FLUSHING FINANCIAL CORPORATION 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 endedDecember 31, 2019 . 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 toFlushing Financial Corporation and its direct and indirect wholly owned subsidiaries,Flushing Bank (the "Bank"),Flushing Preferred Funding Corporation ,Flushing Service Corporation , andFSB Properties Inc. Statements contained in this Quarterly Report relating to plans, strategies, objectives, economic performance and trends, projections of results of specific activities or investments and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed elsewhere in this Quarterly Report and in other documents filed by us with theSecurities and Exchange Commission from time to time, including, without limitation, our Annual Report on Form 10-K for the year endedDecember 31, 2019 . 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. Impact of COVID-19
InMarch 2020 , theWorld Health Organization recognized the outbreak of the novel Coronavirus Disease 2019 ("COVID-19") as a pandemic. The Spread of COVID-19 has created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity inUnited States and globally, including the markets we serve. In response to the pandemic, government placed orders for shelter in place, maintain social distancing and closed businesses that are not deemed essential. The Company was quick to respond to the pandemic with new health and safety measures, including social distancing, appointment banking and expansion of our remote capabilities. Our staff responded to these changes in a superb fashion and continue to provide our customers with excellent service. Today we have the capability of having our entire staff work remotely. On any given day, as many as 85% of staff work from home. TheFederal Reserve's dramatic 150 basis point drop in rates provided the country with much needed liquidity to counteract the negative economic effects of the COVID-19 pandemic. As a result, we recorded mark to market adjustments on items carried at fair value under the fair value option and on our derivative portfolio totaling$0.20 per share, after-tax. OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed in to law. It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act includes the Paycheck Protection Program ("PPP"), a program to aid small and medium- sized businesses through federally guaranteed loans distributed through banks. These loans are intended to guarantee eight weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. During these tumultuous times, we are actively assisting our customers by providing short-term forbearances in the form of deferrals of interest, principal and/or escrow for terms ranging from one to six months. ThroughApril 17th, 2020 , we have approved forbearances for loans with an aggregate outstanding loan balance of approximately$839 million of which$673 million is in our real estate portfolio and$166 million is in our business banking portfolio. Given the pandemic and -45- Table of Contents PART I - FINANCIAL INFORMATIONFLUSHING FINANCIAL CORPORATION and SUBSIDIARIES Management's Discussions and Analysis of Financial Condition and Results of Operations current economic environment, we continue to see interest from our customers to modify loans. We actively participated in the PPP, gaining approval to fund up to$64 million of these loans. We also expect to participate in theMain Street Lending Program in order to assist our customers.
Executive Summary
We are aDelaware corporation organized inMay 1994 . The Bank was organized in 1929 as aNew York State -chartered mutual savings bank. Today the Bank operates as a full-serviceNew York State commercial bank. The Bank's primary regulator is theNew York State Department of Financial Services , and its primary federal regulator is theFederal Deposit Insurance Corporation ("FDIC"). Deposits are insured to the maximum allowable amount by theFDIC . Additionally, the Bank is a member of theFederal Home Loan Bank system. The primary business ofFlushing Financial Corporation has been the operation of the Bank. The Bank owns three subsidiaries: Flushing Preferred Funding Corporation,Flushing Service Corporation , andFSB Properties Inc. The Bank also operates an internet branch, which operates under the brands of iGObanking.com® and BankPurely® (the "Internet Branch"). The activities ofFlushing 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 onFederal 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, our periodic provision for credit losses and specific provision for losses on real estate owned. 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. 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 11 ("Fair Value of Financial Instruments") of the Notes to the Consolidated Financial Statements. -46- Table of Contents PART I - FINANCIAL INFORMATIONFLUSHING FINANCIAL CORPORATION and SUBSIDIARIES Management's Discussions and Analysis of Financial Condition and Results of Operations Our net interest margin for three months endedMarch 31, 2020 decreased$0.4 million to$40.8 million from$41.2 million from the three months endedDecember 2019 . The provision for credit losses for loans was increased$7.5 million from the three months endedDecember 31, 2019 primarily due to the adoption of CECL beginningJanuary 1, 2020 and the impact of negative economic conditions resulting from the COVID-19 pandemic. CECL requires consideration of a broader range of information in order to update expected credit losses to capture life of loan and held-to-maturity debt securities estimated losses. These losses are estimated using historical loss experience, current conditions, and a reasonable and supportable forecast that affect the collectability of the reported amount. Since current economic conditions were negatively impacted by COVID-19 pandemic, the CECL model factored in the current condition which increased our allowance for loan losses by approximately 30%. During the three months endedMarch 31, 2020 , our loan pipeline remained strong at$324 million . The strong C&I production aids to the diversification of our loan portfolio, these loans are generally floating rate loans which represents 19% of our loan portfolio atMarch 31, 2020 . Loan closings for three months endedMarch 31, 2020 increased to$299 million compared to$270 million for three months endedDecember 31, 2019 . During the three months endedMarch 31, 2020 , the yield on interest-earning assets decreased 23 basis points, while the cost of interest-bearing liabilities decreased 22 basis points from the three months endedDecember 31, 2019 , resulting in net interest margin compression of four basis points. The decrease in the cost of interest-bearing liabilities was primarily driven byFederal Reserve dropping the rates 150 basis points to combat against COVID-19 pandemic.
Our non-accrual and non-performing loans increased
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
General. Net income (loss) for the three months endedMarch 31, 2020 was($1.4) million , a decrease of$8.5 million , or 119.7%, compared to$7.1 million for the three months endedMarch 31, 2019 . Diluted earnings (loss) per common share were ($0.05 ) for the three months endedMarch 31, 2020 , a decrease of$0.30 , or 120.0%, from$0.25 for the three months endedMarch 31, 2019 . Return (loss) on average equity decreased to (1.0)% for the three months endedMarch 31, 2020 from 5.1% for the three months endedMarch 31, 2019 . Return on average assets decreased to (0.1)% for the three months endedMarch 31, 2020 from 0.4% for the three months endedMarch 31, 2019 . Interest Income. Interest and dividend income decreased$3.1 million , or 4.5%, to$66.7 million for the three months endedMarch 31, 2020 from$69.8 million for the three months endedMarch 31, 2019 . The decrease in interest income was primarily attributable to a decrease in the yield of average interest earning assets of 31 basis points, partially offset by an increase of$198.7 million in the average balance of interest-earning assets to$6,719.9 million for the three months endedMarch 31, 2020 from$6,521.1 million for the comparable prior year period. The decrease in the yield on interest-earning assets was primarily due to decreases of 28 basis points and 65 basis points in the yield of total loans and taxable securities, respectively. The decrease of 28 basis points in the yield on the total loans, net, was primarily due to the impact of net losses from fair value adjustments on qualifying hedges totaling$2.1 million compared to$0.6 million for the three months endedMarch 31, 2019 . The decrease in the yield of securities was primarily due to higher yielding securities replaced by lower yielding securities. Excluding prepayment penalty income, recovered interest from loans and net losses from fair value adjustments on qualifying hedges, the yield on total loans, net, would have decreased 15 basis points to 4.28% for the three months endedMarch 31, 2020 from 4.43% for the three months endedMarch 31, 2019 , primarily due to loans being both originated and repriced at lower rates. -47- Table of Contents PART I - FINANCIAL INFORMATIONFLUSHING FINANCIAL CORPORATION and SUBSIDIARIES Management's Discussions and Analysis of Financial Condition and Results of Operations Interest Expense. Interest expense decreased$2.2 million , or 7.7%, to$25.8 million for the three months endedMarch 31, 2020 from$28.0 million for the three months endedMarch 31, 2019 . The decrease in interest expense was primarily due to a decrease of 19 basis points in the average cost of interest-bearing liabilities to 1.74% for the three months endedMarch 31, 2020 from 1.93% for the three months endedMarch 31, 2019 , partially offset by an increase of$140.7 million in the average balance of interest-bearing liabilities to$5,951.9 million for the three months endedMarch 31, 2020 from$5,811.3 million for the comparable prior year period. Additionally, the cost of borrowed funds decreased to 2.16% from 2.27% in the prior year period. The decrease in the cost of interest-bearing liabilities was primarily due toFederal Reserve lowering rates. Net Interest Income. Net interest income for the three months endedMarch 31, 2020 was$40.8 million , a decrease of$1.0 million , or 2.3%, from$41.8 million for the three months endedMarch 31, 2019 . The decrease in net interest income was primarily due to the 31 basis point decrease in the yield of interest-earning assets to 3.98% from 4.29% for the comparable prior year period, partially offset by an increase in the average balance of$198.7 million for the three months endedMarch 31, 2020 . Additionally, net interest income was positively impacted by a decrease of 19 basis points in the cost of interest-bearing liabilities to 1.74% for the three months endedMarch 31, 2020 as compared to 1.93% for the three months endedMarch 31, 2019 , partially offset by increase of$140.7 million in the average balance of interest-bearing liabilities to$5,951.9 million from$5,811.3 million in the prior year period. The net effect of the above on both the net interest spread and net interest margin were decreases of 12 basis points to 2.24% and 13 basis points to 2.44%, respectively, for the quarter endedMarch 31, 2020 compared to the quarter endedMarch 31, 2019 . Included in net interest income was prepayment penalty income from loans totaling$0.7 million in each of the three month periods endedMarch 31, 2020 and 2019, recovered interest from non-accrual loans totaling$0.4 million and$0.7 million for the three months endedMarch 31, 2020 and 2019, respectively, and net losses from fair value adjustments on qualifying hedges totaling$2.1 million and$0.6 million for three months endedMarch 31, 2020 and 2019, respectively. Excluding prepayment penalty income, recovered interest, and net losses from fair value adjustment on qualifying hedges, the net interest margin for the three months endedMarch 31, 2020 was 2.49%, a decrease of three basis points, from to 2.52% for the three months endedMarch 31, 2019 . Provision for Credit Losses. During the three months endedMarch 31, 2020 , a provision for credit losses was recorded for$7.2 million , compared to$1.0 million for the three months endedMarch 31, 2019 . The provision was primarily the result of economic deterioration resulting from the impact of COVID-19. During the three months endedMarch 31, 2020 , the Bank recorded net charge-offs totaling$1.1 million , while non-accrual loans increased$3.9 million to$16.8 million from$12.8 million atDecember 31, 2019 . The current average loan-to-value ratio for our non-performing loans collateralized by real estate was 28.9% atMarch 31, 2020 . The Bank continues to maintain conservative underwriting standards. See "Allowance for Credit Losses" below, Note 5 ("Loans") and Note 16 ("New Authoritative Accounting Pronouncements") of the Notes to the Consolidated Financial Statements. Non-Interest Income (Loss). Non-interest loss for the three months endedMarch 31, 2020 was($2.9) million , a decrease of$3.8 million from the prior year comparable period. The decrease in non-interest income was primarily due to an increase of$3.9 million in net losses from fair value adjustments.
Non-Interest Expense. Non-interest expense was
Income (Loss) before Income Taxes. Income before the provision for income taxes decreased$11.0 million , or 117.1%, to($1.6) million for the three months endedMarch 31, 2020 from$9.4 million for the three months endedMarch 31, 2019 for the reasons discussed above. Provision(benefit) for Income Taxes. The benefit for income taxes was($0.2) million for the three months endedMarch 31, 2020 , a decrease of$2.5 million , or 109.0%, from$2.3 million for the three months endedMarch 31, 2019 . The decrease was primarily due to a decrease in income before income taxes. -48- Table of Contents PART I - FINANCIAL INFORMATIONFLUSHING FINANCIAL CORPORATION and SUBSIDIARIES Management's Discussions and Analysis of Financial Condition and Results of Operations
FINANCIAL CONDITION
Assets. Total assets atMarch 31, 2020 were$7,245.4 million , an increase of$227.6 million , or 3.2%, from$7,017.8 million atDecember 31, 2019 . Total loans, net increased$153.5 million , or 2.7%, during the three months endedMarch 31, 2020 , to$5,904.0 million from$5,750.5 million atDecember 31, 2019 . Loan originations and purchases were$298.7 million for the three months endedMarch 31, 2020 , an increase of$100.7 million , or 50.8%, from$198.0 million for the three months endedMarch 31, 2019 . During the three months endedMarch 31, 2020 , we continued 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$324.4 million atMarch 31, 2020 , compared to$324.5 million atDecember 31, 2019 . The following table shows loan originations and purchases for the periods indicated: For the three months ended March 31, (In thousands) 2020 2019 Multi-family residential (1)$ 67,318 $ 27,214 Commercial real estate (2) 99,571 13,941
One-to-four family - mixed-use property 13,455 16,423 One-to-four family - residential
8,413 3,886
Co-operative apartments 704 -
Construction (3) 6,749 5,901
Small Business Administration 57 329
Commercial business and other (4) 102,448 130,330
Total $ 298,715 $ 198,024 (1) Includes purchases of
(2) Includes purchases of
(3) Includes purchases of
(4) Includes purchases of
ended March 31, 2020 and March 31, 2019 , 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 three months ended March 31,
2020 had an average loan-to-value ratio of 42.7% and an average debt coverage
ratio of 181%.
The Bank's non-performing assets totaled $17.0 million at March 31, 2020 , an
increase of $3.5 million , or 25.6%, from $13.5 million at December 31, 2019 .
Total non-performing assets as a percentage of total assets were 0.23% at March
31, 2020 compared to 0.19% at December 31, 2019 . The ratio of allowance for loan
losses to total non-performing loans was 167.7% at March 31, 2020 and 164.1% at
December 31, 2019 .
During the three months ended March 31, 2020 , mortgage-backed securities
decreased $34.3 million , or 6.4%, to $497.5 million from $531.8 million at
December 31, 2019 . The decrease in mortgage-backed securities during the three
months ended March 31, 2020 was primarily due to sale of securities totaling
$64.6 million at an average rate of 3.46% and principal repayments of $40.4
million , partially offset by purchase of securities totaling $63.4 million at an
average rate of 2.20% and an increase in the fair value of $8.2 million .
During the three months ended March 31, 2020 , other securities, decreased $23.5
million , or 8.5%, to $276.1 million from $299.6 million at December 31, 2019 .
The decrease in other securities during the three months ended March 31, 2020 ,
was primarily due to a decrease in fair value of $23.0 million . At March 31,
2020 other securities primarily consist of securities issued by mutual or bond
funds that invest in government and government agency securities, municipal
bonds, corporate bonds and CLO's.
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PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management's Discussions and Analysis of
Financial Condition and Results of Operations
Liabilities. Total liabilities were$6,695.7 million atMarch 31, 2020 , an increase of$257.6 million , or 4.0%, from$6,438.1 million atDecember 31, 2019 . During the three months endedMarch 31, 2020 , due to depositors decreased$193.6 million , or 3.9%, to$4,828.4 million due to a decrease of$265.5 million in certificates of deposit, partially offset by an increase of$71.9 million in non-maturity deposits. Included in deposits were brokered deposits totaling$115.6 million , a decrease of$273.2 million from$388.8 million atDecember 31, 2019 . The increase in non-maturity deposits was due to increases of$54.1 million ,$12.0 million ,$5.1 million and$0.7 million in demand deposits, NOW accounts, money market accounts and savings accounts, respectively. Borrowed funds increased$380.4 million during the three months endedMarch 31, 2020 . The increase in borrowed funds was primarily due to an increase in wholesale borrowings, as the Company sought to reduce the cost of funds. Equity. Total stockholders' equity decreased$30.0 million , or 5.2%, to$549.7 million atMarch 31, 2020 from$579.7 million atDecember 31, 2019 . Stockholders' equity decreased primarily due to an increase in accumulated comprehensive net loss of$22.6 million combined with the purchase of 142,405 treasury shares at an average cost of$16.45 per share, totaling$2.3 million and the adoption of CECL totaling$0.9 million . Additionally, stockholders' equity was reduced due to the net loss of$1.4 million and the declaration and payment of dividends on the Company's common stock of$0.21 per common share totaling$6.1 million . These decreases were partially offset by the net impact of vesting and exercising of shares of employee and director stock plans totaling$3.3 million . Book value per common share was$19.48 atMarch 31, 2020 compared to$20.59 atDecember 31, 2019 . Cash flow. During the three months endedMarch 31, 2020 , funds provided by the Company's operating activities amounted to$11.3 million . These funds, combined with$204.7 million from financing activities were utilized to fund$108.5 million used in investing activities. The Company's primary business objective is the origination and purchase of multi-family residential loans, commercial business loans and commercial real estate mortgage loans and to a lesser extent one-to-four family (including mixed-use properties) and SBA loans. During the three months endedMarch 31, 2020 , the net total of loan originations and purchases less loan repayments and sales was$133.1 million . During the three months endedMarch 31, 2020 , the Company also funded$64.4 million in purchases of securities available for sale. During the three months endedMarch 31, 2020 , funds were provided by increases of$410.0 million in net short-term borrowing and$50.0 million in proceeds from long-term borrowings. The funds were used to fund deposit withdrawals totaling$165.0 million and repay$80.5 million in long-term borrowings. The Company also used funds of$6.1 million for dividend payments and$3.8 million in purchases of treasury stock during the three months endedMarch 31, 2020 . INTEREST RATE RISK The Consolidated Statements of Financial Position have been prepared in accordance with generally accepted accounting principles inthe 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 fluctuates 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 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 prepares the "Earnings and Economic Exposure to Changes in Interest Rate" report for review by the Asset Liability Committee of the Board of Directors, as summarized below. This report quantifies the potential changes in net interest income and net portfolio value should interest rates go up or down (shocked) 200 basis points, assuming the yield curves of the rate shocks will be parallel to each other. The Company's regulators currently place focus on the net portfolio value, focusing on a rate shock up or down of 200 basis points. 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. All changes in income and value are measured -50- Table of Contents PART I - FINANCIAL INFORMATION FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES Management's Discussions and Analysis of Financial Condition and Results of Operations as percentage changes from the projected net interest income and net portfolio value at the base interest rate scenario. The base interest rate scenario assumes interest rates atMarch 31, 2020 . Various estimates regarding prepayment assumptions are made at each level of rate shock. However, prepayment penalty income is excluded from this analysis. Actual results could differ significantly from these estimates. AtMarch 31, 2020 , 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 ofMarch 31, 2020 : Projected Percentage Change In Net Portfolio Change in Interest Rate Net Interest Income Net Portfolio Value Value Ratio -200 Basis points 4.57 % 30.00 % 11.51 % -100 Basis points 3.75 18.14 10.68 Base interest rate - - 9.37 +100 Basis points (5.66) (12.46) 8.45 +200 Basis points (11.36) (20.64) 7.86 -51- Table of Contents
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 months endedMarch 31, 2020 and 2019, 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 March 31, 2020 2019 Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost Assets (Dollars in thousands) Interest-earning assets: Mortgage loans, net$ 4,697,531 $ 49,412 4.21 %$ 4,619,587 $ 50,845 4.40 % Other loans, net 1,097,335 11,697 4.26 925,080 11,485 4.97 Total loans, net (1) (2) 5,794,866 61,109 4.22 5,544,667 62,330 4.50 Taxable securities: Mortgage-backed securities 507,912 3,040 2.39 573,397 4,248 2.96 Other securities 243,726 1,697 2.79 241,863 2,211 3.66 Total taxable securities 751,638 4,737 2.52 815,260 6,459 3.17
Tax-exempt securities: (3) Other securities 63,535 676 4.26 58,173 594 4.08 Total tax-exempt securities 63,535 676 4.26 58,173 594 4.08 Interest-earning deposits and federal funds sold 109,818 290 1.06 103,042 555 2.15 Total interest-earning assets 6,719,857 66,812 3.98 6,521,142 69,938 4.29 Other assets 387,141 346,998 Total assets$ 7,106,998 $ 6,868,140 Liabilities and Equity Interest-bearing liabilities: Deposits: Savings accounts$ 194,026 281 0.58$ 205,775 361 0.70 NOW accounts 1,419,739 4,648 1.31 1,488,859 6,031 1.62 Money market accounts 1,697,783 7,042 1.66 1,380,172 6,821 1.98 Certificate of deposit accounts 1,267,245 6,767 2.14 1,523,499 8,203 2.15 Total due to depositors 4,578,793 18,738 1.64 4,598,305 21,416 1.86 Mortgagors' escrow accounts 65,503 40 0.24 62,174 53 0.34 Total deposits 4,644,296 18,778 1.62 4,660,479 21,469 1.84 Borrowed funds 1,307,629 7,066 2.16 1,150,784 6,541 2.27 Total interest-bearing liabilities 5,951,925 25,844 1.74 5,811,263 28,010 1.93 Non interest-bearing deposits 449,761 398,829 Other liabilities 128,715 105,427 Total liabilities 6,530,401 6,315,519 Equity 576,597 552,621 Total liabilities and equity$ 7,106,998 $ 6,868,140 Net interest income / net interest rate spread (tax equivalent) (3)$ 40,968 2.24 %$ 41,928 2.36 % Net interest-earning assets / net interest margin(tax equivalent)$ 767,932 2.44 %$ 709,879 2.57 % Ratio of interest-earning assets to interest-bearing liabilities 1.13 X 1.12 X
Loan interest income includes loan fee income (which includes net (1) amortization of deferred fees and costs, late charges, and prepayment
penalties) of approximately $0.2 million and $0.5 million for the
three months ended March 31, 2020 and 2019, respectively.
Loan interest income includes net losses from fair value adjustments on
(2) qualifying hedges of
Interest and yields are presented on tax equivalent basis using the statutory
(3) federal income tax rate of 21% for the periods presented totaling
million each for three months ended March 31, 2020 and 2019.
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PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management's Discussions and Analysis of
Financial Condition and Results of Operations
LOANS
The following table sets forth the Company's loan originations (including the
net effect of refinancing) and the changes in the Company's portfolio of loans,
including purchases, sales and principal reductions for the periods indicated.
For the three months ended March 31,
(In thousands) 2020 2019
Mortgage Loans
At beginning of period $ 4,677,703 $ 4,638,784
Mortgage loans originated:
Multi-family residential 64,190 27,214
Commercial real estate 69,566 13,941
One-to-four family - mixed-use property 13,455 16,423
One-to-four family - residential 8,413 3,886
Co-operative apartments 704 -
Construction 3,354 3,524
Total mortgage loans originated 159,682 64,988
Mortgage loans purchased:
Multi-family residential 3,128 -
Commercial real estate 30,005 -
Construction 3,395 2,377
Total mortgage loans purchased 36,528 2,377
Less:
Principal and other reductions 79,035 86,159 Sales 498 1,042 At end of period $ 4,794,380 $ 4,618,948 Non-Mortgage Loans At beginning of period $ 1,079,232 $ 897,515 Other loans originated:Small Business Administration
57 329 Commercial business 61,208 75,393 Other 535 319 Total other loans originated 61,800 76,041 Other loans purchased: Commercial business 40,705 54,618 Total other loans purchased 40,705 54,618
Less:
Principal and other reductions 58,154 72,661
Charge-offs 1,259 1,137
At end of period $ 1,122,324 $ 954,376
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PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management's Discussions and Analysis of
Financial Condition and Results of Operations
TROUBLED DEBT RESTRUCTURED ("TDR") AND NON-PERFORMING ASSETS
The following table shows loans classified as TDR that are performing according to their restructured terms at the periods
indicated:
March 31, December 31,
(In thousands) 2020 2019
Accrual Status:
Multi-family residential $ 1,868 $ 1,873
One-to-four family - mixed-use property 1,483 1,481
One-to-four family - residential 525
531 Total 3,876 3,885 Non-Accrual Status:
Commercial business and other 950
941 Taxi medallion 1,520 1,668 Total 2,470 2,609
Total performing troubled debt restructured
The following table shows our non-performing assets at amortized cost at the
period indicated:
March 31,
(In thousands) 2020
Non-accrual loans:
Multi-family residential 2,763
Commercial real estate 8
One-to-four family - mixed-use property 627
One-to-four family - residential 4,588
Construction -
Small business administration 1,544
Taxi medallion(1) 1,763
Commercial business and other(1) 5,006
Total 16,299
Total non-performing loans 16,299
Other non-performing assets:
Real estate acquired through foreclosure 208
Other assets acquired through foreclosure 35
Total 243
Total non-performing assets $ 16,542 Not included in the above analysis are non-accrual performing TDR taxi
(1) medallion loans totaling
performing TDR commercial business loans totaling $1.0 million at March 31,
2020 .
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PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management's Discussions and Analysis of
Financial Condition and Results of Operations
The following table shows non-performing assets at the period indicated:
December 31,
(In thousands) 2019
Loans 90 days or more past due and still accruing:
Multi-family residential $ 445
Total 445
Non-accrual loans:
Multi-family residential 2,296
Commercial real estate 367
One-to-four family - mixed-use property 274
One-to-four family - residential 5,139
Small business administration 1,151
Taxi medallion(1) 1,641
Commercial business and other(1) 1,945
Total 12,813
Total non-performing loans 13,258
Other non-performing assets:
Real estate acquired through foreclosure 239
Other assets acquired through foreclosure 35
Total 274
Total non-performing assets $ 13,532
Non-performing assets to total assets 0.19 %
Allowance for loan losses to non-performing loans 164.05 %
Not included in the above analysis are non-accrual performing TDR taxi
(1) medallion loans totaling
non-accrual performing TDR commercial business loans totaling
CRITICIZED AND CLASSIFIED ASSETS
Our policy is to review our assets, focusing primarily on the loan portfolio,
OREO 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 March 31, 2020 and December 31, 2019 . The Company had classified OREO and
other assets acquired through foreclosure totaling $0.2 million and $0.3 million
at March 31, 2020 and December 31, 2019 , respectively. The Company did not hold
any criticized or classified investment securities at March 31, 2020 and
December 31, 2019 . Our total Criticized and Classified assets were $34.0 million
at March 31, 2020 , a decrease of $4.1 million from $38.0 million at December 31,
2019 .
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PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management's Discussions and Analysis of
Financial Condition and Results of Operations
ALLOWANCE FOR CREDIT LOSSES
Upon adoption of CECL, ACL increased by$1.3 million , included an increase of$0.6 million to the allowance of off-balance sheet credit losses and$0.3 million to the allowance of credit losses of securities. We recorded$7.1 million provision for credit losses for the first quarter of 2020 utilizing the CECL methodology. The increase resulted primarily due to the effect of the COVID-19 and growth in the loan portfolio. The impact from the above resulted in ACL totaling$29.3 million atMarch 31, 2020 . We recorded$1.1 million in net charge-offs during the three months endedMarch 31, 2020 . March 31, (Dollars in thousands) 2020 Balance at beginning of period$ 21,751 Loans- CECL Adoption 379 Loans- Charge-off (1,259) Loans- Recovery 110 Loans- Provision 7,117 Allowance for loan losses$ 28,098 Balance at beginning of period $ - HTM Securities- CECL Adoption 340 HTM Securities- Provision 62
Allowance for
Balance at beginning of period $ - Off-Balance Sheet - CECL Adoption 553 Off-Balance Sheet- Provision 244
Allowance for Off-Balance Sheet losses
Allowance for Credit Losses$ 29,297 -56- Table of Contents 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 allowance for loan losses for the periods indicated:
At or for the three months ended March 31,
(Dollars in thousands) 2020 2019
Balance at beginning of period $ 21,751
$ 20,945 CECL Adoption 379 - Provision for loan losses 7,117 972 Loans charged-off: Multi-family residential - (1)
Commercial business and other (1,259)
(1,137)
Total loans charged-off (1,259) (1,138)
Recoveries:
Multi-family residential 6 13One-to-four family - mixed-use property 78 86 One-to-four family - residential 5
4
Small Business Administration 7 4
Taxi medallion - 84
Commercial business and other 14 45
Total recoveries 110 236
Net charge-offs (1,149) (902)
Balance at end of period $ 28,098 $ 21,015
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.08 % 0.07 %
Ratio of allowance for loan losses to gross
loans at end of period 0.47 % 0.38 %
Ratio of allowance for loan losses to
non-performing assets at end of period 165.32 % 133.26 %
Ratio of allowance for loan losses to
non-performing loans at end of period 167.73 %
133.55 %
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PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES© Edgar Online, source
