proceeds from sales and calls of securities available for sale |
| |
| | ||
Change in cash collateral | | | ||||
Proceeds from maturities and prepayments of securities available for sale |
| |
| | ||
Net (originations) and repayments of loans |
| ( |
| | ||
Purchases of loans |
| ( |
| ( | ||
Proceeds from sale of loans |
| |
| | ||
Net cash used in investing activities | ( | ( | ||||
-4-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Consolidated Statements of Cash Flows (Contd.)
(Unaudited)
| |||||||
For the six months ended June 30, | |||||||
2022 | 2021 | ||||||
(In thousands) | |||||||
Financing Activities | |||||||
Net increase in non-interest bearing deposits | $ | | $ | | |||
Net increase (decrease) in interest-bearing deposits |
| ( |
| | |||
Net increase in mortgagors' escrow deposits |
| |
| | |||
Net proceeds from short-term borrowed funds |
| |
| | |||
Repayment of long-term borrowings |
| ( |
| ( | |||
Purchases of treasury stock |
| ( |
| ( | |||
Cash dividends paid |
| ( |
| ( | |||
Net cash provided by financing activities |
| |
| | |||
Net increase in cash and cash equivalents |
| |
| ( | |||
Cash and cash equivalents, beginning of period |
| |
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Cash and cash equivalents, end of period | $ | | $ | | |||
Supplemental Cash Flow Disclosure |
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| |||
Interest paid | $ | | $ | | |||
Income taxes paid |
| |
| | |||
Taxes paid if excess tax benefits on stock-based compensation were not tax deductible |
| |
| | |||
The accompanying notes are an integral part of these consolidated financial statements.
-5-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Consolidated Statement of Changes in Stockholders’ Equity
(Unaudited)
|
|
| Additional |
|
|
| Accumulated Other | |||||||||||
Common | Paid-in | Retained | Treasury | Comprehensive | ||||||||||||||
(Dollars in thousands, except per share data) | Total | Stock | Capital | Earnings | Stock | Income (Loss) | ||||||||||||
Balance at December 31, 2021 | $ | | $ | | $ | | $ | | $ | ( | $ | ( | ||||||
Net income |
| |
| — |
| — |
| |
| — |
| — | ||||||
Award of common shares released from Employee Benefit Trust ( |
| |
| — |
| |
| — |
| — |
| — | ||||||
Vesting of restricted stock unit awards ( |
| — |
| — |
| ( |
| ( |
| |
| — | ||||||
Purchase of treasury shares ( |
| ( |
| — |
| — |
| — |
| ( |
| — | ||||||
Stock-based compensation expense |
| |
| — |
| |
| — |
| — |
| — | ||||||
Repurchase of shares to satisfy tax obligation ( |
| ( |
| — |
| — |
| — |
| ( |
| — | ||||||
Dividends on common stock ($ |
| ( |
| — |
| — |
| ( |
| — |
| — | ||||||
Other comprehensive loss |
| ( |
| — |
| — |
| — |
| — |
| ( | ||||||
Balance at March 31, 2022 | $ | | $ | | $ | | $ | | $ | ( | $ | ( | ||||||
Net income |
| |
| — | — | | — | — | ||||||||||
Purchase of treasury shares ( |
| ( |
| — | — | — | ( | — | ||||||||||
Vesting of restricted stock unit awards ( |
| — |
| — | ( | ( | | — | ||||||||||
Stock-based compensation expense |
| |
| — | | — | — | — | ||||||||||
Repurchase of shares to satisfy tax obligation ( |
| ( |
| — | — | — | ( | — | ||||||||||
Dividends on common stock ($ |
| ( |
| — | — | ( | — | — | ||||||||||
Other comprehensive loss | ( | ( | ||||||||||||||||
Balance at June 30, 2022 | $ | | $ | | $ | | $ | | $ | ( | $ | ( | ||||||
|
|
| Additional |
|
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| Accumulated Other | |||||||||||
Common | Paid-in | Retained | Treasury | Comprehensive | ||||||||||||||
(Dollars in thousands, except per share data) | Total | Stock | Capital | Earnings | Stock | Income (Loss) | ||||||||||||
Balance at December 31, 2020 | $ | | $ | | $ | | $ | | $ | ( | $ | ( | ||||||
Net Income |
| |
| — |
| — |
| |
| — |
| — | ||||||
Award of common shares released from Employee Benefit Trust ( |
| |
| — |
| |
| — |
| — |
| — | ||||||
Vesting of restricted stock unit awards ( |
| — |
| — |
| ( |
| ( |
| |
| — | ||||||
Stock-based compensation expense |
| |
| — |
| |
| — |
| — |
| — | ||||||
Repurchase of shares to satisfy tax obligation ( |
| ( |
| — |
| — |
| — |
| ( |
| — | ||||||
Dividends on common stock ($ | ( | — |
| — |
| ( |
| — |
| — | ||||||||
Other comprehensive income |
| |
| — |
| — |
| — |
| — |
| | ||||||
Balance at March 31, 2021 | $ | | $ | | $ | | $ | | $ | ( | $ | ( | ||||||
Net Income | | — | — | | — | — | ||||||||||||
Award of common shares released from Employee Benefit Trust ( | | — | | — | — | |||||||||||||
Vesting of restricted stock unit awards ( | — | — | ( | ( | | — | ||||||||||||
Stock-based compensation expense | | — | | — | — | — | ||||||||||||
Repurchase of shares to satisfy tax obligation ( | ( | — | — | — | ( | — | ||||||||||||
Dividends on common stock ($ | ( | — | — | ( | — | — | ||||||||||||
Other comprehensive income | | — | — | — | — | | ||||||||||||
Balance at June 30, 2021 | $ | | $ | | $ | | $ | | $ | ( | $ | ( | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
-6-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The primary business of Flushing Financial Corporation (the “Holding Company”), a Delaware corporation, is the operation of its wholly owned subsidiary, Flushing Bank (the “Bank”).
The unaudited consolidated financial statements presented in this Quarterly Report on Form 10-Q (“Quarterly Report”) include the collective results of the Holding Company and its direct and indirect wholly-owned subsidiaries, including the Bank, Flushing Service Corporation, FSB Properties Inc., and Flushing Preferred Funding Corporation, which was dissolved as of June 30, 2021, which are collectively herein referred to as “we,” “us,” “our” and the “Company.”
The Holding Company also owns Flushing Financial Capital Trust II, Flushing Financial Capital Trust III, and Flushing Financial Capital Trust IV (the “Trusts”), which are special purpose business trusts. The Trusts are not included in the Company’s consolidated financial statements, as the Company would not absorb the losses of the Trusts if any losses were to occur.
The accompanying unaudited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry. The information furnished in these interim statements reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for such presented periods of the Company. Such adjustments are of a normal recurring nature, unless otherwise disclosed in this Quarterly Report. All inter-company balances and transactions have been eliminated in consolidation. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for the full year.
The accompanying unaudited consolidated financial statements have been prepared in conformity with the instructions to Quarterly Report on Form 10-Q and Article 10, Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
When necessary, certain reclassifications were made to prior-year amounts to conform to the current-year presentation. Such reclassifications had no effect on prior period net income or shareholders’ equity and were insignificant amounts.
2. Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Estimates that are particularly susceptible to change in the near term are used in connection with the determination of the allowance for credit losses, the evaluation of goodwill for impairment, the review of the need for a valuation allowance of the Company’s deferred tax assets and the fair value of financial instruments.
-7-
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 six months ended | ||||||||||||
June 30, | June 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
(Dollars in thousands, except per share data) | |||||||||||||
Net income, as reported | $ | | $ | | $ | | $ | | |||||
Divided by: |
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| |||||
Total weighted average common shares outstanding and common stock equivalents (1) |
| |
| |
| |
| | |||||
Basic earnings per common share | $ | | $ | | $ | | $ | | |||||
Diluted earnings per common share | $ | | $ | | $ | | $ | | |||||
Dividend Payout ratio |
| | % |
| | % |
| | % |
| | % | |
| (1) | For the three and six months ended June 30, 2022 and 2021, there were |
4. Securities
The Company did
The following table summarizes the Company’s portfolio of securities held-to-maturity at June 30, 2022:
Gross | Gross | |||||||||||
Amortized | Unrecognized | Unrecognized | ||||||||||
| Cost |
| Fair Value |
| Gains | Losses | ||||||
(In thousands) | ||||||||||||
Securities held-to-maturity: |
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| |||||
Municipals | $ | | $ | | $ | — | $ | | ||||
Total municipals |
| |
| |
| — |
| | ||||
FNMA |
| |
| |
| — |
| | ||||
Total mortgage-backed securities |
| |
| |
| — |
| | ||||
Allowance for Credit Losses | ( | — | — | — | ||||||||
Total | $ | | $ | | $ | — | $ | | ||||
-8-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following table summarizes the Company’s portfolio of securities held-to-maturity at December 31, 2021:
Gross | Gross | |||||||||||
Amortized | Unrecognized | Unrecognized | ||||||||||
| Cost |
| Fair Value |
| Gains | Losses | ||||||
(In thousands) | ||||||||||||
Securities held-to-maturity: |
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|
|
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| |||||
Municipals | $ | | $ | | $ | | $ | — | ||||
Total municipals |
| |
| |
| |
| — | ||||
FNMA |
| |
| |
| |
| — | ||||
Total mortgage-backed securities |
| |
| |
| |
| — | ||||
Allowance for Credit Losses | ( | — | — | — | ||||||||
Total | $ | | $ | | $ | | $ | — | ||||
The following table summarizes the Company’s portfolio of securities available for sale at June 30, 2022:
Gross | Gross | |||||||||||
Amortized | Unrealized | Unrealized | ||||||||||
| Cost |
| Fair Value |
| Gains |
| Losses | |||||
(In thousands) | ||||||||||||
U.S. government agencies | $ | | $ | | $ | | $ | | ||||
Corporate | | | | | ||||||||
Mutual funds |
| |
| |
| |
| | ||||
Collateralized loan obligations |
| |
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Other |
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| |
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Total other securities |
| |
| |
| |
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REMIC and CMO |
| |
| |
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GNMA |
| |
| |
| |
| | ||||
FNMA |
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| |
| |
| | ||||
FHLMC |
| |
| |
| |
| | ||||
Total mortgage-backed securities |
| |
| |
| |
| | ||||
Total securities available for sale | $ | | $ | | $ | | $ | | ||||
-9-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2021:
Gross | Gross | |||||||||||
Amortized | Unrealized | Unrealized | ||||||||||
| Cost |
| Fair Value |
| Gains |
| Losses | |||||
(In thousands) | ||||||||||||
U.S. government agencies | $ | | $ | | $ | | $ | | ||||
Corporate | | | | | ||||||||
Mutual funds |
| |
| |
| |
| | ||||
Collateralized loan obligations |
| |
| |
| |
| | ||||
Other |
| |
| |
| |
| | ||||
Total other securities |
| |
| |
| |
| | ||||
REMIC and CMO |
| |
| |
| |
| | ||||
GNMA |
| |
| |
| |
| | ||||
FNMA |
| |
| |
| |
| | ||||
FHLMC |
| |
| |
| |
| | ||||
Total mortgage-backed securities |
| |
| |
| |
| | ||||
Total securities available for sale | $ | | $ | | $ | | $ | | ||||
The corporate securities held by the Company at June 30, 2022 and December 31, 2021 are issued by U.S. banking institutions. The CMOs held by the Company at June 30, 2022 and December 31, 2021 are either fully guaranteed or issued by a government sponsored enterprise.
The following tables detail the amortized cost and fair value of the Company’s securities classified as held-to-maturity and available for sale at June 30, 2022, by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| Amortized | |||||
Securities held-to-maturity: |
| Cost |
| Fair Value | ||
| (In thousands) | |||||
Due after ten years | $ | $ | ||||
Total other securities | ||||||
Mortgage-backed securities | ||||||
Allowance for credit losses | ( | - | ||||
Total securities held-to-maturity |
| $ | |
| $ | |
Amortized | ||||||
Securities available for sale: |
| Cost |
| Fair Value | ||
(In thousands) | ||||||
Due in one year or less |
| $ | |
| $ | |
Due after one year through five years | | | ||||
Due after five years through ten years |
| |
| | ||
Due after ten years | | | ||||
Total other securities |
| |
| | ||
Mutual funds |
| |
| | ||
Mortgage-backed securities |
| |
| | ||
Total securities available for sale | $ | | $ | | ||
-10-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following tables show the Company’s securities with gross unrealized losses and their fair value, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, at the dates indicated:
At June 30, 2022 | ||||||||||||||||||||
Total | Less than 12 months | 12 months or more | ||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||
| Count |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | |||||||
(Dollars in thousands) | ||||||||||||||||||||
Held-to-maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Municipals |
| | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Total other securities |
| |
| |
| |
| |
| |
| |
| | ||||||
FNMA |
| |
| |
| |
| |
| |
| |
| | ||||||
Total mortgage-backed securities |
| |
| |
| |
| |
| |
| |
| | ||||||
Total |
| | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. government agencies |
| | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Corporate |
| |
| |
| |
| |
| |
| |
| | ||||||
CLO |
| |
| |
| |
| |
| |
| |
| | ||||||
Total other securities |
| |
| |
| |
| |
| |
| |
| | ||||||
REMIC and CMO |
| |
| |
| |
| |
| |
| |
| | ||||||
GNMA |
| |
| |
| |
| |
| |
| |
| | ||||||
FNMA |
| |
| |
| |
| |
| |
| |
| | ||||||
FHLMC |
| |
| |
| |
| |
| |
| |
| | ||||||
Total mortgage-backed securities |
| |
| |
| |
| |
| |
| |
| | ||||||
Total |
| | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
At December 31, 2021 | ||||||||||||||||||||
Total | Less than 12 months | 12 months or more | ||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||
| Count |
| Fair Value |
| Losses |
| Fair Value |
| Losses |
| Fair Value |
| Losses | |||||||
(Dollars in thousands) | ||||||||||||||||||||
Available for sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. government agencies |
| | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Corporate |
| |
| |
| |
| |
| |
| |
| | ||||||
CLO |
| |
| |
| |
| |
| |
| |
| | ||||||
Total other securities |
| |
| |
| |
| |
| |
| |
| | ||||||
REMIC and CMO |
| |
| |
| |
| |
| |
| |
| | ||||||
GNMA |
| |
| |
| |
| |
| |
| |
| | ||||||
FNMA |
| |
| |
| |
| |
| |
| |
| | ||||||
FHLMC |
| |
| |
| |
| |
| |
| |
| | ||||||
Total mortgage-backed securities |
| |
| |
| |
| |
| |
| |
| | ||||||
Total |
| | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
-11-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The Company reviewed each available for sale security that had an unrealized loss at June 30, 2022 and December 31, 2021. The Company does not have the intent to sell these securities, and it is more likely than not the Company will not be required to sell the securities before recovery of the securities’ amortized cost basis. If the Company evaluates any decline in the fair value due to credit loss factors and this evaluation indicates that a credit loss exists, then the present value of cash flows that is expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. All of these securities are rated investment grade or above and have a long history of no credit losses. It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment.
In determining the risk of loss for available for sale securities, the Company considered that mortgage-backed securities are either fully guaranteed or issued by a government sponsored enterprise, which has a credit rating and perceived credit risk comparable to U.S. government, the tranche of the purchased collateralized loan obligations (“CLO”) and the issuer of Corporate securities are global systematically important banks. Each of these securities is performing according to its terms and, in the opinion of management, will continue to perform according to its terms. Based on this review, management believes that the unrealized losses have resulted from other factors not deemed credit-related and
The Company reviewed each held-to-maturity security that had an unrealized loss at June 30, 2022 as part of its quarterly Current Expected Credit Loss (“CECL”) process, with an allowance for credit losses of $
Accrued interest receivable on held-to-maturity securities totaled $
The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity.
Other Securities | ||||||||||||
For the three months ended | For the six months ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2022 |
| 2021 | 2022 |
| 2021 | ||||||
(In thousands) | ||||||||||||
Beginning balance | $ | | $ | | $ | | $ | | ||||
Provision (benefit) |
| |
| ( |
| |
| ( | ||||
Allowance for credit losses | $ | | $ | | $ | | $ | | ||||
Realized gains and losses on the sales of securities are determined using the specific identification method. The Company did
-12-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following table represents the gross gains and gross losses realized from the sale of available for sale securities for the periods indicated:
For the three months ended | For the six months ended | ||||||||||||
June 30, | June 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
Gross gains from the sale of securities | $ | — | $ | | $ | — | $ | | |||||
Gross losses from the sale of securities |
| — |
| — |
| — |
| — | |||||
Net gains from the sale of securities | $ | — | $ | | $ | — | $ | | |||||
5. Loans
Loans are reported at their outstanding principal balance net of any unearned income, charge-offs, deferred loan fees and costs on originated loans and unamortized premiums or discounts on purchased loans. Loan fees and certain loan origination costs are deferred. Net loan origination costs and premiums or discounts on loans purchased are amortized into interest income over the contractual life of the loans using the level-yield method. Prepayment penalties received on loans which pay in full prior to their scheduled maturity are included in interest income in the period they are collected.
Interest on loans is recognized on the accrual basis. Accrued interest receivable totaled $
At June 30, 2022, we had
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,
-13-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
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.
During the three months ended June 30, 2022, the Company recorded a provision for credit losses on loans totaling $
The Company may restructure loans to enable a borrower experiencing financial difficulties to continue making payments when it is deemed to be in the Company’s best long-term interest. This restructure may include reducing the interest rate or amount of the monthly payment for a specified period of time, after which the interest rate and repayment terms revert to the original terms of the loan. We classify these loans as Troubled Debt Restructured (“TDR”).
The Company believes that restructuring these loans in this manner will allow certain borrowers to become and remain current on their loans. All loans classified as TDR are individually evaluated, however TDR loans which have been current for six consecutive months at the time they are restructured as TDR remain on accrual status and are not included as part of non-performing loans. Loans which were delinquent at the time they are restructured as a TDR are placed on non-accrual status and reported as non-accrual performing TDR loans until they have made timely payments for six consecutive months. These restructurings have not included a reduction of principal balance.
The allocation of a portion of the ACL for a performing TDR loan is based upon the present value of the future expected cash flows discounted at the loan’s original effective rate, or for a non-performing TDR loan which is collateral dependent, the fair value of the collateral. At June 30, 2022, there were
During the three and six months ended June 30, 2022,
-14-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following table shows loans modified as TDR during the period indicated:
For the three months ended | ||||||||
June 30, 2022 | ||||||||
(Dollars in thousands) |
| Number |
| Balance |
| Modification description |
| |
Commercial business and other |
| | $ | |
| Two loans had loan extensions |
| |
Total |
| | $ | |
|
|
| |
For the three months ended | ||||||||
June 30, 2021 | ||||||||
(Dollars in thousands) |
| Number |
| Balance |
| Modification description |
| |
Commercial real estate | | $ | | Two loans had loan extensions | ||||
Total |
| | $ | |
|
|
| |
For the six months ended | ||||||||
June 30, 2022 | ||||||||
(Dollars in thousands) |
| Number |
| Balance |
| Modification description |
| |
Small Business Administration | | $ | | Loan amortization extension | ||||
Commercial business and other |
| | |
| One loan received a below market interest rate and three loans had an amortization extension |
| ||
Total |
| | $ | |
|
|
| |
For the six months ended | ||||||||
June 30, 2021 | ||||||||
(Dollars in thousands) |
| Number |
| Balance |
| Modification description |
| |
Commercial real estate | | $ | | Two loans had loan extensions | ||||
Total |
| | $ | |
|
|
| |
-15-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following table shows loans classified as TDR at amortized cost that are performing according to their restructured terms at the periods indicated:
June 30, 2022 | December 31, 2021 | |||||||||
Number | Amortized | Number | Amortized | |||||||
(Dollars in thousands) |
| of contracts |
| Cost | of contracts |
| Cost | |||
Multi-family residential |
| 6 | $ | 1,656 | 6 | $ | 1,690 | |||
Commercial real estate | 1 | 7,572 | 1 | 7,572 | ||||||
One-to-four family - mixed-use property (1) |
| 4 |
| 1,254 | 5 |
| 1,636 | |||
One-to-four family - residential |
| 1 |
| 260 | 3 |
| 483 | |||
Small Business Administration | 1 | 269 | — | — | ||||||
Commercial business and other (1) |
| 7 |
| 3,771 | 5 |
| 1,381 | |||
Total performing |
| 20 | $ | 14,782 | 20 | $ | 12,762 | |||
| (1) | These loans continue to pay as agreed, however the Company records interest received on a cash basis. |
The following table shows loans classified as TDR at amortized cost that were not performing according to their restructured terms at the periods indicated:
June 30, 2022 | ||||||
Number | Amortized | |||||
(Dollars in thousands) |
| of contracts |
| Cost | ||
Commercial business and other |
| | $ | | ||
Total non-performing |
| | $ | | ||
There were
-16-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following table shows our non-accrual loans at amortized cost with no related allowance and interest income recognized for loans ninety days or more past due and still accruing for the period shown below:
At or for the six months ended June 30, 2022 | |||||||||||||||
(In thousands) | Non-accrual amortized cost beginning of the reporting period | Non-accrual amortized cost end of the reporting period | Non-accrual with no related allowance | Interest income recognized | Loans ninety days or more past due and still accruing | ||||||||||
Multi-family residential | $ | | $ | | $ | | $ | — | $ | — | |||||
Commercial real estate | | | | — | — | ||||||||||
One-to-four family - mixed-use property (1) | | | | — | — | ||||||||||
One-to-four family - residential | | | | — | — | ||||||||||
Small Business Administration | | | | — | — | ||||||||||
Construction | — | | | — | — | ||||||||||
Commercial business and other (1) | | | | | | ||||||||||
Total | $ | | $ | | $ | | $ | | $ | | |||||
| (1) | Included in the above analysis are non-accrual performing TDR one-to-four family – mixed-use property totaling $ |
The following table shows our non-accrual loans at amortized cost with no related allowance and interest income recognized for loans ninety days or more past due and still accruing for the period shown below:
At or for the year ended December 31, 2021 | |||||||||||||||
(In thousands) | Non-accrual amortized cost beginning of the reporting period | Non-accrual amortized cost end of the reporting period | Non-accrual with no related allowance | Interest income recognized | Loans ninety days or more past due and still accruing | ||||||||||
Multi-family residential | $ | | $ | | $ | | $ | | $ | — | |||||
Commercial real estate | | | | — | — | ||||||||||
One-to-four family - mixed-use property (1) | | | | | — | ||||||||||
One-to-four family - residential | | | | | — | ||||||||||
Small Business Administration | | | | — | — | ||||||||||
Taxi medallion(2) | | — | — | — | — | ||||||||||
Commercial business and other(1) | | | | | — | ||||||||||
Total | $ | | $ | | $ | | $ | | $ | — | |||||
| (1) | Included in the above analysis are non-accrual performing TDR one-to-four family – mixed-use property totaling $ |
| (2) | Taxi medallions were completely charged-off during the year ended December 31, 2021. |
-17-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following is a summary of interest foregone on non-accrual loans and loans classified as TDR for the periods indicated:
For the three months ended | For the six months ended | ||||||||||||
June 30, | June 30, | ||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
(In thousands) | |||||||||||||
Interest income that would have been recognized had the loans performed in accordance with their original terms | $ | | $ | | $ | | $ | | |||||
Less: Interest income included in the results of operations |
| |
| |
| |
| | |||||
Total foregone interest | $ | | $ | | $ | | $ | | |||||
The following tables show the aging of the amortized cost basis in past-due loans at the period indicated by class of loans:
June 30, 2022 | ||||||||||||||||||
Greater | ||||||||||||||||||
30 - 59 Days | 60 - 89 Days | than | Total Past | |||||||||||||||
(In thousands) |
| Past Due |
| Past Due |
| 90 Days |
| Due |
| Current |
| Total Loans | ||||||
Multi-family residential | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Commercial real estate |
| |
| |
| |
| |
| |
| | ||||||
One-to-four family - mixed-use property |
| |
| |
| |
| |
| |
| | ||||||
One-to-four family - residential |
| |
| |
| |
| |
| |
| | ||||||
Construction |
| |
| |
| |
| |
| |
| | ||||||
Small Business Administration |
| |
| |
| |
| |
| |
| | ||||||
Commercial business and other |
| |
| |
| |
| |
| |
| | ||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
December 31, 2021 | ||||||||||||||||||
Greater | ||||||||||||||||||
30 - 59 Days | 60 - 89 Days | than | Total Past | |||||||||||||||
(In thousands) |
| Past Due |
| Past Due |
| 90 Days |
| Due |
| Current |
| Total Loans | ||||||
Multi-family residential | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Commercial real estate |
| |
| |
| |
| |
| |
| | ||||||
One-to-four family - mixed-use property |
| |
| |
| |
| |
| |
| | ||||||
One-to-four family - residential |
| |
| |
| |
| |
| |
| | ||||||
Construction |
| |
| |
| |
| |
| |
| | ||||||
Small Business Administration |
| |
| |
| |
| |
| |
| | ||||||
Commercial business and other |
| |
| |
| |
| |
| |
| | ||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
-18-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following tables show the activity in the ACL on loans for the three month periods indicated:
June 30, 2022 | |||||||||||||||||||||||||||
|
|
| One-to-four |
|
|
|
|
|
| ||||||||||||||||||
family - | One-to-four | Commercial | |||||||||||||||||||||||||
Multi-family | Commercial | mixed-use | family - | Construction | Small Business | Taxi | business and | ||||||||||||||||||||
(In thousands) | residential | real estate | property | residential | loans | Administration | medallion | other | Total | ||||||||||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Beginning balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | $ | | |||||||||
Charge-offs |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( |
| ( | |||||||||
Recoveries |
| |
| — |
| — |
| |
| — |
| |
| |
| |
| | |||||||||
Provision (benefit) |
| |
| |
| |
| |
| |
| |
| ( |
| ( |
| | |||||||||
Ending balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | $ | | |||||||||
June 30, 2021 | |||||||||||||||||||||||||||
|
|
| One-to-four |
|
|
|
|
|
| ||||||||||||||||||
family - | One-to-four | Commercial | |||||||||||||||||||||||||
Multi-family | Commercial | mixed-use | family - | Construction | Small Business | Taxi | business and | ||||||||||||||||||||
(In thousands) | residential | real estate | property | residential | loans | Administration | medallion | other | Total | ||||||||||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Beginning balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | $ | | |||||||||
Charge-offs |
| — |
| — |
| ( |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||||
Recoveries |
| — |
| — |
| — |
| |
| — |
| |
| |
| |
| | |||||||||
Provision (benefit) |
| ( |
| ( |
| ( |
| |
| ( |
| |
| ( |
| |
| ( | |||||||||
Ending balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | $ | | |||||||||
-19-
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 six month periods indicated:
June 30, 2022 | |||||||||||||||||||||||||||
|
|
| One-to-four |
|
|
|
|
|
| ||||||||||||||||||
family - | One-to-four | Commercial | |||||||||||||||||||||||||
Multi-family | Commercial | mixed-use | family - | Construction | Small Business | Taxi | business and | ||||||||||||||||||||
(In thousands) | residential | real estate | property | residential | loans | Administration | medallion | other | Total | ||||||||||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Beginning balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | $ | | |||||||||
Charge-offs |
| — |
| — |
| — |
| — |
| — |
| ( |
| — |
| ( |
| ( | |||||||||
Recoveries |
| |
| — |
| — |
| |
| — |
| |
| |
| |
| | |||||||||
Provision (benefit) |
| |
| |
| |
| |
| |
| |
| ( |
| ( |
| | |||||||||
Ending balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | $ | | |||||||||
June 30, 2021 | |||||||||||||||||||||||||||
|
|
| One-to-four |
|
|
|
|
|
| ||||||||||||||||||
family - | One-to-four | Commercial | |||||||||||||||||||||||||
Multi-family | Commercial | mixed-use | family - | Construction | Small Business | Taxi | business and | ||||||||||||||||||||
(In thousands) | residential | real estate | property | residential | loans | Administration | medallion | other | Total | ||||||||||||||||||
Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Beginning balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | $ | | |||||||||
Charge-offs |
| ( |
| ( |
| ( |
| — |
| — |
| — |
| ( |
| ( |
| ( | |||||||||
Recoveries |
| |
| — |
| |
| |
| — |
| |
| |
| |
| | |||||||||
Provision (Benefit) |
| |
| ( |
| ( |
| ( |
| ( |
| |
| |
| |
| | |||||||||
Ending balance | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | $ | | |||||||||
-20-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
In accordance with our policy and the current regulatory guidelines, we designate loans as “Special Mention,” which are considered “Criticized Loans,” and “Substandard,” “Doubtful,” or “Loss,” which are considered “Classified Loans”. If a loan does not fall within one of the previously mentioned categories and management believes weakness is evident then we designate the loan as “Watch”; all other loans would be considered “Pass.” Loans that are non-accrual are designated as Substandard, Doubtful or Loss. These loan designations are updated quarterly. We designate a loan as Substandard when a well-defined weakness is identified that may jeopardize the orderly liquidation of the debt. We designate a loan as Doubtful when it displays the inherent weakness of a Substandard loan with the added provision that collection of the debt in full, on the basis of existing facts, is highly improbable. We designate a loan as Loss if it is deemed the debtor is incapable of repayment. The Company does not hold any loans designated as Loss, as loans that are designated as Loss are charged to the Allowance for Credit Losses. We designate a loan as Special Mention if the asset does not warrant classification within one of the other classifications but does contain a potential weakness that deserves closer attention.
-21-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following table summarizes the risk category of mortgage and non-mortgage loans by loan portfolio segments and class of loans by year of origination at June 30, 2022:
Revolving Loans | Revolving Loans | ||||||||||||||||||||||||||
Amortized Cost | converted to | ||||||||||||||||||||||||||
(In thousands) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | Basis | term loans | Total | ||||||||||||||||||
1-4 Family Residential | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
Watch | — | | — | | — | | | | | ||||||||||||||||||
Special Mention | — | — | — | — | — | — | — | | | ||||||||||||||||||
Substandard | — | — | — | — | — | | — | | | ||||||||||||||||||
Total 1-4 Family Residential | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
1-4 Family Mixed-Use | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | — | $ | | |||||||||
Watch | — | — | | | — | | — | — | | ||||||||||||||||||
Special Mention | — | — | — | — | — | | — | — | | ||||||||||||||||||
Substandard | — | — | — | — | — | | — | — | | ||||||||||||||||||
Total 1-4 Family Mixed Use | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | — | $ | | |||||||||
Commercial Real Estate | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | — | $ | | |||||||||
Watch | — | | — | | | | — | — | | ||||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | — | ||||||||||||||||||
Substandard | — | — | — | — | — | | — | — | | ||||||||||||||||||
Total Commercial Real Estate | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | — | $ | | |||||||||
Construction | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | — | $ | — | $ | | $ | — | $ | | ||||||||||
Watch | — | — | — | — | | — | — | — | | ||||||||||||||||||
Special Mention | — | — | — | — | — | | — | — | | ||||||||||||||||||
Substandard | — | — | — | — | | — | — | — | | ||||||||||||||||||
Total Construction | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | |||||||||
Multi-family | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | |||||||||
Watch | — | | | — | | | — | — | | ||||||||||||||||||
Special Mention | — | — | — | — | — | | — | — | | ||||||||||||||||||
Substandard | — | — | — | — | | | — | — | | ||||||||||||||||||
Total Multi-family | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | |||||||||
Commercial Business - Secured by RE | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | — | $ | | |||||||||
Watch | — | — | | | | | — | — | | ||||||||||||||||||
Special Mention | — | — | — | | — | — | — | — | | ||||||||||||||||||
Substandard | — | — | — | | — | | — | — | | ||||||||||||||||||
Total Commercial Business - Secured by RE | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | — | $ | | |||||||||
Commercial Business | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | |||||||||
Watch | — | | | | | | | — | | ||||||||||||||||||
Special Mention | — | | | | | | | — | | ||||||||||||||||||
Substandard | — | — | | | | | | — | | ||||||||||||||||||
Doubtful | — | — | — | — | — | — | | — | | ||||||||||||||||||
Total Commercial Business | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | |||||||||
Small Business Administration | |||||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | — | $ | | |||||||||
Watch | — | — | — | | | | — | — | | ||||||||||||||||||
Special Mention | — | — | — | — | — | | — | — | | ||||||||||||||||||
Substandard | — | — | — | — | — | | — | — | | ||||||||||||||||||
Total Small Business Administration | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | — | $ | | |||||||||
Other | |||||||||||||||||||||||||||
Pass | $ | — | $ | — | $ | — | $ | — | $ | — | $ | | $ | | $ | — | $ | | |||||||||
Total Other | $ | — | $ | — | $ | — | $ | — | $ | — | $ | | $ | | $ | — | $ | | |||||||||
Total by Loan Type | |||||||||||||||||||||||||||
Total Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
Total Watch | — | | | | | | | | | ||||||||||||||||||
Total Special Mention | — | | | | | | | | | ||||||||||||||||||
Total Substandard | — | — | | | | | | | | ||||||||||||||||||
Total Doubtful | — | — | — | — | — | — | | — | | ||||||||||||||||||
Total Loans | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||
-22-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Included within net loans as of June 30, 2022 and December 31, 2021 were $
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 | ||||||||||||
June 30, 2022 | December 31, 2021 | |||||||||||
(In thousands) | Real Estate | Business Assets | Real Estate | Business Assets | ||||||||
Multi-family residential | $ | | $ | — | $ | | $ | — | ||||
Commercial real estate | | — | | — | ||||||||
One-to-four family - mixed-use property | | — | | — | ||||||||
One-to-four family - residential | | — | | — | ||||||||
Construction | | — | — | — | ||||||||
Small Business Administration | — | | — | | ||||||||
Commercial business and other | — | | — | | ||||||||
Total | $ | | $ | | $ | | $ | | ||||
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 $
The following table presents the activity in the allowance for off balance sheet credit losses for the three and six months ended June 30, 2022 and 2021.
For the three months ended | For the six months ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(In thousands) | ||||||||||||
Balance at beginning of period | $ | | $ | | $ | | $ | | ||||
Off-Balance Sheet- Provision (Benefit) | ( | | | ( | ||||||||
Allowance for Off-Balance Sheet - Credit losses (1) | $ | | $ | | $ | | $ | | ||||
| (1) | Included in “Other liabilities” on the Consolidated Statements of Financial Condition. |
-23-
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 June 30, 2022 and December 31, 2021, the Bank did not have any loans held for sale.
The following table shows loans sold during the periods indicated:
For the three and six months ended June 30, 2022 | |||||||||||
(Dollars in thousands) |
| Loans sold |
| Proceeds |
| Net charge-offs |
| Net gain | |||
Performing loans |
|
|
|
|
|
|
|
| |||
Multi-family residential |
| | $ | | $ | — | $ | — | |||
Commercial | |
| |
| — |
| — | ||||
Total |
| | $ | | $ | — | $ | — | |||
Delinquent and non-performing loans |
|
|
|
|
|
|
|
| |||
Commercial |
| | | — | | ||||||
One-to-four family - mixed-use property |
| |
| |
| — |
| — | |||
Total |
| | $ | | $ | — | $ | | |||
For the three months ended June 30, 2021 | |||||||||||
| Net |
| |||||||||
(Dollars in thousands) |
| Loans sold |
| Proceeds |
| charge-offs |
| Net gain | |||
Delinquent and non-performing loans |
|
|
|
|
|
|
|
| |||
Multi-family residential |
| | $ | | $ | — | $ | | |||
One-to-four family - mixed-use property |
| |
| |
| — |
| | |||
Total |
| | $ | | $ | — | $ | | |||
For the six months ended June 30, 2021 | |||||||||||
(Dollars in thousands) |
| Loans sold |
| Proceeds |
| Net charge-offs |
| Net gain | |||
Delinquent and non-performing loans |
|
|
|
|
|
|
|
| |||
Multi-family residential |
| | $ | | $ | ( | $ | | |||
Commercial | |
| |
| ( |
| | ||||
One-to-four family - mixed-use property |
| |
| |
| ( |
| | |||
Total |
| | $ | | $ | ( | $ | | |||
-24-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
7. Leases
The Company has
The Company has elected the short-term lease recognition exemption such that the Company will not recognize Right of Use (“ROU”) assets or lease liabilities for leases with a term of less than 12 months from the commencement date. The Company has two agreements in 2022 and one agreement in 2021 that qualified as short-term leases. Certain leases have escalation clauses for operating expenses and real estate taxes. The Company’s non-cancelable operating lease agreements expire through 2036.
Supplemental balance sheet information related to leases was as follows:
(Dollars in thousands) | June 30, 2022 | December 31, 2021 | |||||
Operating lease ROU asset | $ | | $ | | |||
Operating lease liability | $ | | $ | | |||
Weighted-average remaining lease term-operating leases |
| ||||||
Weighted average discount rate-operating leases |
| % | % | ||||
The components of lease expense and cash flow information related to leases were as follows:
| For the three months ended | |||||||
(Dollars in thousands) | Line Item Presented | June 30, 2022 | June 30, 2021 | |||||
Lease Cost |
|
|
|
| ||||
Operating lease cost | Occupancy and equipment | $ | | $ | | |||
Operating lease cost | Other operating expenses | | | |||||
Short-term lease cost | Professional Services and Other operating expenses |
| |
| | |||
Variable lease cost | Occupancy and equipment |
| |
| | |||
Total lease cost | $ | | $ | | ||||
Other information |
|
|
|
| ||||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
| ||||
Operating cash flows from operating leases | $ | | $ | | ||||
-25-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
| For the six months ended | |||||||
(Dollars in thousands) | Line Item Presented | June 30, 2022 | June 30, 2021 | |||||
Lease Cost |
|
|
|
| ||||
Operating lease cost | Occupancy and equipment | $ | | $ | | |||
Operating lease cost | Other operating expenses | | | |||||
Short-term lease cost | Professional Services and Other operating expenses |
| |
| | |||
Variable lease cost | Occupancy and equipment |
| |
| | |||
Total lease cost | $ | | $ | | ||||
Other information |
|
|
|
| ||||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
| ||||
Operating cash flows from operating leases | $ | | $ | | ||||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | | $ | — | ||||
The Company’s minimum annual rental payments for Bank facilities due under non-cancelable leases are as follows as of June 30, 2022:
Minimum Rental | |||
(In thousands) | |||
Years ended December 31: | |||
2022 | $ | | |
2023 | | ||
2024 | | ||
2025 | | ||
2026 | | ||
Thereafter | | ||
Total minimum payments required | | ||
Less: implied interest | | ||
Total lease obligations | $ | | |
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
-26-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
On May 18, 2021, stockholders approved an amendment to the 2014 Omnibus Plan (the “Amendment”) authorizing an additional
For the three months ended June 30, 2022 and 2021, the Company’s net income, as reported, included $
During the three months ended June 30, 2022 and 2021, the Company did
The Company uses the fair value of the common stock on the date of award to measure compensation cost for restricted stock unit awards. Compensation cost is recognized over the vesting period of the award using the straight-line method. Forfeitures are recorded in the period they occur.
The following table summarizes the Company’s RSU and PRSU awards at or for the six months ended June 30, 2022:
| RSU Awards |
| PRSU Awards | |||||||
| Weighted-Average |
| Weighted-Average | |||||||
| Grant-Date |
| Grant-Date | |||||||
| Shares |
| Fair Value |
| Shares |
| Fair Value | |||
Non-vested at December 31, 2021 |
| | $ | |
| | $ | | ||
Granted |
| |
| |
| |
| | ||
Vested |
| ( |
| |
| ( |
| | ||
Forfeited |
| ( |
| |
| — |
| — | ||
Non-vested at June 30, 2022 |
| | $ | |
| | $ | | ||
Vested but unissued at June 30, 2022 |
| | $ | |
| | $ | | ||
As of June 30, 2022, there was $
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
-27-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following table summarizes the Phantom Stock Plan at or for the six months ended June 30, 2022:
Phantom Stock Plan |
| Shares |
| Fair Value | |
Outstanding at December 31, 2021 |
| | $ | | |
Granted |
| |
| | |
Distributions |
| ( |
| | |
Outstanding at June 30, 2022 |
| | $ | | |
Vested at June 30, 2022 |
| | $ | | |
The Company recorded stock-based compensation expense (benefit) for the Phantom Stock Plan of ($
The Company recorded stock-based compensation (benefit) expense for the Phantom Stock Plan of ($
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 |
| Six months ended | |||||||||
| June 30, |
| June 30, | |||||||||
(In thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Employee Pension Plan: |
|
|
|
|
|
|
|
| ||||
Interest cost | $ | | $ | | $ | | $ | | ||||
Amortization of unrecognized loss |
| |
| |
| |
| | ||||
Expected return on plan assets |
| ( |
| ( |
| ( |
| ( | ||||
Net employee pension benefit | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Outside Director Pension Plan: |
|
|
|
|
|
|
|
| ||||
Service cost | $ | | $ | | $ | | $ | | ||||
Interest cost |
| |
| |
| |
| | ||||
Amortization of unrecognized gain |
| ( |
| ( |
| ( |
| ( | ||||
Net outside director pension expense | $ | | $ | | $ | | $ | | ||||
Other Postretirement Benefit Plans: |
|
|
|
|
|
|
|
| ||||
Service cost | $ | | $ | | $ | | $ | | ||||
Interest cost |
| |
| |
| |
| | ||||
Amortization of actuarial gain | — | | — | | ||||||||
Amortization of past service credit |
| ( |
| ( |
| ( |
| ( | ||||
Net other postretirement expense | $ | | $ | | $ | | $ | | ||||
-28-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The Company previously disclosed in its Consolidated Financial Statements for the year ended December 31, 2021 that it expects to contribute $
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 June 30, 2022, the Company carried financial assets and financial liabilities under the fair value option with fair values of $
The following table presents the financial assets and financial liabilities reported at fair value under the fair value option, and the changes in fair value included in the Consolidated Statement of Income – Net gain (loss) from fair value adjustments, at or for the periods ended as indicated:
Fair Value | Fair Value | Changes in Fair Values For Items Measured at Fair Value | ||||||||||||||||
Measurements | Measurements | Pursuant to Election of the Fair Value Option | ||||||||||||||||
| at June 30, |
| at December 31, | Three Months Ended | Six Months Ended | |||||||||||||
Description |
| 2022 |
| 2021 | June 30, 2022 |
| June 30, 2021 |
| June 30, 2022 |
| June 30, 2021 | |||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
| |||||||
Mortgage-backed securities | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | ( | ||||||
Other securities |
| |
| |
| ( |
| |
| ( |
| | ||||||
Borrowed funds |
| |
| |
| |
| ( |
| |
| ( | ||||||
Net gain (loss) from fair value adjustments (1) | $ | | $ | ( | $ | | $ | ( | ||||||||||
| (1) | The net gain (loss) from fair value adjustments presented in the above table does not include net gains (losses) of ($ |
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 $
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.
-29-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Disclosure of fair value does not require fair value information for items that do not meet the definition of a financial instrument or certain other financial instruments specifically excluded from its requirements. These items include core deposit intangibles and other customer relationships, premises and equipment, leases, income taxes and equity.
Further, fair value disclosure does not attempt to value future income or business. These items may be material and accordingly, the fair value information presented does not purport to represent, nor should it be construed to represent, the underlying “market” or franchise value of the Company.
A description of the methods and significant assumptions utilized in estimating the fair value of the Company’s financial assets and liabilities that are carried at fair value on a recurring basis are as follows:
Level 1 – when quoted market prices are available in an active market. At June 30, 2022 and December 31, 2021, Level 1 included one mutual fund.
Level 2 – when quoted market prices are not available, fair value is estimated using quoted market prices for similar financial instruments and adjusted for differences between the quoted instrument and the instrument being valued. Fair value can also be estimated by using pricing models, or discounted cash flows. Pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices and credit spreads. In addition to observable market information, models also incorporate maturity and cash flow assumptions. At June 30, 2022 and December 31, 2021, Level 2 included mortgage-backed securities, CLOs, corporate debt, municipals, and interest rate swaps.
Level 3 – when there is limited activity or less transparency around inputs to the valuation, financial instruments are classified as Level 3. At June 30, 2022 and December 31, 2021, Level 3 included trust preferred securities owned, and junior subordinated debentures issued by the Company.
The methods described above may produce fair values that may not be indicative of net realizable value or reflective of future fair values. While the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies, assumptions, and models to determine fair value of certain financial instruments could produce different estimates of fair value at the reporting date.
-30-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following table sets forth the Company’s assets and liabilities that are carried at fair value on a recurring basis, including those reported at fair value under the fair value option, and the level that was used to determine their fair value, at June 30, 2022 and December 31, 2021:
Quoted Prices | ||||||||||||||||||||||||
in Active Markets | Significant Other | Significant Other | ||||||||||||||||||||||
for Identical Assets | Observable Inputs | Unobservable Inputs | Total carried at fair value | |||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | on a recurring basis | |||||||||||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||||||
| (In thousands) | |||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Securities available for sale | ||||||||||||||||||||||||
Mortgage-backed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Securities | $ | — | $ | — | $ | | $ | | $ | — | $ | — | $ | | $ | | ||||||||
Other securities |
| |
| |
| |
| |
| |
| |
| |
| | ||||||||
Interest rate swaps |
| — |
| — |
| |
| |
| — |
| — |
| |
| | ||||||||
Total assets | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Borrowings | $ | — | $ | — | $ | — | $ | — | $ | | $ | | $ | | $ | | ||||||||
Interest rate swaps |
| — |
| — |
| |
| |
| — |
| — |
| |
| | ||||||||
Total liabilities | $ | — | $ | — | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
The following table sets forth the Company’s assets and liabilities that are carried at fair value on a recurring basis, classified within Level 3 of the valuation hierarchy for the periods indicated:
| For the three months ended | |||||||||||
June 30, 2022 | June 30, 2021 | |||||||||||
Trust preferred | Junior subordinated | Trust preferred | Junior subordinated | |||||||||
| securities |
| debentures |
| securities |
| debentures | |||||
| (In thousands) | |||||||||||
Beginning balance | $ | | $ | | $ | | $ | | ||||
Net (loss) gain from fair value adjustment of financial assets (1) |
| ( |
| — |
| |
| — | ||||
Net (gain) loss from fair value adjustment of financial liabilities (1) |
| — |
| ( |
| — |
| | ||||
Increase (Decrease) in accrued interest |
| |
| |
| — |
| ( | ||||
Change in unrealized (gains) losses included in other comprehensive loss |
| — |
| |
| — |
| ( | ||||
Ending balance | $ | | $ | | $ | | $ | | ||||
Changes in unrealized gains held at period end | $ | — | $ | | $ | — | $ | | ||||
| (1) | Totals in the tables above are presented in the Consolidated Statements of Income under net gain (loss) from fair value adjustments. |
-31-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
| For the six months ended | |||||||||||
June 30, 2022 | June 30, 2021 | |||||||||||
Trust preferred | Junior subordinated | Trust preferred | Junior subordinated | |||||||||
| securities |
| debentures |
| securities |
| debentures | |||||
| (In thousands) | |||||||||||
Beginning balance | $ | | $ | | $ | | $ | | ||||
Net (loss) gain from fair value adjustment of financial assets (1) |
| ( |
| — |
| |
| — | ||||
Net (gain) loss from fair value adjustment of financial liabilities (1) |
| — |
| ( |
| — |
| | ||||
Decrease in accrued interest |
| |
| |
| — |
| ( | ||||
Change in unrealized (gains) losses included in other comprehensive loss |
| — |
| |
| — |
| ( | ||||
Ending balance | $ | | $ | | $ | | $ | | ||||
Changes in unrealized gains held at period end | $ | — | $ | | $ | — | $ | | ||||
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:
June 30, 2022 |
| |||||||||||
| Fair Value |
| Valuation Technique |
| Unobservable Input |
| Range |
| Weighted Average | |||
| (Dollars in thousands) | |||||||||||
Assets: | ||||||||||||
Trust preferred securities | $ | |
| Discounted cash flows |
| Discount rate |
| n/a |
| | % | |
Liabilities: |
|
|
|
|
|
|
|
|
|
| ||
Junior subordinated debentures | $ | |
| Discounted cash flows |
| Discount rate |
| n/a |
| | % | |
| December 31, 2021 |
| ||||||||||
| Fair Value |
| Valuation Technique |
| Unobservable Input |
| Range |
| Weighted Average |
| ||
| (Dollars in thousands) | |||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
| ||
Trust preferred securities | $ | |
| Discounted cash flows |
| Discount rate |
| n/a |
| | % | |
Liabilities: |
|
|
|
|
|
|
|
|
|
| ||
Junior subordinated debentures | $ | |
| Discounted cash flows |
| Discount rate |
| n/a |
| | % | |
The significant unobservable inputs used in the fair value measurement of the Company’s trust preferred securities and junior subordinated debentures valued under Level 3 at June 30, 2022 and December 31, 2021, are the effective yields used in the cash flow models. Significant increases or decreases in the effective yield in isolation would result in a significantly lower or higher fair value measurement.
-32-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following table sets forth the Company’s assets and liabilities that are carried at fair value on a non-recurring basis and the level that was used to determine their fair value at June 30, 2022 and December 31, 2021:
Quoted Prices |
|
|
|
|
| |||||||||||||||||||
in Active Markets | Significant Other | Significant Other | ||||||||||||||||||||||
for Identical Assets | Observable Inputs | Unobservable Inputs | Total carried at fair value | |||||||||||||||||||||
(Level 1) | (Level 2) | (Level 3) | on a non-recurring basis | |||||||||||||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||||||
| (In thousands) | |||||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Non-accrual loans | $ | — | $ | — | $ | — | $ | — | $ | | $ | | $ | | $ | | ||||||||
Total assets | $ | — | $ | — | $ | — | $ | — | $ | | $ | | $ | | $ | | ||||||||
The following tables present the qualitative information about non-recurring Level 3 fair value of financial instruments and the fair value measurements at the periods indicated:
| At June 30, 2022 |
| ||||||||||
| Fair Value |
| Valuation Technique |
| Unobservable Input |
| Range |
| Weighted Average |
| ||
(Dollars in thousands) |
| |||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
| ||
Non-accrual loans | $ | |
| Sales approach |
| Reduction for planned expedited disposal | % | | % | |||
Non-accrual loans | $ | |
| Discounted Cashflow |
| Discount Rate |
| % | | % | ||
Probability of Default | | % | | % | ||||||||
| At December 31, 2021 |
| ||||||||||
| Fair Value |
| Valuation Technique |
| Unobservable Input |
| Range |
| Weighted Average |
| ||
(Dollars in thousands) |
| |||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
| ||
Non-accrual loans | $ | |
| Sales approach |
| Reduction for planned expedited disposal | % | % | ||||
Non-accrual loans | $ | |
| Discounted Cashflow |
| Discount Rate |
| % | | % | ||
Probability of Default | | % | | % | ||||||||
The Company did
-33-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The methods and assumptions used to estimate fair value at June 30, 2022 and December 31, 2021 are as follows:
Securities:
The fair values of securities are contained in Note 4 (“Securities”) of the Notes to Consolidated Financial Statements. Fair value is based upon quoted market prices, where available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities and adjusted for differences between the quoted instrument and the instrument being valued. When there is limited activity or less transparency around inputs to the valuation, securities are valued using discounted cash flows.
Non-accrual Loans:
For non-accruing loans, fair value is generally estimated by discounting management’s estimate of future cash flows with a discount rate commensurate with the risk associated with such assets or, for collateral dependent loans,
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.
-34-
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:
| June 30, 2022 | ||||||||||||||
Carrying | Fair | ||||||||||||||
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||||
| (In thousands) | ||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
| |||||
Cash and due from banks | $ | | $ | | $ | | $ | — | $ | — | |||||
Securities held-to-maturity |
|
|
|
|
|
|
|
|
|
| |||||
Mortgage-backed securities |
| |
| |
| — |
| |
| — | |||||
Other securities |
| |
| |
| — |
| — |
| | |||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
| |||||
Mortgage-backed securities |
| |
| |
| — |
| |
| — | |||||
Other securities |
| |
| |
| |
| |
| | |||||
Loans |
| |
| |
| — |
| — |
| | |||||
FHLB-NY stock |
| |
| |
| — |
| |
| — | |||||
Accrued interest receivable |
| |
| |
| |
| |
| | |||||
Interest rate swaps |
| |
| |
| — |
| |
| — | |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
| |||||
Deposits | $ | | $ | | $ | | $ | | $ | — | |||||
Borrowed Funds |
| |
| |
| — |
| |
| | |||||
Accrued interest payable |
| |
| |
| — |
| |
| — | |||||
Interest rate swaps |
| |
| |
| — |
| |
| — | |||||
| December 31, 2021 | ||||||||||||||
Carrying | Fair | ||||||||||||||
| Amount |
| Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||||
(In thousands) | |||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
| |||||
Cash and due from banks | $ | | $ | | $ | | $ | — | $ | — | |||||
Securities held-to-maturity |
|
|
|
|
|
|
|
|
|
| |||||
Mortgage-backed securities |
| |
| |
| — |
| |
| — | |||||
Other securities |
| |
| |
| — |
| — |
| | |||||
Securities available for sale |
|
|
|
|
|
|
|
|
|
| |||||
Mortgage-backed securities |
| |
| |
| — |
| |
| — | |||||
Other securities |
| |
| |
| |
| |
| | |||||
Loans |
| |
| |
| — |
| — |
| | |||||
FHLB-NY stock |
| |
| |
| — |
| |
| — | |||||
Accrued interest receivable |
| |
| |
| — |
| |
| | |||||
Interest rate swaps |
| |
| |
| — |
| |
| — | |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
| |||||
Deposits | $ | | $ | | $ | | $ | | $ | — | |||||
Borrowed Funds |
| |
| |
| — |
| |
| | |||||
Accrued interest payable |
| |
| |
| — |
| |
| — | |||||
Interest rate swaps |
| |
| |
| — |
| |
| — | |||||
11. Derivative Financial Instruments
At June 30, 2022 and December 31, 2021, the Company’s derivative financial instruments consisted of interest rate swaps. The Company’s interest rate swaps are used for three purposes: 1) to mitigate the Company’s exposure to rising interest rates on certain fixed rate loans totaling $
-35-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
which include $
At June 30, 2022 and December 31, 2021, we held derivatives designated as cash flow hedges, fair value hedges and certain derivatives not designated as hedges.
The Company’s derivative instruments are carried at fair value in the Company’s financial statements as part of Other Assets for derivatives with positive fair values and Other Liabilities for derivatives with negative fair values. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies and has been designated as a hedge for accounting purposes, and further, by the type of hedging relationship.
At June 30, 2022 and December 31, 2021, derivatives with a combined notional amount of $
For cash flow hedges, the changes in the fair value of the derivative are reported in accumulated other comprehensive income (loss), net of tax. Amounts in accumulated other comprehensive loss are reclassified into earnings in the same period during which the hedged forecasted transaction effects earnings. During the three months ended June 30, 2022 and 2021, $
Changes in the fair value of interest rate swaps not designated as hedges are reflected in “Net gain (loss) from fair value adjustments” in the Consolidated Statements of Income.
The following table sets forth information regarding the Company’s derivative financial instruments at the periods indicated:
| June 30, 2022 |
| December 31, 2021 | |||||||||
Notional | Notional | |||||||||||
| Amount |
| Fair Value (1) |
| Amount |
| Fair Value (1) | |||||
(In thousands) | ||||||||||||
Interest rate swaps (cash flow hedge) | $ | | $ | | $ | | $ | | ||||
Interest rate swaps (fair value hedge) |
| |
| |
| — |
| — | ||||
Interest rate swaps (non-hedge) | | | | | ||||||||
Interest rate swaps (fair value hedge) |
| |
| ( |
| |
| ( | ||||
Interest rate swaps (cash flow hedge) |
| — |
| — |
| |
| ( | ||||
Interest rate swaps (non-hedge) |
| |
| ( |
| |
| ( | ||||
Total derivatives | $ | | $ | | $ | | $ | ( | ||||
-36-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following table presents information regarding the Company’s fair value hedged items for the periods indicated:
Cumulative Amount | ||||||||||||
of the Fair Hedging Adjustment | ||||||||||||
Line Item in the Consolidated Statement | Carrying Amount of the | Included in the Carrying Amount of | ||||||||||
of Financial Condition in Which | Hedged | the Hedged | ||||||||||
the Hedged Item Is Included | Assets/(Liabilities) | Assets/(Liabilities) | ||||||||||
(In thousands) | June 30, 2022 | December 31, 2021 | June 30, 2022 | December 31, 2021 | ||||||||
Loans | ||||||||||||
Multi-family residential | $ | | $ | | $ | ( | $ | | ||||
Commercial real estate | | | ( | | ||||||||
Commercial business and other | — | | — | | ||||||||
Total | $ | | $ | | $ | ( | $ | | ||||
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 six months ended | ||||||||||
June 30, | June 30, | ||||||||||||
(In thousands) | Affected Line Item in the Statements Where Net Income is Presented |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Financial Derivatives: |
|
|
|
|
|
|
|
| |||||
Other interest expense | $ | — | $ | ( | $ | — | $ | ( | |||||
Net gain (loss) from fair value adjustments | — | ( | — | | |||||||||
Interest rate swaps (non-hedge) | — | ( | — | | |||||||||
Interest rate swaps (fair value hedge) | Interest and fees on loans | ( | ( | ( | ( | ||||||||
Other interest expense |
| ( |
| ( |
| ( | ( | ||||||
Deposit | | — | | — | |||||||||
Interest rate swaps (cash flow hedge) | ( | ( | ( | ( | |||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
The Company’s interest rate swaps are subject to master netting arrangements between the Company and its three designated counterparties. The Company has not made a policy election to offset its derivative positions.
-37-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following tables present the effect of the master netting arrangements on the presentation of the derivative assets and liabilities in the Consolidated Statements of Financial Condition as of the dates indicated:
June 30, 2022 | ||||||||||||||||||
Gross Amounts Not Offset in the | ||||||||||||||||||
Consolidated Statements of | ||||||||||||||||||
Gross Amount Offset in | Net Amount of Assets | Financial Condition | ||||||||||||||||
Gross Amount of | the Statements | Presented in the | Financial | Cash Collateral | ||||||||||||||
(In thousands) |
| Recognized Assets |
| of Condition |
| Statements of Condition |
| Instruments |
| Received |
| Net Amount | ||||||
| ||||||||||||||||||
Interest rate swaps | $ | | $ | | $ | | $ | | $ | |
| $ | | |||||
Gross Amounts Not Offset in the | ||||||||||||||||||
Consolidated Statements of | ||||||||||||||||||
Gross Amount of | Gross Amount Offset in | Net Amount of Liabilities | Financial Condition | |||||||||||||||
Recognized | the Statements | Presented in the | Financial | Cash Collateral | ||||||||||||||
(In thousands) |
| Liabilities |
| of Condition |
| Statements of Condition |
| Instruments |
| Pledged |
| Net Amount | ||||||
| ||||||||||||||||||
Interest rate swaps | $ | | $ | | $ | | $ | | $ | |
| $ | | |||||
December 31, 2021 | ||||||||||||||||||
Gross Amounts Not Offset in the | ||||||||||||||||||
Consolidated Statements of | ||||||||||||||||||
Gross Amount Offset in | Net Amount of Assets | Financial Condition | ||||||||||||||||
Gross Amount of | the Statements | Presented in the | Financial | Cash Collateral | ||||||||||||||
(In thousands) |
| Recognized Assets |
| of Condition |
| Statements of Condition |
| Instruments |
| Received |
| Net Amount | ||||||
| ||||||||||||||||||
Interest rate swaps | $ | | $ | | $ | | $ | | $ | — |
| $ | | |||||
Gross Amounts Not Offset in the | ||||||||||||||||||
Consolidated Statements of | ||||||||||||||||||
Gross Amount of | Gross Amount Offset in | Net Amount of Liabilities | Financial Condition | |||||||||||||||
Recognized | the Statements | Presented in the | Financial | Cash Collateral | ||||||||||||||
(In thousands) |
| Liabilities |
| of Condition |
| Statements of Condition |
| Instruments |
| Pledged |
| Net Amount | ||||||
| ||||||||||||||||||
Interest rate swaps | $ | | $ | | $ | | $ | | $ | |
| $ | | |||||
-38-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
12. Accumulated Other Comprehensive Income (Loss):
The following tables set forth the changes in accumulated other comprehensive income (loss) by component for the periods indicated:
| For the three months ended June 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 | $ | ( | $ | | $ | ( | $ | | $ | ( | |||||
Other comprehensive income before reclassifications, net of tax |
| ( |
| |
| |
| ( |
| ( | |||||
Amounts reclassified from accumulated other comprehensive income, net of tax |
| |
| |
| ( |
| |
| | |||||
Net current period other comprehensive income, net of tax |
| ( |
| |
| ( |
| ( |
| ( | |||||
Ending balance, net of tax | $ | ( | $ | | $ | ( | $ | | $ | ( | |||||
-39-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
| For the three months ended June 30, 2021 | ||||||||||||||
| Unrealized Gains |
| Unrealized Gains | ||||||||||||
| (Losses) on |
| (Losses) on |
| Fair Value | ||||||||||
| Available for Sale |
| Cash flow |
| Defined Benefit |
| Option Elected | ||||||||
| Securities |
| Hedges |
| Pension Items |
| on Liabilities |
| Total | ||||||
| (In thousands) | ||||||||||||||
Beginning balance, net of tax | $ | ( | $ | ( | $ | ( | $ | | $ | ( | |||||
Other comprehensive income before reclassifications, net of tax |
| |
| ( |
| |
| |
| | |||||
Amounts reclassified from accumulated other comprehensive income, net of tax |
| ( |
| |
| |
| |
| | |||||
Net current period other comprehensive income (loss), net of tax |
| |
| |
| |
| |
| | |||||
Ending balance, net of tax | $ | | $ | ( | $ | ( | $ | | $ | ( | |||||
| For the six months ended June 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 | $ | ( | $ | ( | $ | ( | $ | | $ | ( | |||||
Other comprehensive income before reclassifications, net of tax |
| ( |
| |
| — |
| ( |
| ( | |||||
Amounts reclassified from accumulated other comprehensive income, net of tax |
| — |
| |
| ( |
| — |
| | |||||
Net current period other comprehensive income (loss), net of tax |
| ( |
| |
| ( |
| ( |
| ( | |||||
Ending balance, net of tax | $ | ( | $ | | $ | ( | $ | | $ | ( | |||||
-40-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
| For the six months ended June 30, 2021 | ||||||||||||||
| Unrealized Gains |
| Unrealized Gains | ||||||||||||
| (Losses) on |
| (Losses) on |
| Fair Value | ||||||||||
| Available for Sale |
| Cash flow |
| Defined Benefit |
| Option Elected | ||||||||
| Securities |
| Hedges |
| Pension Items |
| on Liabilities |
| Total | ||||||
| (In thousands) | ||||||||||||||
Beginning balance, net of tax | $ | | $ | ( | $ | ( | $ | | $ | ( | |||||
Other comprehensive income before reclassifications, net of tax |
| ( |
| |
| — |
| |
| | |||||
Amounts reclassified from accumulated other comprehensive income, net of tax |
| ( |
| |
| |
| — |
| | |||||
Net current period other comprehensive income (loss), net of tax |
| ( |
| |
| |
| |
| | |||||
Ending balance, net of tax | $ | | $ | ( | $ | ( | $ | | $ | ( | |||||
-41-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
The following tables set forth significant amounts reclassified from accumulated other comprehensive income (loss) by component for the periods indicated:
For the three months ended June 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 | $ | ( | Interest expense | ||
| | Provision for income taxes | |||
$ | ( | Net of tax | |||
Amortization of defined benefit pension items: |
|
|
| ||
Actuarial losses | $ | | (1) | Other expense | |
Prior service credits |
| | (1) | Other expense | |
| | Total before tax | |||
| | Provision for income taxes | |||
$ | | Net of tax | |||
| (1) | These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 9 (“Pension and Other Postretirement Benefit Plans”) for additional information |
For the three months ended June 30, 2021 | |||||
| Amounts Reclassified from | ||||
Details about Accumulated Other |
| Accumulated Other |
| Affected Line Item in the Statement | |
Comprehensive Loss Components |
| Comprehensive Loss | Where Net Income is Presented | ||
(In thousands) | |||||
Unrealized losses on available for sale securities | $ | | Net loss on sale of securities | ||
| ( | Provision for income taxes | |||
$ | | Net of tax | |||
| |||||
Cash flow hedges: |
|
| |||
Interest rate swaps | $ | ( | Interest expense | ||
| | Provision for income taxes | |||
$ | ( | Net of tax | |||
Amortization of defined benefit pension items: |
|
| |||
Actuarial losses | $ | ( | (1) | Other operating expenses | |
Prior service credits |
| | (1) | Other operating expenses | |
| ( | Total before tax | |||
| | Provision for income taxes | |||
$ | ( | Net of tax | |||
| (1) | These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 9 (“Pension and Other Postretirement Benefit Plans”) for additional information |
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PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
For the six months ended June 30, 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 | $ | ( | Interest expense | ||
| | Provision for income taxes | |||
$ | ( | Net of tax | |||
Amortization of defined benefit pension items: |
|
|
| ||
Actuarial losses | $ | | (1) | Other expense | |
Prior service credits |
| | (1) | Other expense | |
| | Total before tax | |||
| | Provision for income taxes | |||
$ | | Net of tax | |||
| (1) | These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 9 (“Pension and Other Postretirement Benefit Plans”) for additional information |
For the six months ended June 30, 2021 | |||||
| Amounts Reclassified from | ||||
Details about Accumulated Other |
| Accumulated Other |
| Affected Line Item in the Statement | |
Comprehensive Loss Components |
| Comprehensive Loss | Where Net Income is Presented | ||
(In thousands) | |||||
Unrealized losses on available for sale securities | $ | | Net loss on sale of securities | ||
| ( | Provision for income taxes | |||
$ | | Net of tax | |||
Cash flow hedges: |
|
| |||
Interest rate swaps | $ | ( | Interest expense | ||
| | Provision for income taxes | |||
$ | ( | Net of tax | |||
Amortization of defined benefit pension items: |
|
| |||
Actuarial losses | $ | ( | (1) | Other operating expenses | |
Prior service credits |
| | (1) | Other operating expenses | |
| ( | Total before tax | |||
| | Provision for income taxes | |||
$ | ( | Net of tax | |||
| (1) | These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 9 (“Pension and Other Postretirement Benefit Plans”) for additional information |
-43-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
13. Regulatory Capital
Under current capital regulations, the Bank is required to comply with four separate capital adequacy standards and a Capital Conservation Buffer (“CCB”). As of June 30, 2022, the Bank continues to be categorized as “well-capitalized” under the prompt corrective action regulations and continues to exceed all regulatory capital requirements. The CCB for the Bank was
Set forth below is a summary of the Bank’s compliance with banking regulatory capital standards.
| June 30, 2022 |
| December 31, 2021 |
| |||||||
Percent of | Percent of |
| |||||||||
| Amount |
| Assets |
| Amount |
| Assets |
| |||
| (Dollars in thousands) | ||||||||||
Tier I (leverage) capital: |
|
|
|
|
|
|
|
| |||
Capital level | $ | |
| | % | $ | |
| | % | |
Requirement to be well-capitalized |
| |
| |
| |
| | |||
Excess |
| |
| |
| |
| | |||
Common Equity Tier I risk-based capital: |
|
|
|
|
|
|
|
| |||
Capital level | $ | |
| | % | $ | |
| | % | |
Requirement to be well-capitalized |
| |
| |
| |
| | |||
Excess |
| |
| |
| |
| | |||
Tier I risk-based capital: |
|
|
|
|
|
|
|
| |||
Capital level | $ | |
| | % | $ | |
| | % | |
Requirement to be well-capitalized |
| |
| |
| |
| | |||
Excess |
| |
| |
| |
| | |||
Total risk-based capital: |
|
|
|
|
|
|
|
| |||
Capital level | $ | |
| | % | $ | |
| | % | |
Requirement to be well-capitalized |
| |
| |
| |
| | |||
Excess |
| |
| |
| |
| | |||
The Holding Company is subject to the same regulatory capital requirements as the Bank. As of June 30, 2022, the Holding Company continues to be categorized as “well-capitalized” under the prompt corrective action regulations and continues to exceed all regulatory capital requirements. The CCB for the Holding Company at June 30, 2022 and December 31, 2021 was
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PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
Set forth below is a summary of the Holding Company’s compliance with banking regulatory capital standards.
| June 30, 2022 |
| December 31, 2021 |
| |||||||
Percent of | Percent of |
| |||||||||
| Amount |
| Assets |
| Amount |
| Assets |
| |||
(Dollars in thousands) |
| ||||||||||
Tier I (leverage) capital: |
|
|
|
|
|
|
|
| |||
Capital level | $ | |
| | % | $ | |
| | % | |
Requirement to be well-capitalized |
| |
| |
| |
| | |||
Excess |
| |
| |
| |
| | |||
Common Equity Tier I risk-based capital: |
|
|
|
|
|
|
|
| |||
Capital level | $ | |
| | % | $ | |
| | % | |
Requirement to be well-capitalized |
| |
| |
| |
| | |||
Excess |
| |
| |
| |
| | |||
Tier I risk-based capital: |
|
|
|
|
|
|
|
| |||
Capital level | $ | |
| | % | $ | |
| | % | |
Requirement to be well-capitalized |
| |
| |
| |
| | |||
Excess |
| |
| |
| |
| | |||
Total risk-based capital: |
|
|
|
|
|
|
|
| |||
Capital level | $ | |
| | % | $ | |
| | % | |
Requirement to be well-capitalized |
| |
| |
| |
| | |||
Excess |
| |
| |
| |
| | |||
14. New Authoritative Accounting Pronouncements
Accounting Standards Pending Adoption:
In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (Topic 326), which replaces the recognition and measurement guidance related to TDRs for creditors that have adopted ASC Topic 326 (commonly referred to as “CECL”) with the recognition and measurement guidance contained in ASC 310-20 to determine whether a modification results in a new loan or a continuation of an existing loan. This ASU also enhances disclosures about loan modifications for borrowers who are experiencing financial difficulty. The guidance also requires public business entities to present gross write-offs by year of origination in their vintage disclosures. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments in this ASU should be applied on a prospective basis; however, institutions have the option to apply a modified retrospective transition method as it relates to the recognition and measurement of TDRs, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. We are evaluating the impact of this ASU and have not yet determined whether this will have material effect on our business operations and consolidated financial statements.
In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform” (Topic 848), which clarifies that certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by discounting transition. ASU 2021-01 was effective upon issuance and generally can be applied through December 31, 2022.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform” (Topic 848), which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions
-45-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered minor so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or re-measurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity could elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs. We are evaluating the impacts of this ASU and have not yet determined whether LIBOR transition and this ASU will have material effects on our business operations and consolidated financial statements. The amendments in this update apply to contract modifications that replace a reference rate reform and contemporaneous modifications of other terms related to the replacement of the reference rate.
-46-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussions and Analysis of
Financial Condition and Results of Operations
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report should be read in conjunction with the more detailed and comprehensive disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2021. In addition, please read this section in conjunction with our Consolidated Financial Statements and Notes to Consolidated Financial Statements contained herein.
As used in this Quarterly Report, the words “we,” “us,” “our” and the “Company” are used to refer to Flushing Financial Corporation and its direct and indirect wholly owned subsidiaries, Flushing Bank (the “Bank”), Flushing Service Corporation, FSB Properties Inc., and Flushing Preferred Funding Corporation, which was dissolved as of June 30, 2021.
Statements contained in this Quarterly Report relating to plans, strategies, objectives, economic performance and trends, projections of results of specific activities or investments and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed elsewhere in this Quarterly Report and in other documents filed by us with the Securities and Exchange Commission from time to time, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2021. Forward-looking statements may be identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “forecasts,” “goals,” “potential” or “continue” or similar terms or the negative of these terms. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We have no obligation to update these forward-looking statements.
-47-
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 June 30, 2022, the Bank owns two subsidiaries: Flushing Service Corporation, and FSB Properties Inc. The Bank also operates an internet branch, which operates under the brands of iGObanking.com® and BankPurely® (the “Internet Branch”). The activities of Flushing Financial Corporation are primarily funded by dividends, if any, received from the Bank, issuances of subordinated debt, junior subordinated debt, and issuances of equity securities. Flushing Financial Corporation’s common stock is traded on the NASDAQ Global Select Market under the symbol “FFIC.”
Our principal business is attracting retail deposits from the general public and investing those deposits together with funds generated from ongoing operations and borrowings, primarily in (1) originations and purchases of multi-family residential loans, commercial business loans, commercial real estate mortgage loans and, to a lesser extent, one-to-four family loans (focusing on mixed-use properties, which are properties that contain both residential dwelling units and commercial units); (2) Small Business Administration (“SBA”) loans and other small business loans; (3) construction loans; (4) mortgage loan surrogates such as mortgage-backed securities; and (5) U.S. government securities, corporate fixed-income securities and other marketable securities. We also originate certain other consumer loans including overdraft lines of credit. Our results of operations depend primarily on net interest income, which is the difference between the income earned on our interest-earning assets and the cost of our interest-bearing liabilities. Net interest income is the result of our net interest rate margin, which is the difference between the average yield earned on interest-earning assets and the average cost of interest-bearing liabilities, adjusted for the difference in the average balance of interest-earning assets as compared to the average balance of interest-bearing liabilities. We also generate non-interest income primarily from loan fees, service charges on deposit accounts, mortgage servicing fees, and other fees, income earned on Bank Owned Life Insurance (“BOLI”), dividends on Federal Home Loan Bank of New York (“FHLB-NY”) stock and net gains and losses on sales of securities and loans. Our operating expenses consist principally of employee compensation and benefits, occupancy and equipment costs, other general and administrative expenses and income tax expense. Our results of operations also can be significantly affected by changes in the fair value of financial assets and financial liabilities for which changes in value are recorded through earnings 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.
-48-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussions and Analysis of
Financial Condition and Results of Operations
We carry a portion of our financial assets and financial liabilities under the fair value option and record changes in their fair value through earnings in non-interest income on our Consolidated Statements of Income and Comprehensive Income. A description of the financial assets and financial liabilities that are carried at fair value through earnings can be found in Note 10 (“Fair Value of Financial Instruments”) of the Notes to the Consolidated Financial Statements.
For the three months ended June 30, 2022 we reported net income of $25.0 million, or $0.81 per diluted common share, and reported record net interest income totaling $64.7 million. The record net interest income was driven by a $170.3 million increase in average earning assets during the quarter as the net interest margin declined one basis point compared to the three months ended March 31, 2022.
During the three months ended June 30, 2022, the yield on interest-earning assets increased eight basis points, while the cost of interest-bearing liabilities increased 10 basis points from the three months ended March 31, 2022, which resulted in a decrease of one basis point in net interest margin to 3.35% from 3.36% for the three months ended March 31, 2022. Excluding net gains (losses) from qualifying hedges and purchase accounting adjustments, the net interest margin increased two basis points to 3.33% for the three months ended June 30, 2022 from 3.31% for the three months ended March 31, 2022.
Our loan portfolio is greater than 87% collateralized by real estate with an average loan to value of less than 38%. We have a long history and foundation built upon disciplined underwriting, good credit quality, and a resilient seasoned loan portfolio with strong asset protection. At June 30, 2022, our allowance for credit losses (“ACL”) - loans stood at 58 basis points of gross loans and 141.1% of non-performing loans. Non-performing assets at the end of the quarter were 59 basis points of total assets.
The Bank and Company remain well-capitalized under current capital regulations and are subject to the same regulatory capital requirements. See Note 13 (“Regulatory Capital”) of the Notes to the Consolidated Financial Statements.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021
General. Net income for the three months ended June 30, 2022 was $25.0 million, an increase of $5.8 million, or 30.0%, from $19.3 million for the three months ended June 30, 2021. Diluted earnings per common share were $0.81 for the three months ended June 30, 2022, an increase of $0.20, or 32.8%, from $0.61 for the three months ended June 30, 2021.
Return on average equity was 15.00% for the three months ended June 30, 2022 compared to 11.95% for the three months ended June 30, 2021. Return on average assets was 1.22% for the three months ended June 30, 2022 compared to 0.93% for the three months ended June 30, 2021.
Interest Income. Interest and dividend income increased $2.5 million, or 3.6%, to $74.3 million for the three months ended June 30, 2022 from $71.7 million for the three months ended June 30, 2021. The increase in interest income was primarily attributable to the 16 basis point increase in the yield on interest-earning assets to 3.85% for the three months ended June 30, 2022 compared to 3.69% for the comparable prior year period. Excluding prepayment penalty income from loans, net recoveries/reversals of interest from non-accrual loans, net gains (losses) from fair value adjustments on qualifying hedges, and purchase accounting adjustments, the yield on total loans, net, increased seven basis points to 4.01% for the three months ended June 30, 2022 from 3.94% for the three months ended June 30, 2021.
-49-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussions and Analysis of
Financial Condition and Results of Operations
Interest Expense. Interest expense decreased $1.1 million, or 10.7%, to $9.6 million for the three months ended June 30, 2022 from $10.7 million for the three months ended June 30, 2021. The decrease in interest expense was primarily due to a decline of six basis points in the average cost of interest-bearing liabilities to 0.60% for the three months ended June 30, 2022 from 0.66% for the three months ended June 30, 2021 and the decrease of $195.5 million in the average balance of interest-bearing liabilities to $6,337.4 million for the three months ended June 30, 2022 from $6,532.9 million for the comparable prior year period.
Net Interest Income. Net interest income for the three months ended June 30, 2022 was $64.7 million, an increase of $3.7 million, or 6.0%, from $61.0 million for the three months ended June 30, 2021. The increase in net interest income was primarily due to net interest-earning assets growing $146.0 million year over year to $1,403.3 million for the quarter ended June 30, 2022, and an increase of 21 basis points in the net interest margin to 3.35% during the same period. Included in net interest income was prepayment penalty income, net of reversals and recovered interest from non-accrual loans totaling $2.3 million and $2.0 million for the three months ended June 30, 2022 and 2021, respectively, net losses from fair value adjustments on qualifying hedges totaling $60,000 and $0.7 million for the three months ended June 30, 2022 and 2021, respectively, and purchase accounting income adjustments of $0.4 million and $0.6 million for the three months ended June 30, 2022 and 2021, respectively. Excluding all of these items, the net interest margin for the three months ended June 30, 2022 was 3.22%, an increase of 18 basis points, from 3.04% for the three months ended June 30, 2021.
Provision (Benefit) for Credit Losses. During the three months ended June 30, 2022, the provision for credit losses was $1.6 million compared to a benefit for credit losses of $1.6 million for the three months ended June 30, 2021. During the three months ended June 30, 2022, non-performing assets increased $34.8 million to $48.9 million, at June 30, 2022. The increase in non-performing assets primarily resulted from the addition of one non-accrual investment security which was collateralized by real estate and three non-accrual commercial business loans. The current average loan-to-value ratio for our non-performing assets collateralized by real estate was 50.7% at June 30, 2022. The Bank continues to maintain conservative underwriting standards.
Non-Interest Income (Loss). Non-interest income for the three months ended June 30, 2022 was $7.4 million, an increase of $10.6 million from a loss of $3.2 million in the prior year comparable period. The increase was primarily due to the prior year period including net losses from fair value adjustments totaling $6.5 million compared to net gains totaling $2.5 million recorded during the three months ended June 30, 2022. Additionally, non-interest income for the three months ended June 30, 2022 included life insurance proceeds totaling $1.5 million compared to none recorded in the prior year comparable period.
Non-Interest Expense. Non-interest expense for the three months ended June 30, 2022 was $35.5 million, an increase of $1.5 million, or 4.4%, from $34.0 million for the three months ended June 30, 2021. The increase in non-interest expense was primarily due to the growth of the Company.
Income before Income Taxes. Income before income taxes for the three months ended June 30, 2022 was $35.0 million, an increase of $9.6 million, or 37.6%, from $25.4 million for the three months ended June 30, 2021 for the previously discussed reasons.
Provision for Income Taxes. The provision for income taxes was $9.9 million for the three months ended June 30, 2022, an increase of $3.8 million, or 61.4%, from $6.2 million for the three months ended June 30, 2021. The increase was primarily due to growth in income before income taxes and an increase in the effective tax rate. The effective tax rate for three months ended June 30, 2022 was 28.4% compared to 24.2% for the three months ended June 30, 2021. The increase in the effective tax rate was primarily due to the loss of certain New York State and City tax deductions in 2022.
-50-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussions and Analysis of
Financial Condition and Results of Operations
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
General. Net income for the six months ended June 30, 2022 was $43.3 million, an increase of $5.0 million, or 12.9%, from $38.3 million for the six months ended June 30, 2021. Diluted earnings per common share were $1.39 for the six months ended June 30, 2022, an increase of $0.18, or 14.9%, from $1.21 for the six months ended June 30, 2021.
Return on average equity was 12.91% for the six months ended June 30, 2022 compared to 12.11% for the six months ended June 30, 2021. Return on average assets was 1.06% for the six months ended June 30, 2022 compared to 0.93% for the six months ended June 30, 2021.
Interest Income. Interest and dividend income increased $1.7 million, or 1.2%, to $145.6 million for the six months ended June 30, 2022 from $143.9 million for the six months ended June 30, 2021. The increase in interest income was primarily attributable to the 8 basis points increase in the yield on interest-earning assets to 3.81%, for the six months ended June 30, 2022, compared to 3.73% for the comparable prior year period. Excluding prepayment penalty income from loans, net recoveries/reversals of interest from non-accrual loans, net gains (losses) from fair value adjustments on qualifying hedges, and purchase accounting adjustments, the yield on total loans, net, increased three basis points to 3.97% for the six months ended June 30, 2022 from 3.94% for the six months ended June 30, 2021.
Interest Expense. Interest expense decreased $4.5 million, or 20.7%, to $17.4 million for the six months ended June 30, 2022 from $21.9 million for the six months ended June 30, 2021. The decrease in interest expense was primarily due to a decline of 12 basis points in the average cost of interest-bearing liabilities to 0.55% for the six months ended June 30, 2022 from 0.67% for the six months ended June 30, 2021 and the decrease of $226.3 million in the average balance of interest-bearing liabilities to $6,279.3 million for the six months ended June 30, 2022 from $6,505.5 million for the comparable prior year period.
Net Interest Income. Net interest income for the six months ended June 30, 2022 was $128.2 million, an increase of $6.3 million, or 5.1%, from $121.9 million for the six months ended June 30, 2021. The increase in net interest income was primarily due to an increase of 20 basis points in the net interest margin to 3.36% during the six months ended June 30, 2022 and an increase in net interest-earning assets of $153.2 million to $1.376.7 million for the same period. Included in net interest income was prepayment penalty income, net of reversals and recovered interest from non-accrual loans totaling $4.0 million and $3.0 million for the six months ended June 30, 2022 and 2021, respectively, net (losses) gains from fair value adjustments on qualifying hedges totaling $(0.2) million and $0.8 million for the six months ended June 30, 2022 and 2021, respectively, and purchase accounting income adjustments of $1.4 million and $1.5 million for the six months ended June 30, 2022 and 2021, respectively. Excluding all of these items, the net interest margin for the six months ended June 30, 2022 was 3.22%, an increase of 20 basis points, from 3.02% for the six months ended June 30, 2021.
Provision for Credit Losses. During the six months ended June 30, 2022, the provision for credit losses was $2.9 million, compared to $1.2 million for the six months ended June 30, 2021. The provision recorded during the six months ended June 30, 2022 was greater than net charge-offs of $0.4 million. During the six months ended June 30, 2022, nonperforming assets increased $34.0 million to $48.9 million from $14.9 million at December 31, 2021. The increase in non-performing assets primarily resulted from the addition of one non-accrual investment security which was collateralized by real estate and three non-accrual commercial business loans. The current average loan-to-value ratio for our non-performing assets collateralized by real estate was 50.7% at June 30, 2022. The Bank continues to maintain conservative underwriting standards.
Non-Interest Income. Non-interest income for the six months ended June 30, 2022 was $8.7 million, an increase of $5.6 million from $3.1 million in the prior year comparable period. The increase was primarily due to the prior year period including net losses from fair value adjustments totaling $5.6 million compared to net gains totaling $0.7 million recorded during the six months ended June 30, 2022. Additionally, non-interest income for the six months ended June 30, 2022 included life insurance proceeds totaling $1.5 million compared to none recorded in the prior year comparable period. These increases were partially offset by a decline in loan swap income during the six months ended June 30, 2022 compared to the six month ended June 30, 2021, due to lower activity in 2022.
-51-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussions and Analysis of
Financial Condition and Results of Operations
Non-Interest Expense. Non-interest expense for the six months ended June 30, 2022 was $74.3 million, an increase of $2.1 million, or 3.0%, from $72.2 million for the six months ended June 30, 2021. The increase in non-interest expense was primarily due to the growth of the Company.
Income before Income Taxes. Income before income taxes for the six months ended June 30, 2022 was $59.6 million, an increase of $8.0 million, or 15.4%, from $51.6 million for the six months ended June 30, 2021 for the previously discussed reasons.
Provision for Income Taxes. The provision for income taxes was $16.4 million for the six months ended June 30, 2022, an increase of $3.0 million, or 22.6%, from $13.3 million for the six months ended June 30, 2021. The increase was primarily due to the growth in income before income taxes, and an increase in the effective tax rate. The effective tax rate for six months ended June 30, 2022 was 27.4% compared to 25.8% for the six months ended June 30, 2021. The increase in the effective tax rate was primarily due to the loss of certain New York State and City tax deductions in 2022.
FINANCIAL CONDITION
Assets. Total assets at June 30, 2022 were $8,339.6 million, an increase of $293.7 million, or 3.7%, from $8,045.9 million at December 31, 2021. Total loans net increased $120.0 million, or 1.8%, during the six months ended June 30, 2022, to $6,721.0 million from $6,601.0 million at December 31, 2021. The increase was primarily due to loan originations which exceeded satisfactions. Loan originations and purchases were $833.1 million for the six months ended June 30, 2022, an increase of $185.8 million, or 28.7%, from $647.3 million for the six months ended June 30, 2021. We continue to focus on the origination of multi-family residential, commercial real estate and commercial business loans with a full banking relationship. The loan pipeline was $582.6 million at June 30, 2022, compared to $429.3 million at December 31, 2021.
The following table shows loan originations and purchases for the periods indicated:
| For the three months |
| For the six months | |||||||||
| ended June 30, |
| ended June 30, | |||||||||
(In thousands) |
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
Multi-family residential | $ | 136,902 | $ | 66,913 |
| $ | 235,082 | $ | 125,466 | |||
Commercial real estate |
| 164,826 |
| 37,963 |
| 209,928 |
| 55,119 | ||||
One-to-four family – mixed-use property |
| 12,228 |
| 7,135 |
| 20,726 |
| 15,847 | ||||
One-to-four family – residential |
| 4,211 |
| 59,494 |
| 13,472 |
| 62,625 | ||||
Construction (1) |
| 8,319 |
| 5,281 |
| 17,121 |
| 12,404 | ||||
Small Business Administration (2) |
| 2,750 |
| 17,585 |
| 2,750 |
| 142,678 | ||||
Commercial business and other (3) |
| 174,551 |
| 130,036 |
| 334,027 |
| 233,154 | ||||
Total | $ | 503,787 | $ | 324,407 | $ | 833,106 | $ | 647,293 | ||||
| (1) | Includes purchases of $0.9 million and $3.6 million for the three months ended June 30, 2022 and 2021, respectively. Includes purchases of $1.6 million and $6.9 million for the six months ended June 30, 2022 and 2021, respectively. |
| (2) | Includes $15.5 million and $138.7 million of SBA PPP loans for the three and six months ended June 30, 2021, respectively. |
| (3) | Includes purchases of $55.8 million and $43.2 million for the three months ended June 30, 2022 and 2021, respectively. Includes purchases of $109.4 million and $65.8 million for the six months ended June 30, 2022 and 2021, 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 six months ended June 30, 2022 had an average loan-to-value ratio of 56.6% and an average debt coverage ratio of 170%.
-52-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussions and Analysis of
Financial Condition and Results of Operations
The Bank’s non-performing assets totaled $48.9 million at June 30, 2022, an increase of $34.0 million, or 227.7%, from December 31, 2021. Total non-performing assets as a percentage of total assets were 0.59% at June 30, 2022 and 0.19% at December 31, 2021. The ratio of ACL - loans to total non-performing loans was 141.1% at June 30, 2022 and 248.7% at December 31, 2021.
During the six months ended June 30, 2022, mortgage-backed securities decreased $61.3 million, or 10.6%, to $518.8 million from $580.1 million at December 31, 2021. The decrease in mortgage-backed securities during the six months ended June 30, 2022 was primarily due to the principal repayment of securities totaling $63.7 million and the decrease in the fair value of the securities totaling $50.8 million partially offset by the purchase of securities totaling $54.5 million at an average rate of 2.67%.
During the six months ended June 30, 2022, other securities increased $157.9 million, or 61.9%, to $413.0 million from $255.0 million at December 31, 2021. The increase in other securities during the six months ended June 30, 2022, was primarily due to purchases of $172.3 million at an average rate of 2.98% partially offset by a decrease in the fair value of other securities totaling $13.6 million, and maturities, sales and calls totaling $0.9 million. At June 30, 2022, other securities primarily consisted of securities issued by mutual or bond funds that invest in government and government agency securities, municipal bonds, corporate bonds, and CLOs.
Liabilities. Total liabilities were $7,668.8 million at June 30, 2022, an increase of $302.5 million, or 4.1%, from $7,366.3 million at December 31, 2021. During the six months ended June 30, 2022, due to depositors increased $16.5 million, or 0.3%, to $6,350.0 million due to an increase of $113.6 million in non-interest bearing deposits, partially offset by a decrease of $97.1 million in NOW, money market accounts and certificates of deposit. The decrease in NOW, money market accounts and certificates of deposit was due to management’s decision to allow these deposits to mature and replace with lower cost funding. Included in deposits were brokered deposits totaling $1,028.4 million, an increase of $402.1 million from $626.3 million at December 31, 2021. Borrowed funds increased $274.1 million during the six months ended June 30, 2022.
Equity. Total stockholders’ equity decreased $8.8 million, or 1.3%, to $670.8 million at June 30, 2022, from $679.6 million at December 31, 2021. Stockholders’ equity decreased due to a decline in accumulated other comprehensive income of $24.6 million, the declaration and payment of dividends on the Company’s common stock of $0.44 per common share totaling $13.6 million and 747,689 shares repurchased totaling $17.0 million. These decreases were partially offset by net income of $43.3 million. Book value per common share increased to $22.38 at June 30, 2022 compared to $22.26 at December 31, 2021.
Liquidity. Liquidity is the ability to economically meet current and future financial obligations. The Company’s primary objectives in terms of managing liquidity is to maintain the ability to originate and purchase loans, repay borrowings as they mature, satisfy financial obligations that arise in the normal course of business and meet our customer’s deposit withdrawal needs. Our primary sources of funds are deposits, borrowings, principal and interest payments on loans, mortgage-backed and other securities, and proceeds from sales of securities and loans. Deposit flows and mortgage prepayments, however, are greatly influenced by general interest rates, economic conditions, and competition. The Company has other sources of liquidity, including unsecured overnight lines of credit, brokered deposits and other types of borrowings.
Liquidity management is both a short and long-term function of business management. During 2021, funds were provided by the Company’s operating activities, which were used to fund our investing and financing activities. Our most liquid assets are cash and cash equivalents, which include cash and due from banks, overnight interest-earning deposits and 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 June 30, 2022, cash and cash equivalents totaled $137.0 million, an increase of $55.3 million from December 31, 2021. We also held unencumbered securities available for sale totaling $546.4 million at June 30, 2022.
-53-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussions and Analysis of
Financial Condition and Results of Operations
At June 30, 2022, the Bank was able to borrow up to $3,675.0 million from the FHLB-NY in Federal Home Loan Bank advances and letters of credit. As of June 30, 2022, the Bank had $1,655.4 million outstanding in combined balances of FHLB-NY advances and letters of credit. At June 30, 2022, the Bank also had unsecured lines of credit with other commercial banks totaling $695.0 million, with no outstanding amount. In addition, at June 30, 2022, the Holding Company had subordinated debentures with a principal balance totaling $125.0 million and junior subordinated debentures with a face amount of $61.9 million and a carrying amount of $55.4 million. Management believes its available sources of funds are sufficient to fund current operations.
INTEREST RATE RISK
Economic Value of Equity Analysis. The Consolidated Statements of Financial Position have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in fair value of certain investments due to changes in interest rates. Generally, the fair value of financial investments such as loans and securities fluctuate inversely with changes in interest rates. As a result, increases in interest rates could result in decreases in the fair value of the Company’s interest-earning assets which could adversely affect the Company’s results of operations if such assets were sold, or, in the case of securities classified as available for sale, decreases in the Company’s stockholders’ equity, if such securities were retained.
The Company quantifies the net portfolio value should interest rates immediately go up 100 or 200 basis points or down 100 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 June 30, 2022. Various estimates regarding prepayment assumptions are made at each level of rate shock. At June 30, 2022, the Company was within the guidelines set forth by the Board of Directors for each interest rate level.
The following table presents the Company’s interest rate shock as of June 30, 2022:
| |||||
Change in Interest Rate | Net Portfolio Value | Net Portfolio Value Ratio | |||
-100 Basis points |
| 3.1 | % | 15.4 | % |
Base interest rate |
| — |
| 15.3 |
|
+100 Basis points |
| (5.7) |
| 14.7 |
|
+200 Basis points |
| (11.5) |
| 14.1 |
|
Income Simulation Analysis. The Company manages the mix of interest-earning assets and interest-bearing liabilities on a continuous basis to maximize return and adjust its exposure to interest rate risk. On a quarterly basis, management provides a report for review by the ALCO Investment Committee of the Board of Directors. This report quantifies the potential changes in net interest income and net portfolio value through various interest rate scenarios.
The starting point for the net interest income simulation is an estimate of the next twelve month’s net interest income assuming that both interest rates and the Company’s interest-sensitive assets and liabilities remain at period-end levels. The net interest income simulation assumes that changes in interest rates change gradually in equal increments over the twelve-month period. Prepayment penalty income is excluded from this analysis. Based on these assumptions, net interest income would be reduced by 3.9% from a 100 basis point increase in rates over the next twelve months. Actual results could differ significantly from these estimates.
-54-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussions and Analysis of
Financial Condition and Results of Operations
At June 30 2022, the Company had a derivative portfolio with a notional value totaling $1.4 billion. This portfolio is designed to provide protection against rising interest rates. See Note 11 (“Derivative Financial Instruments”) of the Notes to the Consolidated Financial Statements.
A portion of this portfolio is comprised of interest rate swaps on certain short-term advances and brokered deposits totaling $871.5 million. At June 30, 2022, $591.5 million of the interest rate swaps are effective swaps at a weighted average rate of approximately 1.74% that largely mature by early 2024 and $280.0 million of the interest rate swaps are forward swaps effective at different points through 2024, at an average rate of 0.72%.
The net interest income simulation incorporates the next twelve months (through June 30, 2023) and only a portion of the effective swap maturities and the forward starting swaps are included in this period. Assuming another equal increment ramp of 100 basis points increase in rates in the second year (through June 30, 2024), for a total of 200 basis points over two years, the total derivative portfolio has a 1.6% benefit to net interest income (versus the base case) in the first year and a cumulative benefit of 4.2% by the second year.
-55-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussions and Analysis of
Financial Condition and Results of Operations
AVERAGE BALANCES
Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the relative amount of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them. The following tables sets forth certain information relating to the Company’s Consolidated Statements of Financial Condition and Consolidated Statements of Income for the three and six months ended June 30, 2022 and 2021, and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average balances are derived from average daily balances. The yields include amortization of fees which are considered adjustments to yields.
| For the three months ended June 30, | ||||||||||||||||
| 2022 |
| 2021 | ||||||||||||||
| Average |
| Yield/ |
| Average |
| Yield/ | ||||||||||
| Balance |
| Interest |
| Cost |
| Balance |
| Interest |
| Cost | ||||||
Assets |
| (Dollars in thousands) | |||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
| |||||||
Mortgage loans, net | $ | 5,178,029 | $ | 54,775 |
| 4.23 | % | $ | 5,130,400 | $ | 52,987 |
| 4.13 | % | |||
Other loans, net |
| 1,462,302 |
| 14,417 |
| 3.94 |
| 1,556,488 |
| 15,012 |
| 3.86 | |||||
Total loans, net (1) (2) |
| 6,640,331 | 69,192 | 4.17 |
| 6,686,888 | 67,999 | 4.07 | |||||||||
Taxable securities: |
|
|
|
|
|
|
|
|
|
| |||||||
Mortgage-backed securities |
| 594,923 |
| 2,356 |
| 1.58 |
| 578,134 |
| 2,233 |
| 1.54 | |||||
Other securities |
| 333,158 |
| 2,090 |
| 2.51 |
| 232,020 |
| 1,037 |
| 1.79 | |||||
Total taxable securities |
| 928,081 | 4,446 | 1.92 |
| 810,154 | 3,270 | 1.61 | |||||||||
Tax-exempt securities: (3) |
|
|
|
|
|
|
|
|
|
| |||||||
Other securities |
| 67,315 |
| 625 |
| 3.71 |
| 50,830 |
| 535 |
| 4.21 | |||||
Total tax-exempt securities |
| 67,315 | 625 | 3.71 |
| 50,830 | 535 | 4.21 | |||||||||
Interest-earning deposits and federal funds sold |
| 104,956 |
| 159 |
| 0.61 |
| 242,302 |
| 51 |
| 0.08 | |||||
Total interest-earning assets |
| 7,740,683 | 74,422 | 3.85 |
| 7,790,174 | 71,855 | 3.69 | |||||||||
Other assets |
| 471,080 |
|
|
| 473,379 |
|
| |||||||||
Total assets | $ | 8,211,763 |
|
| $ | 8,263,553 |
|
| |||||||||
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
| |||||||
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
| |||||||
Deposits: |
|
|
|
|
|
|
|
|
|
| |||||||
Savings accounts | $ | 156,785 |
| 50 |
| 0.13 | $ | 153,113 |
| 66 |
| 0.17 | |||||
NOW accounts |
| 2,089,851 |
| 1,405 |
| 0.27 |
| 2,255,581 |
| 1,499 |
| 0.27 | |||||
Money market accounts |
| 2,231,743 |
| 1,952 |
| 0.35 |
| 2,043,257 |
| 2,060 |
| 0.40 | |||||
Certificate of deposit accounts |
| 820,476 |
| 1,273 |
| 0.62 |
| 1,043,985 |
| 1,913 |
| 0.73 | |||||
Total due to depositors |
| 5,298,855 | 4,680 | 0.35 |
| 5,495,936 | 5,538 | 0.40 | |||||||||
Mortgagors' escrow accounts |
| 97,496 |
| 6 |
| 0.02 |
| 91,545 |
| 1 |
| — | |||||
Total deposits |
| 5,396,351 | 4,686 | 0.35 |
| 5,587,481 | 5,539 | 0.40 | |||||||||
Borrowed funds |
| 941,023 |
| 4,875 |
| 2.07 |
| 945,410 |
| 5,164 |
| 2.18 | |||||
Total interest-bearing liabilities |
| 6,337,374 | 9,561 | 0.60 |
| 6,532,891 | 10,703 | 0.66 | |||||||||
Non-interest-bearing deposits |
| 1,044,553 |
|
|
|
| 923,220 |
|
|
| |||||||
Other liabilities |
| 162,380 |
|
|
|
| 162,752 |
|
|
| |||||||
Total liabilities |
| 7,544,307 |
|
|
|
| 7,618,863 |
|
|
| |||||||
Equity |
| 667,456 |
|
|
|
| 644,690 |
|
|
| |||||||
Total liabilities and equity | $ | 8,211,763 |
|
|
| $ | 8,263,553 |
|
|
| |||||||
Net interest income / net interest rate spread (tax equivalent) (3) |
|
| $ | 64,861 |
| 3.25 | % |
|
| $ | 61,152 |
| 3.03 | % | |||
Net interest-earning assets / net interest margin(tax equivalent) | $ | 1,403,309 |
|
|
| 3.35 | % | $ | 1,257,283 |
|
|
| 3.14 | % | |||
Ratio of interest-earning assets to interest-bearing liabilities |
|
|
|
|
| 1.22 | X |
|
|
|
|
| 1.19 | X | |||
| (1) | Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $2.2 million and $3.2 million for the three months ended June 30, 2022 and 2021, respectively. |
| (2) | Loan interest income includes net (losses) gains from fair value adjustments on qualifying hedges of $(0.1) million and $0.7 million for three month periods ended June 30, 2022 and 2021. |
| (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 June 30 2022 and 2021. |
-56-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussions and Analysis of
Financial Condition and Results of Operations
| For the six months ended June 30, | ||||||||||||||||
| 2022 |
| 2021 | ||||||||||||||
| Average |
| Yield/ |
| Average |
| Yield/ | ||||||||||
| Balance |
| Interest |
| Cost |
| Balance |
| Interest |
| Cost | ||||||
Assets |
| (Dollars in thousands) | |||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
| |||||||
Mortgage loans, net | $ | 5,165,121 | $ | 108,745 |
| 4.21 | % | $ | 5,143,117 | $ | 108,206 |
| 4.21 | % | |||
Other loans, net |
| 1,444,555 |
| 27,963 |
| 3.87 |
| 1,550,527 |
| 28,814 |
| 3.72 | |||||
Total loans, net (1) (2) |
| 6,609,676 | 136,708 | 4.14 |
| 6,693,644 | 137,020 | 4.09 | |||||||||
Taxable securities: |
|
|
|
|
|
|
|
|
|
| |||||||
Mortgage-backed securities |
| 587,836 |
| 4,523 |
| 1.54 |
| 506,424 |
| 3,931 |
| 1.55 | |||||
Other securities |
| 280,245 |
| 3,209 |
| 2.29 |
| 266,234 |
| 2,000 |
| 1.50 | |||||
Total taxable securities |
| 868,081 | 7,732 | 1.78 |
| 772,658 | 5,931 | 1.54 | |||||||||
Tax-exempt securities: (3) |
|
|
|
|
|
|
|
|
|
| |||||||
Other securities |
| 62,490 |
| 1,216 |
| 3.89 |
| 50,829 |
| 1,065 |
| 4.19 | |||||
Total tax-exempt securities |
| 62,490 | 1,216 | 3.89 |
| 50,829 | 1,065 | 4.19 | |||||||||
Interest-earning deposits and federal funds sold |
| 115,752 |
| 210 |
| 0.36 |
| 211,904 |
| 87 |
| 0.08 | |||||
Total interest-earning assets |
| 7,655,999 | 145,866 | 3.81 |
| 7,729,035 | 144,103 | 3.73 | |||||||||
Other assets |
| 475,066 |
|
|
| 476,919 |
|
| |||||||||
Total assets | $ | 8,131,065 |
|
| $ | 8,205,954 |
|
| |||||||||
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
| |||||||
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
| |||||||
Deposits: |
|
|
|
|
|
|
|
|
|
| |||||||
Savings accounts | $ | 156,689 |
| 99 |
| 0.13 | $ | 161,549 |
| 141 |
| 0.17 | |||||
NOW accounts |
| 2,063,529 |
| 2,198 |
| 0.21 |
| 2,220,677 |
| 3,205 |
| 0.29 | |||||
Money market accounts |
| 2,242,626 |
| 3,227 |
| 0.29 |
| 1,974,781 |
| 4,160 |
| 0.42 | |||||
Certificate of deposit accounts |
| 854,970 |
| 2,562 |
| 0.60 |
| 1,073,151 |
| 4,135 |
| 0.77 | |||||
Total due to depositors |
| 5,317,814 | 8,086 | 0.30 |
| 5,430,158 | 11,641 | 0.43 | |||||||||
Mortgagors' escrow accounts |
| 84,574 |
| 8 |
| 0.02 |
| 78,531 |
| 3 |
| 0.01 | |||||
Total deposits |
| 5,402,388 | 8,094 | 0.30 |
| 5,508,689 | 11,644 | 0.42 | |||||||||
Borrowed funds |
| 876,877 |
| 9,308 |
| 2.12 |
| 996,845 |
| 10,304 |
| 2.07 | |||||
Total interest-bearing liabilities |
| 6,279,265 | 17,402 | 0.55 |
| 6,505,534 | 21,948 | 0.67 | |||||||||
Non-interest-bearing deposits |
| 1,023,181 |
|
|
|
| 889,821 |
|
|
| |||||||
Other liabilities |
| 158,400 |
|
|
|
| 178,361 |
|
|
| |||||||
Total liabilities |
| 7,460,846 |
|
|
|
| 7,573,716 |
|
|
| |||||||
Equity |
| 670,219 |
|
|
|
| 632,238 |
|
|
| |||||||
Total liabilities and equity | $ | 8,131,065 |
|
|
| $ | 8,205,954 |
|
|
| |||||||
Net interest income / net interest rate spread (tax equivalent) (3) |
|
| $ | 128,464 |
| 3.26 | % |
|
| $ | 122,155 |
| 3.06 | % | |||
Net interest-earning assets / net interest margin(tax equivalent) | $ | 1,376,734 |
|
|
| 3.36 | % | $ | 1,223,501 |
|
|
| 3.16 | % | |||
Ratio of interest-earning assets to interest-bearing liabilities |
|
|
|
|
| 1.22 | X |
|
|
|
|
| 1.19 | X | |||
| (1) | Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $5.1 million and 4.8 million for the six months ended June 30, 2022 and 2021, respectively. |
| (2) | Loan interest income includes net gains (losses) from fair value adjustments on qualifying hedges of ($0.2) million and $0.8 million for the six months ended June 30, 2022 and 2021, respectively. |
| (3) | Interest and yields are calculated on the tax equivalent basis using the statutory federal income tax rate of 21% for the periods presented totaling $0.3 million and $0.2 million for the six months ended June 30, 2022 and 2021. |
-57-
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 six months ended June 30, | ||||||
(In thousands) |
| 2022 |
| 2021 | ||
Mortgage Loans |
|
|
|
| ||
At beginning of period | $ | 5,200,782 | $ | 5,228,271 | ||
Mortgage loans originated: |
|
|
|
| ||
Multi-family residential |
| 235,082 |
| 125,466 | ||
Commercial real estate |
| 209,928 |
| 55,119 | ||
One-to-four family mixed-use property |
| 20,726 |
| 15,847 | ||
One-to-four family residential |
| 13,472 |
| 4,673 | ||
Construction |
| 15,498 |
| 5,468 | ||
Total mortgage loans originated |
| 494,706 |
| 206,573 | ||
Mortgage loans purchased: |
|
|
|
| ||
One-to-four family residential |
| — |
| 57,952 | ||
Construction |
| 1,623 |
| 6,936 | ||
Total mortgage loans purchased |
| 1,623 |
| 64,888 | ||
Less: |
|
|
|
| ||
Principal reductions |
| 398,074 |
| 271,294 | ||
Mortgage loan sales |
| 18,342 |
| 17,846 | ||
Charge-offs |
| — |
| 139 | ||
At end of period | $ | 5,280,695 | $ | 5,210,453 | ||
Non-mortgage loans |
|
|
|
| ||
At beginning of period | $ | 1,433,084 | $ | 1,473,358 | ||
Loans originated: |
|
|
|
| ||
Small Business Administration (1) |
| 2,750 |
| 142,678 | ||
Commercial business |
| 222,281 |
| 164,166 | ||
Other |
| 2,341 |
| 3,170 | ||
Total other loans originated |
| 227,372 |
| 310,014 | ||
Non-mortgage loans purchased: |
|
|
| |||
Commercial business |
| 109,405 |
| 65,818 | ||
Total non-mortgage loans purchased |
| 109,405 |
| 65,818 | ||
Less: |
|
|
|
| ||
Principal reductions (2) |
| 297,813 |
| 338,537 | ||
Charge-offs (3) |
| 59 |
| 3,969 | ||
At end of period | $ | 1,471,989 | $ | 1,506,684 | ||
| (1) | Includes SBA PPP originations totaling $138.7 million for the six months ended June 30, 2021. |
| (2) | Includes SBA PPP reductions totaling $55.2 million and $93.2 million for the six months ended June 30, 2022 and 2021, respectively. |
| (3) | Does not include charge-offs totaling $1.0 million on the guaranteed portion of SBA receivables deemed uncollectible during the six months ended June 30, 2022. |
-58-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussions and Analysis of
Financial Condition and Results of Operations
TROUBLED DEBT RESTRUCTURED (“TDR”) AND NON-PERFORMING ASSETS
The following table shows loans classified as TDR at amortized cost that are performing according to their restructured terms at the periods indicated:
June 30, | December 31, | |||||
(In thousands) |
| 2022 |
| 2021 | ||
Accrual Status: |
|
|
|
| ||
Multi-family residential | $ | 1,656 | $ | 1,690 | ||
Commercial real estate |
| 7,572 |
| 7,572 | ||
One-to-four family - mixed-use property |
| 1,000 |
| 1,375 | ||
One-to-four family - residential |
| 260 |
| 483 | ||
Commercial business and other |
| 1,190 |
| 1,340 | ||
Total |
| 11,678 |
| 12,460 | ||
Non-Accrual Status: |
|
|
|
| ||
One-to-four family - mixed-use property |
| 254 |
| 261 | ||
Commercial business and other |
| 2,850 |
| 41 | ||
Total |
| 3,104 |
| 302 | ||
Total performing troubled debt restructured | $ | 14,782 | $ | 12,762 | ||
-59-
PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussions and Analysis of
Financial Condition and Results of Operations
The following table shows our non-performing assets at the period indicated:
June 30, | December 31, | ||||||
(In thousands) |
| 2022 | 2021 | ||||
Loans 90 days or more past due and still accruing: | |||||||
Commercial Business and other | $ | 100 | $ | — | |||
Total |
| 100 |
| — | |||
Non-accrual loans: |
|
|
|
| |||
Multi-family residential |
| 3,414 |
| 2,431 | |||
Commercial real estate |
| 242 |
| 613 | |||
One-to-four family - mixed-use property (1) |
| 790 |
| 1,309 | |||
One-to-four family - residential |
| 5,055 |
| 7,725 | |||
Construction | 856 | — | |||||
Small business administration |
| 937 |
| 937 | |||
Commercial Business and other (1) |
| 16,554 |
| 1,918 | |||
Total |
| 27,848 |
| 14,933 | |||
Total non-performing loans |
| 27,948 |
| 14,933 | |||
Other non-performing assets: |
|
|
|
| |||
Held-to-maturity securities |
| 20,981 |
| — | |||
Total |
| 20,981 |
| — | |||
Total non-performing assets | $ | 48,929 | $ | 14,933 | |||
Non-performing assets to total assets | 0.59 | % | 0.19 | % | |||
ACL - loans to non-accrual loans | 141.57 | % | 248.66 | % | |||
ACL - loans to non-performing loans | 141.06 | % | 248.66 | % | |||
(1) Not included in the above analysis are the following non-accrual TDRs that are performing according to their restructured terms: one-to-four family mixed-use property loans totaling $0.3 million at both June 30, 2022 and December 31, 2021, respectively, and commercial business loans totaling $2.8 million and less than $0.1 million at June 30, 2022 and December 31, 2021, respectively.
CRITICIZED AND CLASSIFIED ASSETS
Our policy is to review our assets, focusing primarily on the loan portfolio, other real estate owned, and the investment portfolios, to ensure that credit quality is maintained at the highest levels. See Note 5 (“Loans”) of the Notes to the Consolidated Financial Statements for a description of how loans are determined to be criticized or classified and a table displaying criticized and classified loans at June 30, 2022 and December 31, 2021. Our total Criticized and Classified assets were $78.1 million at June 30, 2022, a decrease of $0.5 million from $78.6 million at December 31, 2021. The Company had one investment security with an amortized cost of $21.0 million classified as substandard at June 30, 2022. This same security was reported as special mention at December 31, 2021.
Included within net loans as of June 30, 2022 and December 31, 2021 were $5.4 million and $8.7 million, respectively, of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction.
-60-
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 six months ended June 30, | ||||||
(In thousands) | 2022 | 2021 | ||||
Balance at beginning of period | $ | 37,135 | $ | 45,153 | ||
Loans- Charge-off | (1,086) | (4,108) | ||||
Loans- Recovery | 652 | 341 | ||||
Loans- Provision | 2,723 | 1,284 | ||||
Allowance for Credit Losses - Loans | $ | 39,424 | $ | 42,670 | ||
Balance at beginning of period | $ | 862 | $ | 907 | ||
HTM Securities- Provision (Benefit) | 223 | (63) | ||||
Allowance for HTM Securities losses | $ | 1,085 | $ | 844 | ||
Balance at beginning of period | $ | 1,209 | $ | 1,815 | ||
Off-Balance Sheet- (Benefit) Provision | 235 | (245) | ||||
Allowance for Off-Balance Sheet losses | $ | 1,444 | $ | 1,570 | ||
Allowance for Credit Losses | $ | 41,953 | $ | 45,084 | ||
-61-
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 six months ended June 30, |
| ||||||
(Dollars in thousands) |
| 2022 |
| 2021 | |||
Balance at beginning of year | $ | 37,135 | $ | 45,153 | |||
Provision for credit losses |
| 2,723 |
| 1,284 | |||
Loans charged-off: |
|
|
|
| |||
Multi-family residential |
| — |
| (43) | |||
Commercial real estate |
| — |
| (64) | |||
One-to-four family mixed-use property |
| — |
| (32) | |||
SBA |
| (1,054) |
| — | |||
Taxi medallion |
| — |
| (2,758) | |||
Commercial business and other loans |
| (32) |
| (1,211) | |||
Total loans charged-off |
| (1,086) |
| (4,108) | |||
Recoveries: |
|
|
|
| |||
Multi-family residential |
| 1 |
| 10 | |||
One-to-four family - mixed-use property |
| — |
| 10 | |||
One-to-four family - residential | 4 | 7 | |||||
Small Business Administration | 26 | 19 | |||||
Taxi medallion | 447 | 222 | |||||
Commercial business and other |
| 174 |
| 73 | |||
Total recoveries |
| 652 |
| 341 | |||
Net charge-offs |
| (434) |
| (3,767) | |||
Balance at end of year | $ | 39,424 | $ | 42,670 | |||
Ratio of net charge-offs to average loans outstanding during the period |
| 0.01 | % |
| 0.11 | % | |
Ratio of ACL - loans to gross loans at end of period |
| 0.58 | % |
| 0.64 | % | |
Ratio of ACL - loans to non-performing loans at end of period |
| 141.06 | % |
| 242.55 | % | |
The increase in non-performing assets is due to three relationships. One of the loans increasing non-performing assets was resolved subsequent to June 30, 2022.The second loan relationship is collateralized by non-real estate collateral, including credit insurance. The non-performing investment security and attendant loan are collateralized by a commercial condominium located in Manhattan with a combined LTV of approximately 63%.
-62-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the qualitative and quantitative disclosures about market risk, see the information under the caption Management’s Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Risk.
ITEM 4. CONTROLS AND PROCEDURES
The Company carried out, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2022, the design and operation of these disclosure controls and procedures were effective. During the period covered by this Quarterly Report, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
-63-
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits. Management of the Company, after consultation with outside legal counsel, believes that the resolution of these various matters will not result in any material adverse effect on the Company’s consolidated financial condition, results of operations and cash flows.
ITEM 1A. RISK FACTORS
Except as set forth below there have been no material changes from the risk factors disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2021.
Changes in Interest Rates, Including Recent and Perhaps Future Increases Fueled by Inflation, May Significantly Impact Our Financial Condition and Results of Operations
Our primary source of income is net interest income, which is the difference between the interest income generated by our interest-earning assets (consisting primarily of multi-family residential loans, commercial business loans and commercial real estate mortgage loans) and the interest expense generated by our interest-bearing liabilities (consisting primarily of deposits). The level of net interest income is primarily a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by such external factors as the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the FRB (the “FOMC”), and market interest rates.
It is currently expected that during the remainder of 2022, and perhaps beyond, the FOMC will increase interest rates to reduce the rate of inflation to the extent necessary to reduce inflation to the rate that the FOMC believes is appropriate. In March 2022, the FOMC commenced increasing the target range for the federal funds rate by implementing a 25-basis point increase to a range of 0.25% to 0.50%. In May 2022, the FOMC implemented a 50-basis point increase to a range of 0.75% to 1.00%. In June 2022, the FOMC implemented a 75-basis point increase to a range of 1.50% to 1.75%. At its most recent meeting, in late July 2022, the FOMC further added a 75-basis point increase to a range of 2.25% to 2.50%. All of these increases were expressly made in response to inflationary pressures, which are currently expected to continue. In its July 2022 “Beige Book”, the FRB noted that economic activity had expanded at a modest pace from mid-May, with higher food and gas prices and diminished household discretionary income. The report also noted that housing demand had weakened, commercial real estate conditions had slowed, and loan demand had been mixed, with some financial institutions reporting increased customer usage of revolving credit lines and others reporting weakened residential loan demand amid higher mortgage interest rates. The report concluded that the outlook for future economic growth is mostly negative, with expectations for further weakening of demand over the next six to twelve months.
There can be no assurances as to any future FOMC conduct. If the FOMC further increases the targeted federal funds rates, overall interest rates likely will rise, which will positively impact our interest income but may further negatively impact the entire national economy, including the housing industry in the markets we serve, by reducing refinancing activity and new home purchases. In addition, deflationary pressures, while possibly lowering our operational costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of collateral securing loans, which could negatively affect our financial performance. A significant portion of our loans have fixed interest rates (or, if adjustable, are initially fixed for periods of five to 10 years) and longer terms than our deposits and borrowings. Our net interest income could be adversely affected if the rates we pay on deposits and borrowings increase more rapidly than the rates we earn on loans. Our interest rate risk is exacerbated in the short term by the fact that approximately 80% of our certificates of deposit accounts and borrowings will reprice or mature during the next year. While the higher payments we would receive on adjustable-rate loans in a rising interest rate environment may increase our interest income, nonetheless (notwithstanding our stress testing) some borrowers ultimately may be unable to afford the higher payment amounts, which could result in a higher rate of default. Rising interest rates also may reduce the demand for loans and the value of fixed-rate investment securities. These effects from interest rate changes or from other sustained economic stress or a recession, among other matters, could have a material adverse effect on our business, financial condition, liquidity, and results of operations.
-64-
As a result of our historical focus on the origination of multi-family residential mortgage loans, commercial business loans and commercial real estate mortgage loans, most of our loans are adjustable rate, however, many adjust at periods of five to 10 years. In addition, a large percentage of our investment securities and mortgage-backed securities have fixed interest rates and are classified as available for sale. As is the case with many financial institutions, our emphasis on increasing the development of core deposits, those with no stated maturity date, has resulted in our interest-bearing liabilities having a shorter duration than our interest-earning assets. This imbalance can create significant earnings volatility because interest rates change over time and are currently at historical low levels. As interest rates increase, including as noted above, our cost of funds will increase more rapidly than the yields on a substantial portion of our interest-earning assets. In addition, the market value of our fixed-rate assets for example, our investment and mortgage-backed securities portfolios, would decline if interest rates increase. In line with the foregoing, we have experienced and may continue to experience an increase in the cost of interest-bearing liabilities primarily due to raising the rates we pay on some of our deposit products to stay competitive within our market and an increase in borrowing costs from increases in the federal funds rate.
Prevailing interest rates also affect the extent to which borrowers repay and refinance loans. In a declining interest rate environment, the number of loan prepayments and loan refinancing may increase, as well as prepayments of mortgage-backed securities. Call provisions associated with our investment in U.S. government agency and corporate securities may also adversely affect yield in a declining interest rate environment. Such prepayments and calls may adversely affect the yield of our loan portfolio and mortgage-backed and other securities as we reinvest the prepaid funds in a lower interest rate environment. However, we typically receive additional loan fees when existing loans are refinanced, which partially offset the reduced yield on our loan portfolio resulting from prepayments. In periods of low interest rates, our level of core deposits also may decline if depositors seek higher-yielding instruments or other investments not offered by us, which in turn may increase our cost of funds and decrease our net interest margin to the extent alternative funding sources are utilized. An increasing interest rate environment would tend to extend the average lives of lower yielding fixed rate mortgages and mortgage-backed securities, which could adversely affect net interest income. Also, in an increasing interest rate environment, mortgage loans and mortgage-backed securities may prepay at slower rates than experienced in the past, which could result in a reduction of prepayment penalty income. In addition, depositors tend to open longer term, higher costing certificate of deposit accounts which could adversely affect our net interest income if rates were to subsequently decline. Additionally, adjustable-rate mortgage loans and mortgage-backed securities generally contain interim and lifetime caps that limit the amount the interest rate can increase or decrease at repricing dates. Significant increases in prevailing interest rates may significantly affect demand for loans and the value of bank collateral. See “— Local Economic Conditions” disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2021.
-65-
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth information regarding the shares of common stock repurchased by the Company during the three months ended June 30, 2022:
|
|
|
|
|
| Maximum | |||
Total Number of | Number of | ||||||||
Total | Shares Purchased | Shares That May | |||||||
Number | as Part of Publicly | Yet Be Purchased | |||||||
of Shares | Average Price | Announced Plans | Under the Plans | ||||||
Period | Purchased | Paid per Share | or Programs | or Programs | |||||
April 1 to April 30, 2022 | 20,000 | $ | 21.67 | 20,000 | 468,187 | ||||
May 1 to May 31, 2022 | 246,164 | 21.89 | 246,164 | 1,222,023 | |||||
June 1 to June 30, 2022 | 121,525 | 22.31 | 121,525 | 1,100,498 | |||||
Total |
| 387,689 | $ | 22.01 |
| 387,689 |
| ||
On May 17, 2022, the Board of Directors approved a new stock repurchase program to purchase up to an additional 1,000,000 shares. During the quarter ended June 30, 2022, the Company repurchased 387,689 shares of the Company’s common stock. On June 30, 2022, 1,100,498 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.
-66-
ITEM 6. EXHIBITS
Exhibit No. |
| Description |
3.1 P | Certificate of Incorporation of Flushing Financial Corporation (1) | |
3.2 | Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (3) | |
3.3 | Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (5) | |
3.4 | ||
3.5 | ||
3.6 | Amended and Restated By-Laws of Flushing Financial Corporation (6) | |
4.1 | ||
4.2 | ||
4.3 | Flushing Financial Corporation has outstanding certain long-term debt. None of such debt exceeds ten percent of Flushing Financial Corporation's total assets; therefore, copies of constituent instruments defining the rights of the holders of such debt are not included as exhibits. Copies of instruments with respect to such long-term debt will be furnished to the Securities and Exchange Commission upon request. | |
10.1 | Amended Flushing Financial Corporation 2014 Omnibus Plan (7) | |
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document -the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document (filed herewith) | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith) | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith) | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith) | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith) | |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| (1) | Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 filed |
September 1, 1995, Registration No. 33-96488. (P: Indicates a filing submitted in paper)
| (2) | Incorporated by reference to Exhibit filed with Form 8-K filed September 27, 2006. |
| (3) | Incorporated by reference to Exhibits filed with Form S-8 filed May 31, 2002. |
| (4) | Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended |
September 30, 2002.
| (5) | Incorporated by reference to Exhibit filed with Form 10-K for the year ended December 31, 2011. |
| (6) | Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2014. |
| (7) | Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2021. |
| (8) | Incorporated by reference to Exhibits filed with Form 8-K filed November 22, 2021. |
-67-
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
EXHIBIT INDEX
Exhibit No. |
| Description |
3.1 P | Certificate of Incorporation of Flushing Financial Corporation (1) | |
3.2 | Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (3) | |
3.3 | Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (5) | |
3.4 | ||
3.5 | ||
3.6 | Amended and Restated By-Laws of Flushing Financial Corporation (6) | |
4.1 | ||
4.2 | ||
4.3 | Flushing Financial Corporation has outstanding certain long-term debt. None of such debt exceeds ten percent of Flushing Financial Corporation's total assets; therefore, copies of constituent instruments defining the rights of the holders of such debt are not included as exhibits. Copies of instruments with respect to such long-term debt will be furnished to the Securities and Exchange Commission upon request. | |
10.1 | Amended Flushing Financial Corporation 2014 Omnibus Plan (7) | |
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
101.INS | Inline XBRL Instance Document -the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document (filed herewith) | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith) | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith) | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith) | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith) | |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| (1) | Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 filed |
September 1, 1995, Registration No. 33-96488. (P: Indicates a filing submitted in paper)
| (2) | Incorporated by reference to Exhibit filed with Form 8-K filed September 27, 2006. |
| (3) | Incorporated by reference to Exhibits filed with Form S-8 filed May 31, 2002. |
| (4) | Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended |
September 30, 2002.
| (5) | Incorporated by reference to Exhibit filed with Form 10-K for the year ended December 31, 2011. |
| (6) | Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2014. |
| (7) | Incorporated by reference to Exhibit filed with Form 10-Q for the quarter ended June 30, 2021. |
| (8) | Incorporated by reference to Exhibits filed with Form 8-K filed November 22, 2021. |
-68-
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: | August 5, 2022 | By: | /s/John R. Buran | |
John R. Buran | ||||
President and Chief Executive Officer | ||||
Dated: | August 5, 2022 | By: | /s/Susan K. Cullen | |
Susan K. Cullen | ||||
Senior Executive Vice President, Treasurer and | ||||
Chief Financial Officer | ||||
-69-