Flushing Financial (FFIC) - 2023 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the unaudited financial information for Flushing Financial Corporation, including statements, notes, and management's discussion and analysis ITEM 1. Financial Statements - (Unaudited) This section presents the unaudited consolidated financial statements of Flushing Financial Corporation and its subsidiaries for the quarter ended March 31, 2023, along with detailed notes Consolidated Statements of Financial Condition This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Statements of Financial Condition (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :----------------------------- | :----------------------------- | :----------------------------- | | Total Assets | $8,479,121 | $8,422,946 | | Total Liabilities | $7,805,662 | $7,745,789 | | Total Stockholders' Equity | $673,459 | $677,157 | - Total assets increased by $56.2 million, or 0.7%, from December 31, 2022, to March 31, 2023[7][154] - Total liabilities increased by $59.9 million, or 0.8%, while total stockholders' equity decreased by $3.7 million, or 0.5%[163] Consolidated Statements of Income This statement details the company's revenues, expenses, and net income over a specific reporting period Consolidated Statements of Income (in thousands) | Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Total interest income | $92,117 | $71,320 | | Total interest expense| $46,855 | $7,841 | | Net interest income | $45,262 | $63,479 | | Provision for credit losses | $7,508 | $1,358 | | Total non-interest income | $6,908 | $1,313 | | Total non-interest expense| $37,703 | $38,794 | | Net income | $5,158 | $18,219 | | Basic EPS | $0.17 | $0.58 | | Diluted EPS | $0.17 | $0.58 | - Net income decreased by $13.1 million (71.7%) to $5.2 million for Q1 2023 compared to $18.2 million in Q1 2022[10][144] - This decrease was primarily due to a significant increase in interest expense (up 497.6%) and a higher provision for credit losses (up 452.9%)[147][149] Consolidated Statements of Comprehensive Income This statement presents net income and other comprehensive income items, reflecting changes in equity from non-owner sources Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net income | $5,158 | $18,219 | | Total other comprehensive loss, net of tax | $(1,296) | $(8,820) | | Comprehensive net income | $3,862 | $9,399 | - Comprehensive net income decreased by $5.5 million (58.9%) to $3.9 million in Q1 2023 from $9.4 million in Q1 2022[13] - This was driven by lower net income and a reduced, but still negative, total other comprehensive loss[13] Consolidated Statements of Cash Flows This statement reports the cash generated and used by operating, investing, and financing activities during a period Consolidated Statements of Cash Flows (in thousands) | Activity | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Net cash (used in) provided by operating activities | $(10,418) | $40,577 | | Net cash used in investing activities | $(38,620) | $(95,668) | | Net cash provided by financing activities | $74,031 | $159,775 | | Net increase in cash and cash equivalents, and restricted cash | $24,993 | $104,684 | | Cash, cash equivalents, and restricted cash, end of period | $176,747 | $186,407 | - The company experienced a shift from net cash provided by operating activities in Q1 2022 to net cash used in operating activities in Q1 2023[16][18] - Net cash provided by financing activities significantly decreased, contributing to a lower overall net increase in cash and cash equivalents[16][18] Consolidated Statements of Changes in Stockholders' Equity This statement outlines the changes in each component of stockholders' equity over a reporting period Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :---------------- | | Balance at period end | $673,459 | $677,157 | | Net income | $5,158 | N/A | | Dividends on common stock | $(6,659) | N/A | | Purchase of treasury shares | $(3,053) | N/A | | Other comprehensive loss | $(1,296) | N/A | - Total stockholders' equity decreased by $3.7 million from December 31, 2022, to March 31, 2023[21][163] - This decrease was primarily due to dividends paid ($6.7 million), treasury share repurchases ($3.1 million), and other comprehensive loss ($1.3 million), partially offset by net income ($5.2 million)[21][163] Notes to Consolidated Financial Statements These notes provide additional information and explanations essential for understanding the consolidated financial statements 1. Basis of Presentation This note describes the accounting principles and consolidation policies used in preparing the financial statements - Flushing Financial Corporation operates its wholly-owned subsidiary, Flushing Bank, and other direct/indirect subsidiaries[23][24] - The unaudited consolidated financial statements are prepared in accordance with GAAP and SEC regulations for interim financial statements, with certain information condensed or omitted[25][26] 2. Use of Estimates This note explains management's use of estimates and assumptions in preparing the financial statements - The preparation of financial statements requires management to make estimates and assumptions, particularly for the allowance for credit losses, goodwill impairment, deferred tax asset valuation allowance, and fair value of financial instruments[28] - Management concluded no goodwill impairment was indicated at March 31, 2023[28] 3. Earnings Per Share This note provides details on the calculation of basic and diluted earnings per share Earnings Per Share (in thousands, except per share data) | Metric | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income, as reported | $5,158 | $18,219 | | Weighted average common shares outstanding | 30,265 | 31,524 | | Basic earnings per common share | $0.17 | $0.58 | | Diluted earnings per common share | $0.17 | $0.58 | | Dividend Payout ratio | 129.4 % | 37.9 % | - Basic and diluted EPS decreased significantly from $0.58 in Q1 2022 to $0.17 in Q1 2023[29] - The dividend payout ratio increased to 129.4% in Q1 2023 from 37.9% in Q1 2022, indicating dividends exceeded net income[29] 4. Securities This note details the company's investment securities, including held-to-maturity and available-for-sale classifications Securities Fair Value (in thousands) | Security Type | March 31, 2023 Fair Value | December 31, 2022 Fair Value | | :--------------------------- | :------------------------ | :--------------------------- | | Securities held-to-maturity | $67,869 | $62,550 | | Securities available for sale| $811,928 | $735,357 | Unrealized Losses (in thousands) | Unrealized Losses | March 31, 2023 | December 31, 2022 | | :------------------------------- | :------------- | :---------------- | | Held-to-maturity securities | $6,741 | $12,261 | | Available for sale securities | $87,066 | $91,529 | - The Company does not intend to sell securities with unrealized losses and does not anticipate being required to sell them before recovery of amortized cost[36] - Management believes unrealized losses are not credit-related, as all securities are investment grade or above and performing according to terms[37] Allowance for Credit Losses for HTM Securities (in thousands) | Allowance for Credit Losses for HTM Securities | March 31, 2023 | March 31, 2022 | | :------------------------------------------------------------ | :------------- | :------------- | | Beginning balance | $1,100 | $862 | | (Benefit) provision | $(13) | $124 | | Allowance for credit losses | $1,087 | $986 | 5. Loans This note provides a breakdown of the loan portfolio, including composition, credit quality, and related allowances Loan Composition (in thousands) | Loan Composition | March 31, 2023 | December 31, 2022 | | :------------------------------ | :------------- | :---------------- | | Multi-family residential | $2,601,174 | $2,601,384 | | Commercial real estate | $1,904,293 | $1,913,040 | | Commercial business and other | $1,518,756 | $1,521,548 | | Gross loans | $6,895,193 | $6,925,758 | - Gross loans decreased by $30.6 million (0.4%) from December 31, 2022, to March 31, 2023[42] - The provision for credit losses on loans was $7.5 million in Q1 2023, up from $1.2 million in Q1 2022, driven by a charge-off and increased reserves on two specific loans[47] ACL - Loans (in thousands) | ACL - Loans | March 31, 2023 | December 31, 2022 | | :------------------------- | :------------- | :---------------- | | ACL - loans | $38,729 | $40,442 | | ACL - loans as % of gross loans | 0.56% | 0.58% | | ACL - loans as % of non-performing loans | 182.9% | 124.9% | Non-accrual Loans (in thousands) | Non-accrual Loans | March 31, 2023 | December 31, 2022 | | :------------------------------- | :------------- | :---------------- | | Total non-accrual amortized cost end of period | $20,955 | $29,942 | | Total non-accrual with no related allowance | $13,400 | $13,040 | Allowance for Off-Balance Sheet Credit Losses (in thousands) | Allowance for Off-Balance Sheet Credit Losses | March 31, 2023 | March 31, 2022 | | :----------------------------------------------------------- | :------------- | :------------- | | Balance at beginning of period | $970 | $1,209 | | (Benefit) provision | $(85) | $380 | | Allowance for Off-Balance Sheet - Credit losses | $885 | $1,589 | 6. Loans held for sale This note discusses loans designated for sale and any related transactions during the period - The Bank did not have any loans held for sale at March 31, 2023, or December 31, 2022[69] - During Q1 2023, the Company sold 8 delinquent and non-performing loans for $2.575 million, resulting in a net gain of $54 thousand[70] 7. Leases This note outlines the company's lease arrangements, including right-of-use assets and lease liabilities - The Company has 31 operating leases for branches/office spaces, 10 for vehicles, and one for equipment, with remaining terms from three months to 13 years[71] - The Company elected a short-term lease recognition exemption for leases under 12 months[72] Lease Metric (in thousands) | Lease Metric | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Operating lease ROU asset | $42,268 | $43,289 | | Operating lease liability | $45,353 | $46,125 | | Weighted-average remaining lease term | 6.6 years | 6.6 years | | Weighted average discount rate | 3.1 % | 2.9 % | Lease Cost (in thousands) | Lease Cost | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Total lease cost | $2,659 | $2,382 | 8. Stock-Based Compensation This note describes the company's stock-based incentive plans and the associated compensation expense - The Company's long-term incentive program includes performance-based restricted stock units (PRSUs) and time-based restricted stock units (RSUs)[76] - Stock-based compensation costs, net of tax benefit, were $3.1 million in Q1 2023, down from $3.9 million in Q1 2022[78] Stock-Based Awards (Shares) | Stock-Based Awards | RSU Awards Granted Q1 2023 | PRSU Awards Granted Q1 2023 | | :-------------------------- | :------------------------- | :-------------------------- | | Granted | 235,850 | 79,050 | - As of March 31, 2023, there was $6.7 million of total unrecognized compensation cost related to RSU and PRSU awards, expected to be recognized over a weighted-average period of 2.8 years[80] 9. Pension and Other Postretirement Benefit Plans This note provides information on the company's defined benefit pension and other postretirement benefit plans Net Expense (in thousands) | Net Expense | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :------------------------- | :-------------------------------- | :-------------------------------- | | Net employee pension benefit | $(74) | $(118) | | Net outside director pension expense | $(23) | $7 | | Net other postretirement expense | $75 | $130 | - The Company expects to contribute $0.2 million to the Outside Director Pension Plan and $0.3 million to Other Postretirement Benefit Plans in 2023, with no expected contribution to the Employee Pension Plan[84] 10. Fair Value of Financial Instruments This note details the fair value measurements of financial instruments, categorized by valuation input levels - The Company carries certain financial assets and liabilities at fair value, with $13.2 million in assets and $48.1 million in liabilities under the fair value option at March 31, 2023[85] Fair Value Option (in thousands) | Fair Value Option | March 31, 2023 | December 31, 2022 | | :------------------------------- | :------------- | :---------------- | | Mortgage-backed securities | $288 | $295 | | Other securities | $12,904 | $12,728 | | Borrowed funds | $48,117 | $50,507 | | Net gain (loss) from fair value adjustments | $2,619 | $(1,809) | - Fair value measurements are categorized into Level 1 (quoted active market prices), Level 2 (observable inputs for similar instruments), and Level 3 (unobservable inputs)[90][91] - Level 3 includes trust preferred securities and junior subordinated debentures[92] Level 3 Fair Value (in thousands) | Level 3 Fair Value | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Trust preferred securities | $1,445 | $1,516 | | Junior subordinated debentures | $48,117 | $50,507 | 11. Derivative Financial Instruments This note describes the company's use of derivative instruments for risk management and their impact on financial statements - The Company uses interest rate swaps to mitigate exposure to rising interest rates on fixed-rate loans and securities, facilitate risk management for loan customers, and mitigate exposure on short-term advances and brokered deposits[104][105] Derivative Type (in thousands) | Derivative Type | Notional Amount (March 31, 2023) | Fair Value (Assets, March 31, 2023) | Notional Amount (December 31, 2022) | Fair Value (Assets, December 31, 2022) | | :----------------------------- | :------------------------------- | :---------------------------------- | :---------------------------------- | :----------------------------------- | | Cash flow hedges | $921,500 | $28,653 | $871,500 | $31,716 | | Fair value hedges | $471,520 | $20,967 | $273,607 | $24,673 | | Non hedge | $219,498 | $15,452 | $221,196 | $18,197 | | Total | $1,612,518 | $65,072 | $1,366,303 | $74,586 | - For cash flow hedges, $4.3 million in reduced expense was reclassified from accumulated other comprehensive loss to interest expense in Q1 2023[109] - An estimated $15.5 million in reduced expense is expected to be reclassified in the next 12 months[109] Effect on Income Statement (in thousands) | Effect on Income Statement | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Total net income (loss) from derivative effects | $6,243 | $(3,955) | 12. Accumulated Other Comprehensive Income (Loss) This note presents the components of accumulated other comprehensive income or loss Accumulated Other Comprehensive Income (Loss) (in thousands) | Component | March 31, 2023 Ending Balance | December 31, 2022 Beginning Balance | | :----------------------- | :---------------------------- | :---------------------------------- | | Unrealized Gains (Losses) on Available for Sale Securities | $(59,119) | $(63,106) | | Cash flow Hedges | $20,240 | $25,380 | | Defined Benefit Pension Items | $(344) | $(275) | | Fair Value Option Elected on Liabilities | $1,439 | $1,513 | | Total | $(37,784) | $(36,488) | - Total accumulated other comprehensive loss increased from $(36.5) million at December 31, 2022, to $(37.8) million at March 31, 2023[113] - This was primarily due to a $(5.1) million loss from cash flow hedges, partially offset by a $4.0 million gain from available-for-sale securities[113] 13. Regulatory Capital This note provides information on the company's compliance with regulatory capital requirements - Both the Bank and the Holding Company remain categorized as 'well-capitalized' under prompt corrective action regulations[118] - They continue to exceed all regulatory capital requirements[121] Bank Capital Ratios | Bank Capital Ratios | March 31, 2023 | December 31, 2022 | | :------------------ | :------------- | :---------------- | | Tier I (leverage) capital | 10.55 % | 10.56 % | | Common Equity Tier I risk-based capital | 13.61 % | 13.79 % | | Tier I risk-based capital | 13.61 % | 13.79 % | | Total risk-based capital | 14.18 % | 14.37 % | | Capital Conservation Buffer | 6.18 % | 6.37 % | Holding Company Capital Ratios | Holding Company Capital Ratios | March 31, 2023 | December 31, 2022 | | :----------------------------- | :------------- | :---------------- | | Tier I (leverage) capital | 8.58 % | 8.61 % | | Common Equity Tier I risk-based capital | 10.37 % | 10.52 % | | Tier I risk-based capital | 11.07 % | 11.25 % | | Total risk-based capital | 14.50 % | 14.69 % | | Capital Conservation Buffer | 5.07 % | 5.25 % | 14. New Authoritative Accounting Pronouncements This note discusses recently adopted and issued accounting pronouncements and their potential impact - The Company adopted ASU No. 2022-02, 'Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures' on January 1, 2023, with no material impact on business operations or consolidated financial statements[124] - The FASB issued ASU 2022-06, 'Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,' extending the sunset date to December 31, 2024[125] - The Company is evaluating the impact of ASU 2022-06[127] - The Company is also evaluating the impacts of ASU No. 2021-01 and ASU No. 2020-04, both related to 'Reference Rate Reform,' which provide optional expedients and exceptions for contract modifications and hedge accounting affected by the transition away from LIBOR[128][129] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for the three months ended March 31, 2023, compared to the prior year, highlighting key financial trends, asset quality, liquidity, and interest rate risk management Executive Summary This summary provides an overview of the company's business, financial performance, and key highlights for the period - Flushing Financial Corporation operates Flushing Bank, a full-service New York State-chartered commercial bank, primarily attracting retail deposits and investing in various loans and securities[135] - Net income for Q1 2023 was $5.2 million ($0.17 diluted EPS), a 71.7% decrease from Q1 2022, primarily due to a 109 basis point decline in net interest margin to 2.27% driven by increased cost of interest-bearing liabilities[138] - The loan portfolio is over 88% collateralized by real estate with an average loan-to-value of less than 37%[140] - The allowance for credit losses (ACL) on loans was 0.56% of gross loans and 182.9% of non-performing loans at March 31, 2023[140] - The Bank and Company remain well-capitalized under current regulatory capital requirements[142] COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 This section compares the company's financial performance for the three-month periods ended March 31, 2023, and 2022 - Net income decreased by $13.1 million (71.7%) to $5.2 million in Q1 2023, with diluted EPS falling to $0.17 from $0.58[144] - This was mainly due to a 109 basis point decline in net interest margin to 2.27%[144] Return on Average Equity and Assets | Metric | Q1 2023 | Q1 2022 | | :-------------------- | :------ | :------ | | Return on average equity | 3.02% | 10.83% | | Return on average assets | 0.24% | 0.91% | - Interest and dividend income increased by $20.8 million (29.2%) to $92.1 million, driven by an 84 basis point increase in the yield on interest-earning assets to 4.61%[146] - Interest expense surged by $39.0 million (497.6%) to $46.9 million, as the average cost of interest-bearing liabilities rose 230 basis points to 2.80% due to Federal Reserve rate hikes[147] - Net interest income decreased by $18.2 million (28.7%) to $45.3 million, with the net interest margin declining 109 basis points to 2.27%, as liability costs outpaced asset yields[148] - Provision for credit losses increased to $7.5 million in Q1 2023 from $1.4 million in Q1 2022, mainly due to a charge-off and increased reserves on two specific credits[149] - Non-interest income increased by $5.6 million to $6.9 million, primarily due to net gains from fair value adjustments ($2.6 million) in Q1 2023 compared to net losses ($1.8 million) in Q1 2022[150] - Non-interest expense decreased by $1.1 million (2.8%) to $37.7 million, attributed to reversed salary accruals, Employee Retention Tax Credit refunds, and the impact of a decreased stock price on benefit plans[151] FINANCIAL CONDITION This section analyzes the company's balance sheet, including assets, liabilities, and equity, and their changes over time - Total assets increased by $56.2 million (0.7%) to $8,479.1 million at March 31, 2023[154] - Total net loans decreased by $28.9 million (0.4%) to $6,865.4 million[154] Loan Originations and Purchases (in thousands) | Loan Originations and Purchases | Q1 2023 | Q1 2022 | | :--------------------------------------------- | :------ | :------ | | Multi-family residential | $42,164 | $98,180 | | Commercial real estate | $15,570 | $45,102 | | Commercial business and other | $95,668 | $159,476| | Total | $173,546| $329,319| - Loan originations and purchases decreased by $155.8 million (47.3%) to $173.5 million in Q1 2023[154] - The loan pipeline was $266.1 million at March 31, 2023[154] - Non-performing assets decreased by $11.2 million (21.0%) to $42.2 million, representing 0.50% of total assets at March 31, 2023[159] - The ACL-loans to non-performing loans ratio was 182.9%[159] - Total liabilities increased by $59.9 million (0.8%) to $7,805.7 million[162] - Deposits increased by $218.3 million (3.4%) to $6,655.5 million, driven by a $353.9 million increase in certificates of deposit[162] - Uninsured and uncollateralized deposits totaled $1.1 billion, or 16% of total deposits, at March 31, 2023[162] - Total stockholders' equity decreased by $3.7 million (0.5%) to $673.5 million, with book value per common share decreasing to $22.84[163] - Available liquidity totaled $3.7 billion at March 31, 2023, with primary sources being deposits, borrowings, and loan/security payments[164][168] INTEREST RATE RISK This section discusses the company's exposure to interest rate fluctuations and its strategies for managing this risk - The Company quantifies interest rate risk using Economic Value of Equity (EVE) analysis and Income Simulation Analysis[169] - EVE measures changes in net portfolio value (NPV) under interest rate shocks[170] Economic Value of Equity (EVE) Analysis | Change in Interest Rate | % Change in NPV | NPV Ratio | | :---------------------- | :-------------- | :-------- | | -200 Basis points | (2.6)% | 10.1% | | -100 Basis points | (0.9) | 10.5 | | Base interest rate | - | 10.8 | | +100 Basis points | (3.4) | 10.6 | | +200 Basis points | (6.8) | 10.4 | - Income Simulation Analysis projects changes in net interest income under various rate scenarios[171] - A 100 basis point increase in rates over the next twelve months is projected to reduce net interest income by 5.9% (shocked) or 3.1% (gradual)[173][174] - The Company's derivative portfolio, with a notional value of $1.6 billion, is designed to protect against rising interest rates[175] - This includes $921.5 million in interest rate swaps on short-term advances and brokered deposits[176] AVERAGE BALANCES This section presents average balances of interest-earning assets and interest-bearing liabilities, along with their corresponding yields and costs Average Balances (in thousands) | Metric | Q1 2023 Average Balance | Q1 2023 Yield/Cost | Q1 2022 Average Balance | Q1 2022 Yield/Cost | | :-------------------------------- | :----------------------------------- | :----------------- | :----------------------------------- | :----------------- | | Total interest-earning assets | $7,996,677 | 4.61% | $7,570,373 | 3.77% | | Total interest-bearing liabilities| $6,703,558 | 2.80% | $6,220,510 | 0.50% | | Net interest income | $45,362 | 1.81% (spread) | $63,603 | 3.27% (spread) | | Net interest margin | $1,293,119 (assets) | 2.27% | $1,349,863 (assets) | 3.36% | - The average yield on interest-earning assets increased by 84 basis points to 4.61% in Q1 2023[179] - The average cost of interest-bearing liabilities significantly increased by 230 basis points to 2.80%[179] - This led to a decrease in net interest margin by 109 basis points to 2.27%[179] LOANS This section provides a detailed analysis of the company's loan portfolio, including originations, purchases, and reductions Loan Activity (in thousands) | Loan Activity | Q1 2023 Originated | Q1 2023 Purchased | Q1 2023 Reductions | Q1 2023 Sales | | :--------------------------- | :----------------- | :---------------- | :----------------- | :------------ | | Mortgage Loans | $77,431 | $129 | $102,543 | $2,375 | | Non-mortgage Loans | $51,649 | $44,337 | $89,901 | N/A | - Total mortgage loan originations decreased from $169.1 million in Q1 2022 to $77.4 million in Q1 2023[183] - Non-mortgage loan originations also decreased from $105.9 million to $51.6 million[183] - Principal reductions for mortgage loans decreased from $216.5 million in Q1 2022 to $102.5 million in Q1 2023[183] - Non-mortgage loan reductions decreased from $146.1 million to $89.9 million[183] TROUBLED DEBT RESTRUCTURED ("TDR") AND NON-PERFORMING ASSETS This section discusses the company's troubled debt restructurings and non-performing assets, including trends and management - The Company adopted ASU No. 2022-02 regarding TDRs without material impact[185] - At December 31, 2022, total performing TDRs were $11.8 million, with $11.5 million on accrual status and $0.3 million on non-accrual status[186] Non-Performing Assets (in thousands) | Non-Performing Assets | March 31, 2023 | December 31, 2022 | | :----------------------------------- | :------------- | :---------------- | | Loans 90 days or more past due and still accruing | $0 | $2,600 | | Non-accrual loans | $21,176 | $29,782 | | Held-to-maturity securities | $20,981 | $20,981 | | Total non-performing assets | $42,157 | $53,363 | | Non-performing assets to total assets| 0.50 % | 0.63 % | | ACL - loans to non-accrual loans | 182.89 % | 135.79 % | - Total non-performing assets decreased by $11.2 million (21.0%) to $42.2 million at March 31, 2023, primarily due to a reduction in non-accrual loans[187] CRITICIZED AND CLASSIFIED ASSETS This section provides information on assets identified as having potential credit weaknesses - The amortized cost of Criticized and Classified assets decreased by $8.3 million to $80.6 million at March 31, 2023, from $88.9 million at December 31, 2022[188] - The Company had one investment security with an amortized cost of $21.0 million classified as substandard at both March 31, 2023, and December 31, 2022[188] ALLOWANCE FOR CREDIT LOSSES This section details the allowance for credit losses, including its components and changes during the period Allowance for Credit Losses (in thousands) | ACL Component | March 31, 2023 | March 31, 2022 | | :--------------------------- | :------------- | :------------- | | Allowance for credit losses - loans | $38,729 | $37,433 | | Allowance for HTM securities losses | $1,087 | $986 | | Allowance for off-balance sheet losses | $885 | $1,589 | | Total Allowance for credit losses | $40,701 | $40,008 | ACL - Loans Activity (in thousands) | ACL - Loans Activity | Q1 2023 | Q1 2022 | | :---------------------------------- | :------ | :------ | | Beginning balance | $40,442 | $37,135 | | Provision for credit losses | $7,521 | $1,233 | | Net charge-offs | $(9,234)| $(935) | | Ending balance | $38,729 | $37,433 | | Ratio of net charge-offs to average loans | 0.54 % | 0.06 % | | Ratio of ACL - loans to gross loans | 0.56 % | 0.57 % | | Ratio of ACL - loans to non-performing loans | 182.89 %| 266.12 %| - The ACL for loans decreased to $38.7 million at March 31, 2023, from $40.4 million at the beginning of the year[191] - This was primarily due to higher charge-offs ($9.3 million) partially offset by a $7.5 million provision[191] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the detailed discussion of market risk, including Economic Value of Equity Analysis and Income Simulation Analysis, provided within the Management's Discussion and Analysis of Financial Condition and Results of Operations - For a discussion of market risk, refer to the 'Interest Rate Risk' subsection within 'Management's Discussion and Analysis of Financial Condition and Results of Operations'[193] ITEM 4. Controls and Procedures The Company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023. No material changes to internal control over financial reporting occurred during the period - The Company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2023[193] - There have been no material changes in the Company's internal control over financial reporting during the period covered by this report[193] PART II — OTHER INFORMATION This section includes disclosures on legal proceedings, risk factors, equity security sales, and other miscellaneous information ITEM 1. Legal Proceedings The Company is involved in various lawsuits, but management, in consultation with legal counsel, believes that their resolution will not materially adversely affect the Company's financial condition, results of operations, or cash flows - Management believes the resolution of current legal proceedings will not have a material adverse effect on the Company's financial condition, results of operations, and cash flows[195] ITEM 1A. Risk Factors Recent banking industry events, including regional bank failures, have created significant market volatility and eroded customer confidence, potentially impacting the Company's liquidity, loan funding, net interest margin, and capital. These events may also lead to adverse regulatory changes or increased deposit insurance premiums - Recent bank failures and media coverage have eroded customer confidence, potentially impacting liquidity, loan funding capacity, net interest margin, and capital for regional banks like Flushing Bank[197] - Flushing Bank did not experience higher than normal deposit outflows immediately following the regional bank failures in March 2023[197] - Potential adverse changes to banking laws/regulations or increased FDIC deposit insurance premiums could result from these recent events[198] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2023, the Company repurchased 159,516 shares of common stock at an average price of $19.14 per share. As of March 31, 2023, 434,946 shares remained authorized for repurchase under existing programs with no expiration or maximum dollar amount Unregistered Sales of Equity Securities and Use of Proceeds | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------------------ | :------------------------------- | :--------------------------- | | January 1 to January 31, 2023 | 129,668 | $18.89 | | February 1 to February 28, 2023 | 29,848 | $20.22 | | March 1 to March 31, 2023 | — | — | | Total | 159,516 | $19.14 | - As of March 31, 2023, 434,946 shares remained to be repurchased under currently authorized stock repurchase programs, which have no expiration or maximum dollar amount[199] ITEM 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[200] ITEM 4. Mine Safety Disclosures This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[201] ITEM 5. Other Information No other information is reported under this item - No other information is reported[202] ITEM 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, indentures, certifications, and XBRL-related documents - The exhibits include the Certificate of Incorporation, Amended and Restated By-Laws, Indentures, Section 302 and 906 Certifications, and Inline XBRL documents[204][205] SIGNATURES The report is duly signed on behalf of Flushing Financial Corporation by its President and Chief Executive Officer, John R. Buran, and Senior Executive Vice President, Treasurer and Chief Financial Officer, Susan K. Cullen, on May 10, 2023 - The report was signed by John R. Buran, President and Chief Executive Officer, and Susan K. Cullen, Senior Executive Vice President, Treasurer and Chief Financial Officer, on May 10, 2023[209]