Flushing Financial (FFIC) - 2022 Q2 - Quarterly Report

Part I – Financial Information Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements of Flushing Financial Corporation and its subsidiaries for the quarter ended June 30, 2022, including the statements of financial condition, income, comprehensive income, cash flows, and changes in stockholders' equity, along with detailed notes to these financial statements Consolidated Statements of Financial Condition Total Assets: | Date | Amount (in thousands) | | :------------- | :-------------------- | | June 30, 2022 | $8,339,587 | | Dec 31, 2021 | $8,045,911 | Total Liabilities: | Date | Amount (in thousands) | | :------------- | :-------------------- | | June 30, 2022 | $7,668,775 | | Dec 31, 2021 | $7,366,283 | Total Stockholders' Equity: | Date | Amount (in thousands) | | :------------- | :-------------------- | | June 30, 2022 | $670,812 | | Dec 31, 2021 | $679,628 | Consolidated Statements of Income Net Income and EPS: | Period | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Income (in thousands) | $25,035 | $19,258 | $43,254 | $38,297 | | Basic EPS | $0.81 | $0.61 | $1.39 | $1.21 | | Diluted EPS | $0.81 | $0.61 | $1.39 | $1.21 | Net Interest Income: | Period | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Interest Income (in thousands) | $64,730 | $61,039 | $128,209 | $121,931 | Provision (benefit) for credit losses: | Period | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Provision (benefit) (in thousands) | $1,590 | $(1,598) | $2,948 | $1,222 | Consolidated Statements of Comprehensive Income Comprehensive Net Income: | Period | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Comprehensive Net Income (in thousands) | $9,275 | $21,544 | $18,674 | $46,146 | Total Other Comprehensive Income (Loss), net of tax: | Period | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Other Comprehensive Income (Loss) (in thousands) | $(15,760) | $2,286 | $(24,580) | $7,849 | Consolidated Statements of Cash Flows Net Cash Provided by Operating Activities: | Period | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Net Cash Provided by Operating Activities (in thousands) | $44,642 | $35,975 | Net Cash Used in Investing Activities: | Period | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Net Cash Used in Investing Activities (in thousands) | $(303,491) | $(197,804) | Net Cash Provided by Financing Activities: | Period | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Net Cash Provided by Financing Activities (in thousands) | $314,152 | $150,412 | Net Increase in Cash and Cash Equivalents: | Period | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Net Increase (Decrease) in Cash and Cash Equivalents (in thousands) | $55,303 | $(11,417) | Consolidated Statements of Changes in Stockholders' Equity Total Stockholders' Equity: | Date | Amount (in thousands) | | :------------- | :-------------------- | | June 30, 2022 | $670,812 | | March 31, 2022 | $675,813 | | Dec 31, 2021 | $679,628 | | June 30, 2021 | $655,167 | | March 31, 2021 | $639,201 | | Dec 31, 2020 | $618,997 | - Key changes in Stockholders' Equity for the six months ended June 30, 2022, include net income of $43.3 million, treasury share purchases of $(17.0) million, common stock dividends of $(13.6) million, and an other comprehensive loss of $(24.6) million[19] Notes to Consolidated Financial Statements 1. Basis of Presentation - Flushing Financial Corporation's primary business is the operation of its wholly-owned subsidiary, Flushing Bank[21] - The consolidated financial statements include the Holding Company and its direct and indirect wholly-owned subsidiaries, excluding certain special purpose business trusts[22] - The statements are prepared in accordance with GAAP and SEC regulations for interim financial statements[23][24] 2. Use of Estimates - Management's estimates and assumptions are critical for financial statements, particularly for the allowance for credit losses, goodwill impairment, deferred tax assets valuation, and fair value of financial instruments[26] 3. Earnings Per Share Basic and Diluted Earnings Per Common Share: | Period | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic EPS | $0.81 | $0.61 | $1.39 | $1.21 | | Diluted EPS | $0.81 | $0.61 | $1.39 | $1.21 | - There were no common stock equivalents for the three and six months ended June 30, 2022 and 2021[28] 4. Securities - The Company held no trading securities at June 30, 2022, and December 31, 2021. Securities available for sale are recorded at fair value, while held-to-maturity (HTM) securities are at amortized cost[29] Securities Held-to-Maturity at June 30, 2022: | Category | Amortized Cost (in thousands) | Fair Value (in thousands) | Gross Unrecognized Losses (in thousands) | | :------------------- | :---------------------------- | :------------------------ | :--------------------------------------- | | Municipals | $67,315 | $57,064 | $10,251 | | FNMA | $7,885 | $7,496 | $389 | | Total | $74,115 | $64,560 | $10,640 | Securities Available for Sale at June 30, 2022: | Category | Amortized Cost (in thousands) | Fair Value (in thousands) | Gross Unrealized Losses (in thousands) | | :--------------------------- | :---------------------------- | :------------------------ | :--------------------------------------- | | U.S. government agencies | $84,463 | $83,039 | $1,434 | | Corporate | $133,927 | $124,468 | $9,531 | | Collateralized loan obligations | $131,094 | $125,978 | $5,116 | | Mortgage-backed securities | $567,643 | $510,934 | $56,753 | | Total | $930,362 | $857,654 | $72,834 | - The Company does not intend to sell securities with unrealized losses and is unlikely to be required to sell them before recovery of amortized cost[44] - Allowance for credit losses for HTM debt securities was $1.085 million at June 30, 2022, an increase from $0.862 million at December 31, 2021[46][48] - No securities were sold during the three and six months ended June 30, 2022[48] 5. Loans - Loans are reported net of unearned income, charge-offs, deferred fees, and unamortized premiums/discounts. Interest is recognized on an accrual basis, generally discontinued after 90 days delinquency[51][52] - At June 30, 2022, the Company had five active CARES Act forbearances totaling approximately $26.7 million, a decrease from 20 forbearances totaling $71.9 million at December 31, 2021[53] - The Allowance for Credit Losses (ACL) on loans was $39.4 million at June 30, 2022, up from $37.1 million at December 31, 2021[58] - The ACL-loans represented 0.58% of gross loans and 141.1% of non-performing loans at June 30, 2022, compared to 0.56% and 248.7% at December 31, 2021[58] - Provision for credit losses on loans was $1.5 million for the three months ended June 30, 2022 (vs. $1.5 million benefit in 2021) and $2.7 million for the six months ended June 30, 2022 (vs. $1.3 million in 2021), driven by loan growth and ongoing environmental uncertainty[58] - Two commercial business and other loans classified as Troubled Debt Restructured (TDRs) totaling $2.5 million defaulted within 12 months of modification during the three and six months ended June 30, 2022[62] Performing TDR Loans at Amortized Cost: | Loan Type | June 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | | :---------------------------- | :--------------------------- | :-------------------------- | | Multi-family residential | $1,656 | $1,690 | | Commercial real estate | $7,572 | $7,572 | | One-to-four family - mixed-use property | $1,254 | $1,636 | | One-to-four family - residential | $260 | $483 | | Small Business Administration | $269 | $0 | | Commercial business and other | $3,771 | $1,381 | | Total Performing | $14,782 | $12,762 | Non-Performing TDR Loans at Amortized Cost (June 30, 2022): | Loan Type | Amortized Cost (in thousands) | | :---------------------------- | :---------------------------- | | Commercial business and other | $2,453 | | Total Non-Performing | $2,453 | Non-Accrual Loans at Amortized Cost (June 30, 2022): | Loan Type | Amortized Cost (in thousands) | | :---------------------------- | :---------------------------- | | Multi-family residential | $3,707 | | Commercial real estate | $273 | | One-to-four family - mixed-use property | $1,049 | | One-to-four family - residential | $4,708 | | Small Business Administration | $951 | | Construction | $856 | | Commercial business and other | $3,330 | | Total | $14,874 | - Total foregone interest on non-accrual and TDR loans was $306 thousand for the three months ended June 30, 2022, and $523 thousand for the six months ended June 30, 2022[72] - Commitments to extend credit (off-balance sheet) totaled $542.6 million at June 30, 2022, an increase from $472.9 million at December 31, 2021[86] - Allowance for off-balance sheet credit losses was $1.444 million at June 30, 2022, compared to $1.209 million at December 31, 2021[87] 6. Loans held for sale - The Bank did not have any loans held for sale at June 30, 2022, and December 31, 2021[91] 7. Leases - The Company has 28 operating leases for branches/offices, 10 for vehicles, and one for equipment, with terms ranging from six months to approximately 14 years[95] Operating Lease Information: | Metric | June 30, 2022 | Dec 31, 2021 | | :----------------------------------- | :------------ | :----------- | | Operating lease ROU asset (in thousands) | $46,687 | $50,200 | | Operating lease liability (in thousands) | $50,346 | $54,155 | | Weighted-average remaining lease term | 7.0 years | 7.4 years | | Weighted average discount rate | 3.1% | 3.1% | - Total lease cost for the three months ended June 30, 2022, was $2.399 million, and for the six months ended June 30, 2022, was $4.781 million[97][99] 8. Stock-Based Compensation - The Company's long-term incentive program includes grants of performance-based restricted stock units (PRSUs) and time-based restricted stock units (RSUs)[102] - As of June 30, 2022, 966,785 shares were available for future issuance under the 2014 Omnibus Plan[104] - Stock-based compensation costs (including phantom stock awards) were $0.9 million for the three months ended June 30, 2022 (vs. $1.1 million in 2021) and $4.9 million for the six months ended June 30, 2022 (vs. $5.2 million in 2021)[105] RSU and PRSU Awards Activity (Six Months Ended June 30, 2022): | Metric | RSU Awards (Shares) | PRSU Awards (Shares) | | :----------------------------------- | :------------------ | :------------------- | | Non-vested at Dec 31, 2021 | 310,430 | 102,920 | | Granted | 212,811 | 63,250 | | Vested | (219,835) | (71,390) | | Forfeited | (1,695) | — | | Non-vested at June 30, 2022 | 301,711 | 94,780 | - Unrecognized compensation cost related to RSU and PRSU awards was $6.2 million as of June 30, 2022, expected to be recognized over a weighted-average period of 2.6 years[107] - Phantom Stock Plan outstanding shares were 155,159 at June 30, 2022, with a fair value of $21.26 per share[110] 9. Pension and Other Postretirement Benefit Plans Net Employee Pension Benefit: | Period | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Employee Pension Benefit (in thousands) | $(119) | $(24) | $(237) | $(48) | Net Outside Director Pension Expense: | Period | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Outside Director Pension Expense (in thousands) | $8 | $11 | $15 | $22 | Net Other Postretirement Expense: | Period | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Other Postretirement Expense (in thousands) | $129 | $126 | $259 | $235 | - The Company expects to contribute $0.3 million to each of the Outside Director Pension Plan and Other Postretirement Benefit Plans in 2022, with $72,000 and $21,000 already contributed, respectively, as of June 30, 2022. No contribution is expected for the Employee Pension Plan[114] 10. Fair Value of Financial Instruments - The Company carries certain financial assets and liabilities at fair value under the fair value option, totaling $13.6 million in assets and $55.4 million in liabilities at June 30, 2022[115] Net Gain (Loss) from Fair Value Adjustments (Fair Value Option): | Period | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net gain (loss) (in thousands) | $2,533 | $(5,353) | $724 | $(6,989) | - Fair value measurements are categorized into Level 1 (quoted market prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[122][123][124] - At June 30, 2022, Level 3 assets included trust preferred securities ($1.662 million) and Level 3 liabilities included junior subordinated debentures ($55.352 million)[127] - Non-accrual loans are carried at fair value on a non-recurring basis, totaling $22.502 million at June 30, 2022, and $11.026 million at December 31, 2021[132] 11. Derivative Financial Instruments - The Company uses interest rate swaps to mitigate exposure to rising interest rates on fixed-rate loans ($289.2 million at June 30, 2022) and short-term advances/brokered deposits ($871.5 million at June 30, 2022), and to facilitate risk management for loan customers ($224.6 million at June 30, 2022)[140][142] - Derivatives are carried at fair value, with changes accounted for based on hedge designation[144] - Notional amounts of derivative financial instruments at June 30, 2022, include $871.5 million for cash flow hedges, $289.2 million for fair value hedges, and $224.6 million not designated as hedges[145] - For cash flow hedges, $2.4 million was reclassified from accumulated other comprehensive loss to interest expense for the three months ended June 30, 2022[146] - The estimated amount to be reclassified from accumulated other comprehensive loss in the next 12 months is $5.7 million[146] Total Derivatives Fair Value: | Date | Fair Value (in thousands) | | :------------- | :------------------------ | | June 30, 2022 | $40,727 | | Dec 31, 2021 | $(14,388) | 12. Accumulated Other Comprehensive Income (Loss) Accumulated Other Comprehensive Income (Loss) Ending Balance, Net of Tax: | Date | Amount (in thousands) | | :------------- | :-------------------- | | June 30, 2022 | $(31,264) | | March 31, 2022 | $(15,504) | | June 30, 2021 | $(8,417) | | Dec 31, 2020 | $(16,266) | - Net current period other comprehensive income (loss), net of tax, was $(15.760) million for the three months ended June 30, 2022, and $(24.580) million for the six months ended June 30, 2022[155][157] - Significant reclassifications from AOCI include interest rate swaps affecting interest expense and pension items affecting other expense[160][162] 13. Regulatory Capital - Both the Bank and the Holding Company remain 'well-capitalized' under current capital regulations and exceed all regulatory capital requirements as of June 30, 2022[164][166] Bank Capital Ratios (June 30, 2022): | Capital Ratio | Capital Level | Requirement to be Well-Capitalized | Excess | | :----------------------------- | :------------ | :--------------------------------- | :------------ | | Tier I (leverage) capital | 10.28% | 5.00% | 5.28% | | Common Equity Tier I risk-based capital | 13.09% | 6.50% | 6.59% | | Tier I risk-based capital | 13.09% | 8.00% | 5.09% | | Total risk-based capital | 13.67% | 10.00% | 3.67% | - The Capital Conservation Buffer (CCB) for the Bank was 5.67% at June 30, 2022 (vs. 6.13% at Dec 31, 2021)[164] - The CCB for the Holding Company was 5.34% at June 30, 2022 (vs. 5.75% at Dec 31, 2021)[166] 14. New Authoritative Accounting Pronouncements - FASB issued ASU No. 2022-02, 'Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures,' effective for fiscal years beginning after December 15, 2022, which replaces TDR recognition guidance for CECL adopters and enhances disclosures. The Company is evaluating its impact[170] - FASB issued ASU No. 2021-01 and ASU No. 2020-04, 'Reference Rate Reform' (Topic 848), providing optional expedients for contract modifications and hedge accounting related to the LIBOR transition, effective through December 31, 2022. The Company is evaluating the material effects[171][172][173] 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, comparing the three and six months ended June 30, 2022, to the corresponding periods in 2021. It highlights key financial metrics, loan portfolio performance, asset quality, liquidity, and interest rate risk management Executive Summary - Flushing Financial Corporation operates Flushing Bank, a full-service New York State-chartered commercial bank, primarily attracting retail deposits and investing in multi-family residential, commercial business, commercial real estate, and one-to-four family mixed-use property loans[179] - Net income for the three months ended June 30, 2022, was $25.0 million, or $0.81 diluted EPS, driven by record net interest income of $64.7 million[183] - Net interest margin was 3.35% for the three months ended June 30, 2022, a slight decrease of one basis point from the prior quarter. Excluding certain adjustments, it increased two basis points to 3.33%[184] - The loan portfolio is over 87% collateralized by real estate with an average loan-to-value of less than 38%[185] - ACL - loans stood at 58 basis points of gross loans and 141.1% of non-performing loans at June 30, 2022. Non-performing assets were 59 basis points of total assets[185] - The Bank and Company remain well-capitalized under current capital regulations[186] Comparison of Operating Results (Three Months Ended June 30) General (Three Months) Net Income and EPS (3 Months Ended June 30): | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------- | :---------- | :---------- | :---------- | :--------- | | Net Income (in millions) | $25.0 | $19.3 | $5.8 | 30.0% | | Diluted EPS | $0.81 | $0.61 | $0.20 | 32.8% | Return on Average Equity and Assets (3 Months Ended June 30): | Metric | 2022 | 2021 | | :--------------------------- | :------ | :------ | | Return on average equity | 15.00% | 11.95% | | Return on average assets | 1.22% | 0.93% | Interest Income (Three Months) - Interest and dividend income increased by $2.5 million (3.6%) to $74.3 million for the three months ended June 30, 2022, from $71.7 million in the prior year[189] - The yield on interest-earning assets increased by 16 basis points to 3.85% in Q2 2022 from 3.69% in Q2 2021[189] - Excluding certain adjustments, the yield on total loans, net, increased seven basis points to 4.01% in Q2 2022 from 3.94% in Q2 2021[189] Interest Expense (Three Months) - Interest expense decreased by $1.1 million (10.7%) to $9.6 million for the three months ended June 30, 2022, from $10.7 million in the prior year[191] - The average cost of interest-bearing liabilities declined by six basis points to 0.60% in Q2 2022 from 0.66% in Q2 2021[191] - The average balance of interest-bearing liabilities decreased by $195.5 million to $6,337.4 million[191] Net Interest Income (Three Months) - Net interest income increased by $3.7 million (6.0%) to $64.7 million for the three months ended June 30, 2022, from $61.0 million in the prior year[192] - Net interest-earning assets grew by $146.0 million year-over-year to $1,403.3 million[192] - Net interest margin increased by 21 basis points to 3.35% during the same period[192] - Excluding prepayment penalties, hedge adjustments, and purchase accounting, net interest margin increased 18 basis points to 3.22% in Q2 2022 from 3.04% in Q2 2021[192] Provision (Benefit) for Credit Losses (Three Months) - Provision for credit losses was $1.6 million for the three months ended June 30, 2022, compared to a benefit of $1.6 million for the three months ended June 30, 2021[193] - Non-performing assets increased by $34.8 million to $48.9 million at June 30, 2022, primarily due to the addition of one non-accrual investment security and three non-accrual commercial business loans[193] - The current average loan-to-value ratio for non-performing assets collateralized by real estate was 50.7% at June 30, 2022[193] Non-Interest Income (Loss) (Three Months) - Non-interest income increased by $10.6 million to $7.4 million for the three months ended June 30, 2022, from a loss of $3.2 million in the prior year comparable period[194] - The increase was primarily due to net gains from fair value adjustments ($2.5 million in Q2 2022 vs. $6.5 million net losses in Q2 2021) and $1.5 million in life insurance proceeds in Q2 2022[194] Non-Interest Expense (Three Months) - Non-interest expense increased by $1.5 million (4.4%) to $35.5 million for the three months ended June 30, 2022, from $34.0 million in the prior year, primarily due to the growth of the Company[195] Income before Income Taxes (Three Months) - Income before income taxes increased by $9.6 million (37.6%) to $35.0 million for the three months ended June 30, 2022, from $25.4 million in the prior year[196] Provision for Income Taxes (Three Months) - The provision for income taxes was $9.9 million for the three months ended June 30, 2022, an increase of $3.8 million (61.4%) from $6.2 million in the prior year[197] - The effective tax rate increased to 28.4% in Q2 2022 from 24.2% in Q2 2021, primarily due to the loss of certain New York State and City tax deductions[197] Comparison of Operating Results (Six Months Ended June 30) General (Six Months) Net Income and EPS (6 Months Ended June 30): | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------- | :---------- | :---------- | :---------- | :--------- | | Net Income (in millions) | $43.3 | $38.3 | $5.0 | 12.9% | | Diluted EPS | $1.39 | $1.21 | $0.18 | 14.9% | Return on Average Equity and Assets (6 Months Ended June 30): | Metric | 2022 | 2021 | | :--------------------------- | :------ | :------ | | Return on average equity | 12.91% | 12.11% | | Return on average assets | 1.06% | 0.93% | Interest Income (Six Months) - Interest and dividend income increased by $1.7 million (1.2%) to $145.6 million for the six months ended June 30, 2022, from $143.9 million in the prior year[201] - The yield on interest-earning assets increased by 8 basis points to 3.81% in H1 2022 from 3.73% in H1 2021[201] - Excluding certain adjustments, the yield on total loans, net, increased three basis points to 3.97% in H1 2022 from 3.94% in H1 2021[201] Interest Expense (Six Months) - Interest expense decreased by $4.5 million (20.7%) to $17.4 million for the six months ended June 30, 2022, from $21.9 million in the prior year[202] - The average cost of interest-bearing liabilities declined by 12 basis points to 0.55% in H1 2022 from 0.67% in H1 2021[202] - The average balance of interest-bearing liabilities decreased by $226.3 million to $6,279.3 million[202] Net Interest Income (Six Months) - Net interest income increased by $6.3 million (5.1%) to $128.2 million for the six months ended June 30, 2022, from $121.9 million in the prior year[203] - Net interest margin increased by 20 basis points to 3.36% during the six months ended June 30, 2022[203] - Net interest-earning assets increased by $153.2 million to $1,376.7 million for the same period[203] - Excluding prepayment penalties, hedge adjustments, and purchase accounting, net interest margin increased 20 basis points to 3.22% in H1 2022 from 3.02% in H1 2021[203] Provision for Credit Losses (Six Months) - Provision for credit losses was $2.9 million for the six months ended June 30, 2022, compared to $1.2 million for the six months ended June 30, 2021[204] - Non-performing assets increased by $34.0 million to $48.9 million from $14.9 million at December 31, 2021, primarily due to the addition of one non-accrual investment security and three non-accrual commercial business loans[204] - The current average loan-to-value ratio for non-performing assets collateralized by real estate was 50.7% at June 30, 2022[204] Non-Interest Income (Six Months) - Non-interest income increased by $5.6 million to $8.7 million for the six months ended June 30, 2022, from $3.1 million in the prior year comparable period[205] - The increase was primarily due to net gains from fair value adjustments ($0.7 million in H1 2022 vs. $5.6 million net losses in H1 2021) and $1.5 million in life insurance proceeds in H1 2022[205] - These increases were partially offset by a decline in loan swap income during the six months ended June 30, 2022, compared to the six months ended June 30, 2021, due to lower activity[206] Non-Interest Expense (Six Months) - Non-interest expense increased by $2.1 million (3.0%) to $74.3 million for the six months ended June 30, 2022, from $72.2 million in the prior year, primarily due to the growth of the Company[208] Income before Income Taxes (Six Months) - Income before income taxes increased by $8.0 million (15.4%) to $59.6 million for the six months ended June 30, 2022, from $51.6 million in the prior year[209] Provision for Income Taxes (Six Months) - The provision for income taxes was $16.4 million for the six months ended June 30, 2022, an increase of $3.0 million (22.6%) from $13.3 million in the prior year[210] - The effective tax rate increased to 27.4% in H1 2022 from 25.8% in H1 2021, primarily due to the loss of certain New York State and City tax deductions[210] Financial Condition Assets - Total assets increased by $293.7 million (3.7%) to $8,339.6 million at June 30, 2022, from $8,045.9 million at December 31, 2021[211] - Total loans net increased by $120.0 million (1.8%) to $6,721.0 million at June 30, 2022[211] - Loan originations and purchases were $833.1 million for the six months ended June 30, 2022, an increase of $185.8 million (28.7%) from the prior year[211] - The loan pipeline was $582.6 million at June 30, 2022, up from $429.3 million at December 31, 2021[211] - Mortgage-backed securities decreased by $61.3 million (10.6%) to $518.8 million, primarily due to principal repayments and fair value decreases, partially offset by purchases[216] - Other securities increased by $157.9 million (61.9%) to $413.0 million, mainly due to purchases[217] - Non-performing assets totaled $48.9 million at June 30, 2022, an increase of $34.0 million (227.7%) from December 31, 2021[215] - Non-performing assets as a percentage of total assets were 0.59% at June 30, 2022 (vs. 0.19% at Dec 31, 2021)[215] - The ratio of ACL - loans to total non-performing loans was 141.1% at June 30, 2022 (vs. 248.7% at Dec 31, 2021)[215] Liabilities - Total liabilities increased by $302.5 million (4.1%) to $7,668.8 million at June 30, 2022, from $7,366.3 million at December 31, 2021[218] - Deposits increased by $16.5 million (0.3%) to $6,350.0 million, driven by a $113.6 million increase in non-interest bearing deposits, partially offset by a decrease of $97.1 million in NOW, money market accounts and certificates of deposit[218] - Brokered deposits increased by $402.1 million to $1,028.4 million[218] - Borrowed funds increased by $274.1 million during the six months ended June 30, 2022[218] Equity - Total stockholders' equity decreased by $8.8 million (1.3%) to $670.8 million at June 30, 2022, from $679.6 million at December 31, 2021[219] - This decrease was due to a $24.6 million decline in accumulated other comprehensive income, $13.6 million in dividends paid, and $17.0 million in share repurchases, partially offset by $43.3 million in net income[219] - Book value per common share increased to $22.38 at June 30, 2022, compared to $22.26 at December 31, 2021[219] Liquidity - The Company's primary liquidity objectives are to fund loan originations, repay borrowings, satisfy financial obligations, and meet customer deposit withdrawal needs[220] - Cash and cash equivalents totaled $137.0 million at June 30, 2022, an increase of $55.3 million from December 31, 2021[221] - Unencumbered securities available for sale totaled $546.4 million at June 30, 2022[221] - At June 30, 2022, the Bank had $3,675.0 million available from the FHLB-NY (with $1,655.4 million outstanding) and $695.0 million in unsecured lines of credit with other commercial banks (no outstanding amount)[223] Interest Rate Risk Economic Value of Equity Analysis - The Company quantifies the net portfolio value (market value of assets net of liabilities) under various interest rate shock scenarios[225] Interest Rate Shock Analysis (June 30, 2022): | Scenario | Change in 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% | - At June 30, 2022, the Company was within the guidelines set forth by the Board of Directors for each interest rate level[225] Income Simulation Analysis - Based on assumptions, net interest income would be reduced by 3.9% from a 100 basis point increase in rates over the next twelve months[227] - The Company had a derivative portfolio with a notional value totaling $1.4 billion at June 30, 2022, designed to provide protection against rising interest rates[229] - A portion of this portfolio includes interest rate swaps on certain short-term advances and brokered deposits totaling $871.5 million[230] - Assuming a 200 basis point increase over two years, the total derivative portfolio has a 1.6% benefit to net interest income in the first year and a cumulative 4.2% benefit by the second year[231] Average Balances, Yields, and Costs Average Interest-Earning Assets and Yields (Three Months Ended June 30): | Category | Average Balance (in thousands) | Interest (in thousands) | Yield/Cost (%) | | :--------------------------- | :----------------------------- | :---------------------- | :------------- | | Total loans, net (2022) | $6,640,331 | $69,192 | 4.17% | | Total loans, net (2021) | $6,686,888 | $67,999 | 4.07% | | Total interest-earning assets (2022) | $7,740,683 | $74,422 | 3.85% | | Total interest-earning assets (2021) | $7,790,174 | $71,855 | 3.69% | Average Interest-Bearing Liabilities and Costs (Three Months Ended June 30): | Category | Average Balance (in thousands) | Interest (in thousands) | Yield/Cost (%) | | :--------------------------- | :----------------------------- | :---------------------- | :------------- | | Total deposits (2022) | $5,396,351 | $4,686 | 0.35% | | Total deposits (2021) | $5,587,481 | $5,539 | 0.40% | | Total interest-bearing liabilities (2022) | $6,337,374 | $9,561 | 0.60% | | Total interest-bearing liabilities (2021) | $6,532,891 | $10,703 | 0.66% | Net Interest Margin (Tax Equivalent) (Three Months Ended June 30): | Period | Net Interest Margin (%) | | :----- | :---------------------- | | 2022 | 3.35% | | 2021 | 3.14% | Net Interest Margin (Tax Equivalent) (Six Months Ended June 30): | Period | Net Interest Margin (%) | | :----- | :---------------------- | | 2022 | 3.36% | | 2021 | 3.16% | Loans (MD&A) Mortgage Loans Originated (Six Months Ended June 30): | Loan Type | 2022 (in thousands) | 2021 (in thousands) | | :---------------------------- | :------------------ | :------------------ | | 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 | Non-Mortgage Loans Originated (Six Months Ended June 30): | Loan Type | 2022 (in thousands) | 2021 (in thousands) | | :---------------------------- | :------------------ | :------------------ | | Small Business Administration | $2,750 | $142,678 | | Commercial business | $222,281 | $164,166 | | Other | $2,341 | $3,170 | | Total Other Loans Originated | $227,372 | $310,014 | - Mortgage loans purchased were $1.6 million in H1 2022 (vs. $64.9 million in H1 2021). Non-mortgage loans purchased were $109.4 million in H1 2022 (vs. $65.8 million in H1 2021)[240] - The Bank maintains conservative underwriting standards, including a loan-to-value ratio of 75% or less and a debt coverage ratio of at least 125%[213] Troubled Debt Restructured (TDR) and Non-Performing Assets Total Performing TDR Loans: | Date | Amount (in thousands) | | :------------- | :-------------------- | | June 30, 2022 | $14,782 | | Dec 31, 2021 | $12,762 | Total Non-Performing Assets: | Date | Amount (in thousands) | | :------------- | :-------------------- | | June 30, 2022 | $48,929 | | Dec 31, 2021 | $14,933 | - Non-performing assets to total assets increased to 0.59% at June 30, 2022, from 0.19% at December 31, 2021[245] - ACL - loans to non-performing loans decreased to 141.06% at June 30, 2022, from 248.66% at December 31, 2021[245] Criticized and Classified Assets - Total Criticized and Classified assets were $78.1 million at June 30, 2022, a slight decrease from $78.6 million at December 31, 2021[246] - One investment security with an amortized cost of $21.0 million was classified as substandard at June 30, 2022 (previously special mention at Dec 31, 2021)[246] - Consumer mortgage loans in formal foreclosure proceedings totaled $5.4 million at June 30, 2022 (vs. $8.7 million at Dec 31, 2021)[247] Allowance for Credit Losses Allowance for Credit Losses (ACL) Summary (Six Months Ended June 30): | Category | 2022 (in thousands) | 2021 (in thousands) | | :--------------------------- | :------------------ | :------------------ | | ACL - Loans | $39,424 | $42,670 | | ACL - HTM Securities | $1,085 | $844 | | ACL - Off-Balance Sheet | $1,444 | $1,570 | | Total Allowance for Credit Losses | $41,953 | $45,084 | - Net charge-offs were $(434) thousand for the six months ended June 30, 2022, compared to $(3,767) thousand in the prior year[251] - Ratio of net charge-offs to average loans outstanding was 0.01% in H1 2022 (vs. 0.11% in H1 2021)[251] - The increase in non-performing assets is attributed to three relationships, one of which was resolved subsequent to June 30, 2022[252] Quantitative and Qualitative Disclosures About Market Risk This section refers to the "Management's Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Risk" for detailed disclosures on market risk - For market risk disclosures, refer to the "Interest Rate Risk" section within Management's Discussion and Analysis[253] Controls and Procedures The Company's management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2022, and concluded they were effective. No material changes to internal control over financial reporting occurred during the period - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2022[253] - No material changes to internal control over financial reporting occurred during the reporting period[253] Part II – Other Information Legal Proceedings The Company is involved in various lawsuits, but management, in consultation with legal counsel, believes that their resolution will not have a material adverse effect on the Company's consolidated financial condition, results of operations, or cash flows - Management believes current legal proceedings will not materially adversely affect the Company's consolidated financial condition, results of operations, or cash flows[255] Risk Factors This section updates risk factors, primarily focusing on the significant impact of changes in interest rates, including recent and potential future increases by the FOMC to combat inflation. It highlights how rising rates could affect net interest income, loan demand, asset values, and borrower repayment ability, while also noting the shorter duration of liabilities compared to assets - 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, except as set forth in this section[256] - Changes in interest rates, including recent and perhaps future increases fueled by inflation, may significantly impact the Company's financial condition and results of operations[256] - The FOMC has increased the target range for the federal funds rate multiple times in 2022 (March: 25 bps, May: 50 bps, June: 75 bps, July: 75 bps) in response to inflationary pressures[257] - Rising interest rates could increase the rates paid on deposits and borrowings more rapidly than the rates earned on loans, adversely affecting net interest income[258] - Approximately 80% of the Company's certificates of deposit accounts and borrowings will reprice or mature during the next year, exacerbating short-term interest rate risk[258] - 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, and may also result in a reduction of prepayment penalty income[261] Unregistered Sales of Equity Securities and Use of Proceeds The Company repurchased 387,689 shares of common stock during the three months ended June 30, 2022, under authorized stock repurchase programs. A new program for up to 1,000,000 additional shares was approved in May 2022, with 1,100,498 shares remaining for repurchase under current authorizations Common Stock Repurchases (Three Months Ended June 30, 2022): | Period | Total Shares Purchased | Average Price per Share | | :-------------------------- | :--------------------- | :---------------------- | | April 1 to April 30, 2022 | 20,000 | $21.67 | | May 1 to May 31, 2022 | 246,164 | $21.89 | | June 1 to June 30, 2022 | 121,525 | $22.31 | | Total | 387,689 | $22.01 | - On May 17, 2022, the Board of Directors approved a new stock repurchase program to purchase up to an additional 1,000,000 shares[263] - As of June 30, 2022, 1,100,498 shares remained to be repurchased under the currently authorized stock repurchase programs[263] Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[264] Mine Safety Disclosures Not applicable - Not applicable[265] Other Information No other information was reported - No other information was reported[266] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate organizational documents, indentures, the 2014 Omnibus Plan, and certifications under the Sarbanes-Oxley Act - Exhibits include the Certificate of Incorporation, By-Laws, Indentures, and the Amended Flushing Financial Corporation 2014 Omnibus Plan[270][274] - Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer and Chief Financial Officer are filed/furnished[270][274] - Inline XBRL Instance Document and Taxonomy Extension Documents are also included as exhibits[270][274] Signatures The report is duly signed on behalf of Flushing Financial Corporation by John R. Buran, President and Chief Executive Officer, and Susan K. Cullen, Senior Executive Vice President, Treasurer and Chief Financial Officer, on August 5, 2022 - 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[279] - The signing date for the report was August 5, 2022[279]