Edgar Filing: FLUSHING FINANCIAL CORP

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

Commission file number 001-33013

FLUSHING FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

11-3209278

(I.R.S. Employer Identification No.)

1979 Marcus Avenue, Suite E140, Lake Success, New York 11042

(Address of principal executive offices)

(718) 961-5400

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer __

Non-accelerated filer __

Accelerated filer X

Smaller reporting company __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes X No

The number of shares of the registrant’s Common Stock outstanding as of April 29, 2011 was 31,387,427

TABLE OF CONTENTS

	PAGE
PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements - (Unaudited)

Consolidated Statements of Financial Condition	1

Consolidated Statements of Income	2

Consolidated Statements of Cash Flows	3

Consolidated Statements of Changes in Stockholders’ Equity and Consolidated Statements of Comprehensive Income	4

Notes to Consolidated Financial Statements	6

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	48

ITEM 4. Controls and Procedures	48

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings	48

ITEM 1A. Risk Factors	48

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	48

ITEM 4. Reserved	48

ITEM 6. Exhibits	49

SIGNATURES	50

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Financial Condition

(Unaudited)

ITEM 1.

	March 31,			December 31,
(Dollars in thousands, except per share data)	2011			2010
ASSETS
Cash and due from banks	$	50,689		$	47,789
Securities available for sale:
Mortgage-backed securities ($46,817 and $51,475 at fair value pursuant to
the fair value option at March 31, 2011 and December 31, 2010, respectively)		730,505			754,077
Other securities ($31,118 and $21,574 at fair value pursuant to the fair
value option at March 31, 2011 and December 31, 2010 respectively)		62,235			50,112
Loans:
Multi-family residential		1,281,011			1,252,176
Commercial real estate		645,738			662,794
One-to-four family ― mixed-use property		721,242			728,810
One-to-four family ― residential		229,831			241,376
Co-operative apartments		6,151			6,215
Construction		69,192			75,519
Small business administration		18,902			17,511
Taxi medallion		88,459			88,264
Commercial business and other		197,307			187,161
Net unamortized premiums and unearned loan fees		16,053			16,503
Allowance for loan losses		(27,430	)		(27,699	)
Net loans		3,246,456			3,248,630
Interest and dividends receivable		19,302			19,475
Bank premises and equipment, net		23,029			23,041
Federal Home Loan Bank of New York stock		29,923			31,606
Bank owned life insurance		76,796			76,129
Goodwill		16,127			16,127
Core deposit intangible		1,288			1,405
Other assets		60,595			56,354
Total assets	$	4,316,945		$	4,324,745

LIABILITIES
Due to depositors:
Non-interest bearing	$	104,572		$	96,198
Interest-bearing:
Certificate of deposit accounts		1,577,728			1,520,572
Savings accounts		374,144			388,512
Money market accounts		322,919			371,998
NOW accounts		812,240			786,015
Total interest-bearing deposits		3,087,031			3,067,097
Mortgagors' escrow deposits		39,827			27,315
Borrowed funds ($31,794 and $33,227 at fair value pursuant to the fair
value option at March 31, 2011 and December 31, 2010, respectively)		504,845			542,683
Securities sold under agreements to repurchase		156,000			166,000
Other liabilities		30,613			35,407
Total liabilities		3,922,888			3,934,700

STOCKHOLDERS' EQUITY
Preferred stock ($0.01 par value; 5,000,000 shares authorized; None issued)		-			-
Common stock ($0.01 par value; 100,000,000 shares authorized; 31,350,727
shares and 31,255,934 shares issued and outstanding at March 31, 2011 and
December 31, 2010, respectively)		314			313
Additional paid-in capital		192,334			189,348
Treasury stock (None at March 31, 2011 and December 31, 2011)		-			-
Retained earnings		208,054			204,128
Accumulated other comprehensive loss, net of taxes		(6,645	)		(3,744	)
Total stockholders' equity		394,057			390,045

Total liabilities and stockholders' equity	$	4,316,945		$	4,324,745

The accompanying notes are an integral part of these consolidated financial statements

-1-

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

	For the three months
	ended March 31,
(Dollars in thousands, except per share data)	2011			2010

Interest and dividend income
Interest and fees on loans	$	48,690		$	49,684
Interest and dividends on securities:
Interest		8,107			7,911
Dividends		202			200
Other interest income		27			13
Total interest and dividend income		57,026			57,808

Interest expense
Deposits		12,334			13,517
Other interest expense		7,537			10,786
Total interest expense		19,871			24,303

Net interest income		37,155			33,505
Provision for loan losses		5,000			5,000
Net interest income after provision for loan losses		32,155			28,505

Non-interest income
Other-than-temporary impairment ("OTTI") charge		(3,616	)		-
Less: Non-credit portion of OTTI charge recorded in Other
Comprehensive Income, before taxes		2,690			-
Net OTTI charge recognized in earnings		(926	)		-
Loan fee income		434			367
Banking services fee income		461			482
Net gain on sale of loans		-			5
Net loss from fair value adjustments		(655	)		(103	)
Federal Home Loan Bank of New York stock dividends		500			611
Bank owned life insurance		667			645
Other income		390			570
Total non-interest income		871			2,577

Non-interest expense
Salaries and employee benefits		10,027			8,796
Occupancy and equipment		1,867			1,749
Professional services		1,599			1,764
FDIC deposit insurance		1,428			1,274
Data processing		1,005			1,078
Depreciation and amortization of premises and equipment		766			679
Other operating expenses		3,323			2,596
Total non-interest expense		20,015			17,936

Income before income taxes		13,011			13,146

Provision for income taxes
Federal		3,912			3,949
State and local		1,146			1,212
Total taxes		5,058			5,161

Net income	$	7,953		$	7,985

Basic earnings per common share	$	0.26		$	0.26
Diluted earnings per common share	$	0.26		$	0.26
Dividends per common share	$	0.13		$	0.13

The accompanying notes are an integral part of these consolidated financial statements.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	For the three months ended
	March 31,
(Dollars in thousands)	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	7,953		$	7,985
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses		5,000			5,000
Depreciation and amortization of bank premises and equipment		766			679
Net gain on sales of loans (including delinquent loans)		-			(5	)
Amortization of premium, net of accretion of discount		1,423			1,215
Net loss from fair value adjustments		655			103
OTTI charge recognized in earnings		926			-
Income from bank owned life insurance		(667	)		(645	)
Stock-based compensation expense		1,167			961
Deferred compensation		103			45
Amortization of core deposit intangibles		117			117
Excess tax benefit from stock-based payment arrangements		(80	)		(77	)
Deferred income tax (benefit) provision		125			(1,407	)
(Decrease) increase in other liabilities		(3,562	)		2,437
(Increase) decrease in other assets		(1,071	)		88
Net cash provided by operating activities		12,855			16,496

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of bank premises and equipment		(754	)		(369	)
Net redemptions of Federal Home Loan Bank of New York shares		1,683			4,658
Purchases of securities available for sale		(34,657	)		(76,936	)
Proceeds from sales and calls of securities available for sale		-			1,270
Proceeds from maturities and prepayments of securities available for sale		38,108			47,039
Net (originations) and repayment of loans		5,396			(21,072	)
Purchases of loans		(12,555	)		(1,783	)
Proceeds from sale of real estate owned		154			279
Proceeds from sale of delinquent loans		3,158			1,289
Net cash used in investing activities		533			(45,625	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in non-interest bearing deposits		8,374			(6,590	)
Net increase in interest-bearing deposits		19,648			129,532
Net increase in mortgagors' escrow deposits		12,512			10,974
Net repayments of short-term borrowed funds		-			(73,500	)
Proceeds from long-term borrowings		-			30,000
Repayment of long-term borrowings		(47,423	)		(60,009	)
Purchases of treasury stock		(209	)		(66	)
Excess tax benefit from stock-based payment arrangements		80			77
Proceeds from issuance of common stock upon exercise of stock options		525			-
Cash dividends paid		(3,995	)		(3,946	)
Net cash provided by financing activities		(10,488	)		26,472

Net increase (decrease) in cash and cash equivalents		2,900			(2,657	)
Cash and cash equivalents, beginning of period		47,789			28,426
Cash and cash equivalents, end of period	$	50,689		$	25,769

SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid	$	19,743		$	24,482
Income taxes paid		2,366			127
Taxes paid if excess tax benefits were not tax deductible		2,446			204
Non-cash activities:
Loans transferred to real estate owned		980			518
Loans provided for the sale of real estate owned		244			800

The accompanying notes are an integral part of these consolidated financial statements.

-3-

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity and Consolidated Statements of Comprehensive Income

(Unaudited)

	For the three months ended
	March 31,
(Dollars in thousands, except per share data)	2011			2010

Preferred Stock
Balance, beginning of period	$	-		$	-
No activity		-			-
Balance, end of period	$	-		$	-
Common Stock
Balance, beginning of period	$	313		$	311
Issuance upon exercise of stock options (26,907 common shares for the
three months ended March 31, 2011)		-			-
Shares issued upon vesting of restricted stock unit awards (67,886 and 26,315
common shares for the three months ended March 31, 2011 and 2010, respectively)		1			1
Balance, end of period	$	314		$	312
Additional Paid-In Capital
Balance, beginning of period	$	189,348		$	185,842
Award of common shares released from Employee Benefit Trust (131,799 and 169,353
common shares for the three months ended March 31, 2011 and 2010, respectively)		1,429			1,064
Shares issued upon vesting of restricted stock unit awards (67,886 and 26,415 common
shares for the three months ended March 31, 2011 and 2010, respectively)		724			222
Issuance upon exercise of stock options (41,825 common shares for the
three months ended March 31, 2011)		348			-
Stock-based compensation activity, net		405			668
Stock-based income tax benefit (expense)		80			77
Balance, end of period	$	192,334		$	187,873
Treasury Stock
Balance, beginning of period	$	-		$	(36	)
Shares issued upon vesting of restricted stock unit awards (3,395 common
shares for the three months ended March 31, 2010)		-			36
Issuance upon exercise of stock options (14,378 common shares for the
three months ended March 31, 2011)		209			-
Repurchase of shares to satisfy tax obligations (14,378 and 5,370 common shares
for the three months ended March 31, 2011 and 2010, respectively)		(209	)		(66	)
Balance, end of period	$	-		$	(66	)
Unearned Compensation
Balance, beginning of period	$	-		$	(575	)
Release of shares from the Employee Benefit Trust (48,135 common
shares for the three months ended March 31, 2010)		-			165
Balance, end of period	$	-		$	(410	)

The accompanying notes are an integral part of these consolidated financial statements.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity and Consolidated Statements of Comprehensive Income (continued)

(Unaudited)

	For the three months ended
	March 31,
(Dollars in thousands)	2011			2010

Retained Earnings
Balance, beginning of period	$	202,395		$	181,181
Net income		7,953			7,985
Cash dividends declared and paid on common shares ($0.13 per common
share for the three months ended March 31, 2011 and 2010, respectively)		(3,995	)		(3,946	)
Issuance upon exercise of stock options (41,825 common shares for the three
months ended March 31, 2011)		(32	)		-
Shares issued upon vesting of restricted stock unit awards (3,295 common
shares for the three months ended March 31, 2010)		-			(8	)
Balance, end of period	$	206,321		$	185,212
Accumulated Other Comprehensive Loss
Balance, beginning of period	$	(3,744	)	$	(6,579	)
Change in net unrealized (losses) gains on securities available for sale, net of taxes of
approximately $2,756 and ($1,983) for the three months ended March 31, 2011
and 2010, respectively		(3,490	)		2,486
Amortization of actuarial losses, net of taxes of approximately ($61) and ($34)
for the three months ended March 31, 2011 and 2010, respectively		77			42
Amortization of prior service credits, net of taxes of approximately $5 and $4
for the three months ended March 31, 2011 and 2010, respectively		(6	)		(5	)
OTTI charges included in income, net of taxes of approximately ($408) for the
three months ended March 31, 2011		518			-
Balance, end of period	$	(6,645	)	$	(4,056	)

Total Stockholders' Equity	$	394,057		$	368,865

	For the three months ended
	March 31,
		2011			2010
Comprehensive Income
Net income	$	7,953		$	7,985
Amortization of actuarial losses		77			42
Amortization of prior service credits		(6	)		(5	)
OTTI charges included in income		518			-
Unrealized (losses) gains on securities, net		(3,490	)		2,486
Comprehensive income	$	5,052		$	10,508

The accompanying notes are an integral part of these consolidated financial statements.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The primary business of Flushing Financial Corporation (the “Holding Company”) is the operation of its wholly-owned subsidiary, Flushing Savings Bank, FSB (the “Savings Bank”). The Holding Company and its direct and indirect wholly-owned subsidiaries, the Savings Bank, Flushing Commercial Bank, Flushing Preferred Funding Corporation, Flushing Service Corporation, and FSB Properties Inc., are collectively herein referred to as the “Company.” The unaudited consolidated financial statements presented in this Quarterly Report on Form 10-Q (“Quarterly Report”) include the collective results of the Company on a consolidated basis.

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

The accompanying unaudited consolidated financial statements have been prepared in conformity with the instructions to Quarterly Report on Form 10-Q and Article 10, Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The unaudited consolidated interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Certain reclassifications have been made to the prior-period consolidated financial statements to conform to the current-period presentation.

2.	Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

3.	Earnings Per Share

Earnings per share are computed in accordance with ASC Topic 260 “Earnings Per Share,” which provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and as such should be included in the calculation of earnings per share. Basic earnings per common share is computed by dividing net income available to common shareholders by the total weighted average number of common shares outstanding, which includes unvested participating securities. The Company’s unvested restricted stock and restricted stock unit awards are considered participating securities. Therefore, weighted average common shares outstanding used for computing basic earnings per common share includes common shares outstanding plus unvested restricted stock and restricted stock unit awards. The computation of diluted earnings per share includes the additional dilutive effect of stock options outstanding during the period. Common stock equivalents that are anti-dilutive are not included in the computation of diluted earnings per common share. The numerator for calculating basic and diluted earnings per common share is net income available to common shareholders.

-6-

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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

	For the three months ended
	March 31,
	2011			2010
	(In thousands, except per share data)
Net income, as reported	$	7,953		$	7,985
Divided by:
Weighted average common shares outstanding		30,620			30,257
Weighted average common stock equivalents		66			29
Total weighted average common shares outstanding and
common stock equivalents		30,686			30,286

Basic earnings per common share	$	0.26		$	0.26
Diluted earnings per common share (1)	$	0.26		$	0.26
Dividend payout ratio		50.0	%		50.0	%

(1)

For the three months ended March 31, 2011, options to purchase 560,550 shares at an average exercise price of $17.62 were not included in the computation of diluted earnings per common share as they are anti-dilutive. For the three months ended March 31, 2010, options to purchase 1,003,513 shares at an average exercise price of $15.72 were not included in the computation of diluted earnings per common share as they are anti-dilutive.

4.	Debt and Equity Securities

The Company’s investments are classified in one of the following three categories and accounted for accordingly: (1) trading securities, (2) securities available for sale and (3) securities held-to-maturity.

The Company did not hold any trading securities or securities held-to-maturity during the periods presented. Securities available for sale are recorded at fair value.

The following table summarizes the Company’s portfolio of securities available for sale at March 31, 2011:

					Gross		Gross
	Amortized				Unrealized		Unrealized
	Cost		Fair Value		Gains		Losses
	(In thousands)
U.S. government agencies	$	10,409	$	10,247	$	105	$	267
Other		34,013		31,358		2		2,657
Mutual funds		20,630		20,630		-		-
Total other securities		65,052		62,235		107		2,924
REMIC and CMO		451,071		444,840		8,989		15,220
GNMA		74,483		78,518		4,213		178
FNMA		182,933		183,695		3,419		2,657
FHLMC		22,896		23,452		556		-
Total mortgage-backed securities		731,383		730,505		17,177		18,055
Total securities available for sale	$	796,435	$	792,740	$	17,284	$	20,979

Mortgage-backed securities shown in the table above include one private issue collateralized mortgage obligation (“CMO”) that is collateralized by commercial real estate mortgages with an amortized cost and market value of $13.0 million at March 31, 2011. The remaining mortgage-backed securities are backed by one-to-four family residential mortgage loans.

The following table shows the Company’s available for sale securities with gross unrealized losses and their fair value, aggregated by category and length of time that individual securities have been in a continuous unrealized loss

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

position, at March 31, 2011.

	Total				Less than 12 months				12 months or more
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(In thousands)
U.S. government agencies	$	7,733	$	267	$	7,733	$	267	$	-	$	-
Other		8,906		2,657		2,000		1		6,906		2,656
Total other securities		16,639		2,924		9,733		268		6,906		2,656
REMIC and CMO		197,970		15,220		164,646		6,510		33,324		8,710
GNMA		15,192		178		15,192		178		-		-
FNMA		98,967		2,657		98,967		2,657		-		-
Total mortgage-backed
securities		312,129		18,055		278,805		9,345		33,324		8,710
Total securities
available for sale	$	328,768	$	20,979	$	288,538	$	9,613	$	40,230	$	11,366

An other-than-temporary impairment (“OTTI”) loss on impaired securities must be fully recognized in earnings if an investor has the intent to sell the debt security or if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost. However, even if an investor does not expect to sell a debt security, it must evaluate the expected cash flows to be received and determine if a credit loss has occurred. In the event that a credit loss has occurred, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts relating to factors other than credit losses are recorded in accumulated other comprehensive loss (“AOCL”) within Stockholders’ Equity. Additional disclosures regarding the calculation of credit losses as well as factors considered by the investor in reaching a conclusion that an investment is not other-than-temporarily impaired are required.

The Company reviewed each investment that had an unrealized loss at March 31, 2011. An unrealized loss exists when the current fair value of an investment is less than its amortized cost basis. Unrealized losses on available for sale securities that are deemed to be temporary are recorded, net of tax, in AOCL. Unrealized losses that are considered to be other-than-temporary are split between credit related and noncredit related impairments, with the credit related impairment being recorded as a charge against earnings in the Consolidated Statements of Income and the noncredit related impairment being recorded in AOCL, net of tax.

The Company evaluates its pooled trust preferred securities, included in the table above in the row labeled “Other”, using an impairment model through an independent third party, which includes evaluating the financial condition of each counterparty. For single issuer trust preferred securities, the Company evaluates the issuer’s financial condition. The Company evaluates its mortgage-backed securities by reviewing the characteristics of the securities, including delinquency and foreclosure levels, projected losses at various loss severity levels and credit enhancement and coverage. In addition, private issue CMOs are evaluated using an impairment model through an independent third party. When an OTTI is identified, the portion of the impairment that is credit related is determined by management by using the following methods: (1) for trust preferred securities, the credit related impairment is determined by using a discounted cash flow model from an independent third party, with the difference between the present value of the projected cash flows and the amortized cost basis of the security recorded as a credit related loss against earnings; and (2) for mortgage-backed securities, credit related impairment is determined for each security by estimating losses based on a set of assumptions, which includes delinquency and foreclosure levels, projected losses at various loss severity levels, credit enhancement and coverage; and (3) in the case of private issue CMOs, through an impairment model from an independent third party, and then recording those estimated losses as a credit related loss against earnings.

U.S Government Agencies:

The unrealized losses on U.S. government agencies were caused by movements in interest rates. It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment. Each of these securities is performing according to its terms, and, in the opinion of management, will continue to perform according to its terms. The Company does not have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before recovery of the securities amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital requirements, and contractual and regulatory obligations, none of which the Company believes would cause the sale of the securities.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Therefore, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2011.

Other Securities:

The unrealized losses in Other securities at March 31, 2011, consist of losses on two municipal securities, one single issuer trust preferred security and two pooled trust preferred securities.

The unrealized losses on the two municipal securities were caused by movements in interest rates. It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment. Each of these securities is performing according to its terms, and, in the opinion of management, will continue to perform according to its terms. The Company does not have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before recovery of the securities amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital requirements, and contractual and regulatory obligations, none of which the Company believes would cause the sale of the securities. Therefore, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2011.

The unrealized losses on the single issuer trust preferred securities and two pooled trust preferred securities were caused by market interest volatility, a significant widening of credit spreads across markets for these securities, and illiquidity and uncertainty in the financial markets. These securities are currently rated below investment grade. The pooled trust preferred securities do not have collateral that is subordinate to the classes we own. The Company evaluates these securities using an impairment model, through an independent third party, that is applied to debt securities. In estimating other-than-temporary impairment losses, management considers: (1) the length of time and the extent to which the fair value has been less than amortized cost; (2) the current interest rate environment; (3) the financial condition and near-term prospects of the issuer, if applicable; and (4) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Additionally, management reviews the financial condition of each individual issuer within the pooled trust preferred securities. All of the issuers of the underlying collateral of the pooled trust preferred securities we reviewed are banks.

For each bank, our review included the following performance items of the banks:

§	Ratio of tangible equity to assets

§	Tier 1 Risk Weighted Capital

§	Net interest margin

§	Efficiency ratio for most recent two quarters

§	Return on average assets for most recent two quarters

§	Texas Ratio (ratio of non-performing assets plus assets past due over 90 days divided by tangible equity plus the reserve for loan losses)

§	Credit ratings (where applicable)

§	Capital issuances within the past year (where applicable)

§	Ability to complete FDIC assisted acquisitions (where applicable)

Based on the review of the above factors, we concluded that:

§	All of the performing issuers in our pools are well capitalized banks, and do not appear likely to be closed by their regulators.

§	All of the performing issuers in our pools will continue as a going concern and will not default on their securities.

In order to estimate potential future defaults and deferrals, we segregated the performing underlying issuers by their Texas Ratio. We then reviewed performing issuers with Texas Ratios in excess of 50%. The Texas Ratio is a key indicator of the health of the institution and the likelihood of failure. This ratio compares the problem assets of the institution to the institution’s available capital and reserves to absorb losses that are likely to occur in these assets. There were four issuers with Texas Ratios in excess of 50% for which we concluded there would not be a default, primarily due to their current operating results and demonstrated ability to raise additional capital.

There were no remaining issuers in our pooled trust preferred securities which had a Texas Ratio in excess of 70.00%. For the remaining issuers with a Texas Ratio between 50.00% and 69.99%, we estimated 25% of the related cash flows of the issuer would not be realized. We concluded that issuers with a Texas Ratio below 50.00% are considered healthy, and there was a minimal risk of default. We assigned a zero default rate to these issuers. Our

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

analysis also assumed that issuers currently deferring would default with no recovery, and issuers that have defaulted will have no recovery.

We had an independent third party prepare a discounted cash flow analysis for each of these pooled trust preferred securities based on the assumptions discussed above. Other significant assumptions were: (1) no issuers will prepay; (2) senior classes will not call the debt on their portions; and (3) use of the forward LIBOR curve. The cash flows were discounted at the effective rate for each security. For each issuer that we assumed a 25% shortfall in the cash flows, the cash flow analysis eliminates 25% of the cash flow for each issuer effective immediately.

One of the pooled trust preferred securities is over 90 days past due and the Company has stopped accruing interest. The remaining pooled trust preferred securities as well as the single issuer trust preferred security are performing according to their terms. The Company also owns a pooled trust preferred security that is carried under the fair value option, where the unrealized losses are included in the Consolidated Statements of Income. This security is over 90 days past due and the Company has stopped accruing interest.

It is not anticipated at this time that the one single issuer trust preferred security and the two pooled trust preferred securities, would be settled at a price that is less than the amortized cost of the Company’s investment. Each of these securities is performing according to its terms; except for the pooled trust preferred securities for which the Company has stopped accruing interest as discussed above, and, in the opinion of management based on the review performed at March 31, 2011, will continue to perform according to its terms. The Company does not have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before recovery of the securities’ amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital requirements, and contractual and regulatory obligations, none of which the Company believes would cause the sale of the securities. Therefore, the Company did not consider the one single issuer trust preferred security and the two pooled trust preferred securities to be other-than-temporarily impaired at March 31, 2011.

At March 31, 2011, the Company held six trust preferred issues which had a current credit rating of at least one rating below investment grade. Two of those issues are carried under the fair value option and therefore, changes in fair value are included in the Consolidated Statement of Income – Net gain (loss) from fair value adjustments.

The following table details the remaining four trust preferred issues that were evaluated to determine if they were other-than-temporarily impaired at March 31, 2011. The class the Company owns in pooled trust preferred securities does not have any excess subordination. The table includes single-issuer or pooled trust preferred securities, class, number of performing banks in the security, amortized cost, fair value, cumulative credit related OTTI, deferrals/defaults as a percentage of the original security, expected deferrals/defaults as a percentage of currently performing issuers and the lowest current rating:

											Deferrals/Defaults
											Actual as a			Expected
									Cumulative		Percentage			Percentage			Current
Issuer			Performing		Amortized		Fair		Credit Related		of Original			of Performing			Lowest
Type	Class		Banks		Cost		Value		OTTI		Security			Collateral			Rating
					(Dollars in thousands)

Single issuer		n/a		1	$	300	$	251	$	-	None			None			BB+
Single issuer		n/a		1		500		501		-	None			None			BB-
Pooled issuer		B1		21		5,617		4,080		2,196		28.2	%		2.1	%		C
Pooled issuer		C1		19		3,645		2,575		1,542		25.6	%		2.9	%		C
Total					$	10,062	$	7,407	$	3,738

REMIC and CMO:

The unrealized losses in Real Estate Mortgage Investment Conduit (“REMIC”) and CMO securities at March 31, 2011 consist of six issues from the Federal Home Loan Mortgage Corporation (“FHLMC”), five issues from the Federal National Mortgage Association (“FNMA”), eight issues from the Government National Mortgage Association (“GNMA”) and eight private issues.

The unrealized losses on the REMIC and CMO securities issued by FHLMC, FNMA and GNMA were caused by movements in interest rates. It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment. Each of these securities is performing according to its terms, and, in

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

the opinion of management, will continue to perform according to its terms. The Company does not have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before recovery of the securities amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital requirements, and contractual and regulatory obligations, none of which the Company believes would cause the sale of the securities. Therefore, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2011.

The unrealized losses at March 31, 2011 on REMIC and CMO securities issued by private issuers were caused by movements in interest rates, a significant widening of credit spreads across markets for these securities, and illiquidity and uncertainty in the financial markets. Each of these securities has some level of credit enhancements, and none are collateralized by sub-prime loans. Currently, six of these securities are performing according to their terms, with two securities remitting less than the full principal amount due. The principal loss for these two securities totaled $0.2 million for the quarter ended March 31, 2011. These losses were anticipated in the cumulative OTTI charges recorded for these two securities.

Credit related impairment for mortgage-backed securities are determined for each security by estimating losses based on the following set of assumptions: (1) delinquency and foreclosure levels; (2) projected losses at various loss severity levels; and (3) credit enhancement and coverage. Based on these reviews, an OTTI charge was recorded during the quarter ended March 31, 2011, on one private issue CMO of $3.6 million before tax, of which $0.9 million was charged against earnings in the Consolidated Statements of Income and $2.7 million before tax ($1.5 million after-tax) was recorded in AOCL.

The portion of the above mentioned OTTI, recorded during the quarter ended March 31, 2011, that was related to credit losses was calculated using the following significant assumptions: (1) delinquency and foreclosure levels of 21%; (2) projected loss severity of 50%; (3) assumed default rates of 10% for the first 12 months, 8% for the next 12 months, 6% for the next 12 months and 2% thereafter; and (4) prepayment speeds of 10%.

It is not anticipated at this time that the seven private issue securities for which an OTTI charge during the quarter ended March 31, 2011was not recorded, would be settled at a price that is less than the current amortized cost of the Company’s investment. Each of these securities is performing according to its terms and in the opinion of management, will continue to perform according to their terms. The Company does not have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before recovery of the securities amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital requirements, and contractual and regulatory obligations, none of which the Company believes would cause the sale of the securities. Therefore, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2011.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

At March 31, 2011, the Company held 16 private issue CMOs which had a current credit rating of at least one rating below investment grade. Six of those issues are carried under the fair value option and therefore, changes in fair value are included in the Consolidated Statement of Income – Net gain (loss) from fair value adjustments. The following table details the remaining 10 private issue CMOs that were evaluated to determine if they were other-than-temporarily impaired at March 31, 2011. The table includes, by security, amortized cost, fair value, outstanding principal, cumulative credit related OTTI charges, year security was issued, maturity date, current rating, location of underlying collateral and average FICO score of borrower:

							Cumulative
							OTTI					Current																				Average
	Amortized		Fair		Outstanding		Charges		Year of			Lowest		Collateral Located in:																		FICO
Security	Cost		Value		Principal		Recorded		Issuance		Maturity	Rating		CA			FL			VA			NY			TX			MD			Score
	(Dollars in thousands)

1	$	13,445	$	10,908	$	15,762	$	3,279		2006	05/25/36		D		45	%								14	%								720
2		6,193		5,059		6,293		100		2006	08/19/36	CC			52	%																	737
3		6,040		4,352		6,581		774		2006	08/25/36		D		38	%		13	%														714
4		4,776		4,103		5,390		582		2006	08/25/36	CC			36	%		15	%					12	%		10	%					727
5		4,114		3,787		4,347		171		2006	03/25/36	CCC			36	%																	729
6		2,987		3,043		3,006		-		2005	12/25/35	Ba2			39	%																	738
7		5,720		3,405		5,996		222		2006	05/25/36	CC			31	%					19	%								10	%		717
8		1,987		2,020		2,005		-		2006	08/25/36		B2		28	%																	739
9		1,990		1,985		2,019		-		2005	11/25/35		B		39	%					17	%								11	%		734
10		1,746		1,709		1,749		-		2005	11/25/35	CCC			46	%																	742
Total	$	48,998	$	40,371	$	53,148	$	5,128

GNMA:

The unrealized losses on the securities issued by GNMA were caused by movements in interest rates. It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment. Each of these securities is performing according to its terms, and, in the opinion of management, will continue to perform according to its terms. The Company does not have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before recovery of the securities amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital requirements, and contractual and regulatory obligations, none of which the Company believes would cause the sale of the securities. Therefore, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2011.

FNMA:

The unrealized losses on the securities issued by FNMA were caused by movements in interest rates. It is not anticipated that these securities would be settled at a price that is less than the amortized cost of the Company’s investment. Each of these securities is performing according to its terms, and, in the opinion of management, will continue to perform according to its terms. The Company does not have the intent to sell these securities and it is more likely than not the Company will not be required to sell the securities before recovery of the securities amortized cost basis. This conclusion is based upon considering the Company’s cash and working capital requirements, and contractual and regulatory obligations, none of which the Company believes would cause the sale of the securities. Therefore, the Company did not consider these investments to be other-than-temporarily impaired at March 31, 2011.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table details the total impairment on debt securities, as of March 31, 2011, for which the Company has previously recorded a credit related OTTI charge in the Consolidated Statements of Income:

					Gross Unrealized		Cumulative
					Losses Recorded		Credit OTTI
(in thousands)	Amortized Cost		Fair Value		In AOCL		Losses

Private issued CMO's (1)	$	40,289	$	31,615	$	8,674	$	4,008
Trust preferred securities (1)		9,262		6,655		2,607		3,738

Total	$	49,551	$	38,270	$	11,281	$	7,746

(1)	The Company has recorded OTTI charges in the Consolidated Statements of Income on six private issue CMOs and two pooled trust preferred securities for which a portion of the OTTI is currently recorded in AOCL.

The following table represents the activity related to the credit loss component recognized in earnings on debt securities held by the Company for which a portion of OTTI was recognized in AOCL for the period indicated:

	For the three months ended
(in thousands)	March 31, 2011
Beginning balance	$	7,011

Recognition of actual losses		(191	)
OTTI charges due to credit loss recorded in earnings		926
Securities sold during the period		-
Securities where there is an intent to sell or requirement to sell		-

Ending balance	$	7,746

The following table details the amortized cost and estimated fair value of the Company’s securities, classified as available for sale at March 31, 2011, by contractual maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized
	Cost		Fair Value
	(In thousands)

Due in one year or less	$	8,462	$	8,463
Due after one year through five years		10,071		10,175
Due after five years through ten years		-		-
Due after ten years		46,519		43,597

Total other securities		65,052		62,235
Mortgage-backed securities		731,383		730,505

Total securities available for sale	$	796,435	$	792,740

-13-

The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2010:

					Gross		Gross
	Amortized				Unrealized		Unrealized
	Cost		Fair Value		Gains		Losses
	(In thousands)
U.S. government agencies	$	10,556	$	10,459	$	111	$	208
Other		31,423		29,028		6		2,401
Mutual funds		10,625		10,625		-		-
Total other securities		52,604		50,112		117		2,609
REMIC and CMO		456,210		453,465		10,039		12,784
GNMA		81,439		85,955		4,580		64
FNMA		192,750		194,540		3,813		2,023
FHLMC		19,561		20,117		556		-
Total mortgage-backed securities		749,960		754,077		18,988		14,871
Total securities available for sale	$	802,564	$	804,189	$	19,105	$	17,480

Mortgage-backed securities shown in the table above included one private issue CMO that was collateralized by commercial real estate mortgages with an amortized cost and market value of $14.6 million at December 31, 2010. The remaining mortgage-backed securities are backed by one-to-four family residential mortgage loans.

	Total				Less than 12 months				12 months or more
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(In thousands)
U.S. government agencies	$	7,792	$	208	$	7,792	$	208	$	-	$	-
Other		9,161		2,401		2,000		1		7,161		2,400
Total other securities		16,953		2,609		9,792		209		7,161		2,400
REMIC and CMO		209,682		12,784		169,356		5,783		40,326		7,001
GNMA		16,214		64		16,214		64		-		-
FNMA		97,255		2,023		97,255		2,023		-		-
Total mortgage-backed
securities		323,151		14,871		282,825		7,870		40,326		7,001
Total securities
available for sale	$	340,104	$	17,480	$	292,617	$	8,079	$	47,487	$	9,401

5. Loans

Loans are reported at their outstanding principal balance net of any unearned income, charge-offs, deferred loan fees and costs on originated loans and unamortized premiums or discounts on purchased loans. Interest on loans is recognized on the accrual basis. The accrual of income on loans is generally discontinued when certain factors, such as contractual delinquency of 90 days or more, indicate reasonable doubt as to the timely collectability of such income. Uncollected interest previously recognized on non-accrual loans is reversed from interest income at the time the loan is placed on non-accrual status. A non-accrual loan can be returned to accrual status when contractual delinquency returns to less than 90 days delinquent. Subsequent cash payments received on non-accrual loans that do not bring the loan to less than 90 days delinquent are recorded on a cash basis. Subsequent cash payments can also be applied first as a reduction of principal until all principal is recovered and then subsequently to interest, if in management’s opinion, it is evident that recovery of all principal due is unlikely to occur. Net loan origination costs and premiums or discounts on loans purchased are amortized into interest income over the contractual life of the loans using the level-yield method. Prepayment penalties received on loans which pay in full prior to their scheduled maturity are included in interest income in the period they are collected.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The Company maintains an allowance for loan losses at an amount, which, in management’s judgment, is adequate to absorb probable estimated losses inherent in the loan portfolio. Management’s judgment in determining the adequacy of the allowance is based on evaluations of the collectability of loans. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revisions as more information becomes available. In assessing the adequacy of the Company's allowance for loan losses, management considers various factors such as, the current fair value of collateral for collateral dependent loans, the Company's historical loss experience, recent trends in losses, collection policies and collection experience, trends in the volume of non-performing and classified loans, changes in the composition and volume of the gross loan portfolio, and local and national economic conditions. The Company’s Board of Directors reviews and approves management’s evaluation of the adequacy of the allowance for loan losses on a quarterly basis.

A loan is considered impaired when, based upon current information, the Company believes it is probable that it will be unable to collect all amounts due, both principal and interest, according to the contractual terms of the loan. Impaired loans are measured based on the present value of the expected future cash flows discounted at the loan’s effective interest rate or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Interest income on impaired loans is recorded on a cash basis. The Company’s management considers all non-accrual loans impaired.

The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. Increases and decreases in the allowance other than charge-offs and recoveries are included in the provision for loan losses. When a loan or a portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance, and subsequent recoveries, if any, are credited to the allowance.

We recognize a loan as non-performing when the borrower has indicated the inability to bring the loan current, or due to other circumstances which, in our opinion, indicate the borrower will be unable to bring the loan current within a reasonable time, or if the collateral value is deemed to have been impaired. All loans classified as non-performing, which includes all loans past due 90 days or more, are classified as non-accrual unless there is, in our opinion, compelling evidence the borrower will bring the loan current in the immediate future. Appraisals and/or updated internal evaluations are obtained as soon as practical, and before the loan becomes 90 days delinquent. The loan balances of collateral dependant impaired loans are compared to the loan’s updated fair value. The balance which exceeds fair value is charged-off. We review our allowance for loan losses on a quarterly basis, and record as a provision the amount deemed appropriate, after considering current year charge-offs, charge-off trends, new loan production, current balance by particular loan categories and delinquent loans by particular loan categories. The Board of Directors reviews and approves the adequacy of the allowance for loan losses on a quarterly basis.

We use multiple valuation approaches in evaluating the underlying collateral. These include obtaining a third party appraisal, an income approach and a sales approach. When obtained, third party appraisals are given the most weight. The income approach is used for income producing properties, and uses current revenues less operating expenses to determine the net cash flow of the property. Once the net cash flow is determined, the value of the property is calculated using an appropriate capitalization rate for the property. The sales approach uses comparable sales prices in the market. When we do not obtain third party appraisals, we place greater reliance on the income approach to value the collateral.

In preparing internal evaluations of property values, we seek to obtain current data on the subject property from various sources, including: (1) the borrower, (2) copies of existing leases, (3) local real estate brokers and appraisers, (4) public records (such as for real estate taxes and water and sewer charges), (5) comparable sales and rental data in the market, (6) an inspection of the property, and (7) interviews with tenants. Internal evaluations are reviewed by our in-house appraiser and/or our Executive Vice President/Chief of Real Estate Lending. These internal evaluations primarily focus on the income approach and comparable sales data to value the property.

As of March 31, 2011, we utilized recent third party appraisals of the collateral to measure impairment for $94.6 million, or 68.8%, of collateral dependent impaired loans, and used internal evaluations of the property’s value for $43.0 million, or 31.2%, of collateral dependent impaired loans.

We review each impaired loan to determine if a charge-off is to be recorded or if a valuation allowance is to be allocated to the loan. We do not allocate a valuation allowance to loans for which we have concluded the current value of the underlying collateral will allow for recovery of the loan balance either through the sale of the loan or by foreclosure and sale of the property.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

We recorded net charge-offs for impaired loans of $5.3 million and $2.3 million during the three months ended March 31, 2011 and 2010, respectively. The following table shows net loan charge-offs (recoveries) for the periods indicated:

	Three Months Ended
	March 31,		March 31,
(In thousands)	2011		2010
Multi-family residential	$	917	$	1,092
Commercial real estate		1,950		140
One-to-four family – mixed-use property		173		360
One-to-four family – residential		1,474		69
Construction		-		862
Small Business Administration		323		290
Commercial business and other		432		(521	)
Total net loan charge-offs	$	5,269	$	2,292

We may restructure a loan to enable a borrower to continue making payments when it is deemed to be in our best long-term interest. This restructure may include reducing the interest rate or amount of the monthly payment for a specified period of time, after which the interest rate and repayment terms revert to the original terms of the loan. We classify these loans as troubled debt restructured (“TDR”).

The Bank reviews its delinquencies on a loan by loan basis and continually explores ways to help borrowers meet their obligations and return them back to current status. The Bank takes a proactive approach to managing delinquent loans, including conducting site examinations and encouraging borrowers to meet with a Bank representative. The Bank has been developing short-term payment plans that enable certain borrowers to bring their loans current. In addition, the Bank has restructured certain problem loans by either: reducing the interest rate until the next reset date, extending the amortization period thereby lowering the monthly payments, deferring a portion of the interest payment, or changing the loan to interest only payments for a limited time period. At times, certain problem loans have been restructured by combining more than one of these options. The Bank believes that restructuring these loans in this manner will allow certain borrowers to become and remain current on their loans. These restructured loans are classified as TDR. Loans which have been current for six consecutive months at the time they are restructured as TDR remain on accrual status. Loans which were delinquent at the time they are restructured as a TDR are placed on non-accrual status until they have made timely payments for six consecutive months. Loans that are restructured as TDR but are not performing in accordance with the restructured terms are excluded from the TDR table below, as they are placed on non-accrual status and reported as non-performing loans.

-16-

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)	2011		2010
Accrual Status:
Multi-family residential	$	1,077	$	11,242
Commercial real estate		2,439		2,448
One-to-four family - mixed-use property		268		206
Construction		24,216		-
Commercial business and other		2,000		-

Total		30,000		13,896

Non-accrual status:
Multi-family residential		8,646		-
One-to-four family - mixed-use property		381		-
One-to-four family - residential		572		-
Total		9,599		-

Total performing troubled debt restructured	$	39,599	$	13,896

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

	March 31,		December 31,
(In thousands)	2011		2010
Loans 90 days or more past due
and still accruing:
Multi-family residential	$	-	$	103
Commercial real estate		955		3,328
Construction		5,245		-
Commercial business and other		6		6
Total		6,206		3,437

Non-accrual loans:
Multi-family residential		34,979		35,633
Commercial real estate		22,152		22,806
One-to-four family - mixed-use property		29,211		30,478
One-to-four family - residential		9,455		10,695
Construction		5,165		4,465
Small business administration		2,052		1,159
Commercial business and other		6,991		3,419
Total		110,005		108,655

Total non-performing loans	$	116,211	$	112,092

Loans classified as TDR which are not performing in accordance with their restructured terms are included in non-accrual loans in the immediate preceding table, and totaled $5.5 million and $2.3 million at March 31, 2011 and December 31, 2010, respectively.

The interest foregone on non-accrual loans and loans classified as TDR totaled $2.7 million and $1.8 million for the three months ended March 31, 2011 and 2010, respectively.

-17-

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table shows an age analysis of our recorded investment in loans at March 31, 2011:

					Greater
	30 - 59 Days		60 - 89 Days		than		Total Past
(in thousands)	Past Due		Past Due		90 Days		Due		Current		Total Loans


Multi-family residential	$	23,338	$	8,590	$	34,979	$	66,907	$	1,214,104	$	1,281,011
Commercial real estate		14,240		4,926		20,802		39,968		605,770		645,738
One-to-four family - mixed-use property		19,604		4,818		29,210		53,632		667,610		721,242
One-to-four family - residential		3,478		1,813		9,454		14,745		215,086		229,831
Co-operative apartments		-		-		-		-		6,151		6,151
Construction loans