Edgar Filing: FLUSHING FINANCIAL CORP

f10q_051013.htm

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, 2013

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). X 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 30, 2013 was 30,835,169.

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 Comprehensive Income	3
Consolidated Statements of Cash Flows	4
Consolidated Statements of Changes in Stockholders’ Equity	5
Notes to Consolidated Financial Statements	6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	58
ITEM 4. Controls and Procedures	58
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings	59
ITEM 1A. Risk Factors	59
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	59
ITEM 3. Defaults Upon Senior Securities	59
ITEM 4. Mine Safety Disclosures	59
ITEM 5. Other Information	59
ITEM 6. Exhibits	60
SIGNATURES	61

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Financial Condition

(Unaudited)

Item 1. Financial Statements

(Dollars in thousands, except per share data)	March 31, 2013			December 31, 2012
ASSETS
Cash and due from banks	$	46,046		$	40,425
Securities available for sale:
Mortgage-backed securities ($17,965 and $24,911 at fair value pursuant to the fair value option at March 31, 2013 and December 31, 2012, respectively)		764,701			720,113
Other securities ($29,933 and $29,577 at fair value pursuant to the fair value option at March 31, 2013 and December 31, 2012 respectively)		235,593			229,453
Loans held for sale		9,907			5,313
Loans:
Multi-family residential		1,528,353			1,534,438
Commercial real estate		507,932			515,438
One-to-four family ― mixed-use property		615,661			637,353
One-to-four family ― residential		197,268			198,968
Co-operative apartments		8,221			6,303
Construction		10,952			14,381
Small Business Administration		8,812			9,496
Taxi medallion		8,777			9,922
Commercial business and other		302,726			295,076
Net unamortized premiums and unearned loan fees		12,495			12,746
Allowance for loan losses		(31,027	)		(31,104	)
Net loans		3,170,170			3,203,017
Interest and dividends receivable		17,209			17,917
Bank premises and equipment, net		22,016			22,500
Federal Home Loan Bank of New York stock		38,686			42,337
Bank owned life insurance		107,068			106,244
Goodwill		16,127			16,127
Core deposit intangible		351			468
Other assets		48,639			47,502
Total assets	$	4,476,513		$	4,451,416

LIABILITIES
Due to depositors:
Non-interest bearing	$	160,234		$	155,789
Interest-bearing:
Certificate of deposit accounts		1,200,906			1,253,229
Savings accounts		281,145			288,398
Money market accounts		139,711			148,618
NOW accounts		1,278,071			1,136,599
Total interest-bearing deposits		2,899,833			2,826,844
Mortgagors' escrow deposits		46,585			32,560
Borrowed funds ($24,742 and $23,922 at fair value pursuant to the fair value option at March 31, 2013 and December 31, 2012, respectively)		683,064			763,105
Securities sold under agreements to repurchase		185,300			185,300
Other liabilities		57,614			45,453
Total liabilities		4,032,630			4,009,051

Commitments and contingencies (Note 4 and Note 5)

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; 31,530,595 shares issued at March 31, 2013 and December 31, 2012; 30,846,118 shares and 30,743,329 shares outstanding at March 31, 2013 and December 31, 2012, respectively)		315			315
Additional paid-in capital		200,135			198,314
Treasury stock, at average cost (684,477 shares and 787,266 shares at March 31, 2013 and December 31, 2012, respectively)		(9,174	)		(10,257	)
Retained earnings		244,505			241,856
Accumulated other comprehensive income, net of taxes		8,102			12,137
Total stockholders' equity		443,883			442,365

Total liabilities and stockholders' equity	$	4,476,513		$	4,451,416

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 Income

(Unaudited)

	For the three months ended March 31,
(Dollars in thousands, except per share data)	2013			2012

Interest and dividend income
Interest and fees on loans	$	42,940		$	46,560
Interest and dividends on securities:
Interest		6,954			7,631
Dividends		175			207
Other interest income		17			17
Total interest and dividend income		50,086			54,415

Interest expense
Deposits		8,291			10,910
Other interest expense		7,649			6,160
Total interest expense		15,940			17,070

Net interest income		34,146			37,345
Provision for loan losses		6,000			6,000
Net interest income after provision for loan losses		28,146			31,345

Non-interest income
Loan fee income		608			466
Banking services fee income		432			455
Net loss on sale of loans		(9	)		-
Net gain on sale of securities		2,858			-
Net loss from fair value adjustments		(123	)		(448	)
Federal Home Loan Bank of New York stock dividends		414			385
Bank owned life insurance		825			696
Other income		343			324
Total non-interest income		5,348			1,878

Non-interest expense
Salaries and employee benefits		12,233			11,041
Occupancy and equipment		1,860			1,930
Professional services		1,618			1,722
FDIC deposit insurance		991			1,017
Data processing		1,043			976
Depreciation and amortization		767			834
Other real estate owned/foreclosure expense		668			712
Other operating expenses		3,239			3,304
Total non-interest expense		22,419			21,536

Income before income taxes		11,075			11,687

Provision for income taxes
Federal		3,461			3,624
State and local		858			934
Total taxes		4,319			4,558

Net income	$	6,756		$	7,129


Basic earnings per common share	$	0.22		$	0.23
Diluted earnings per common share	$	0.22		$	0.23
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 Comprehensive Income

(Unaudited)

	For the three months ended March 31,
(Dollars in thousands)	2013			2012


Comprehensive Income, net of tax
Net income	$	6,756		$	7,129
Amortization of actuarial losses		174			149
Amortization of prior service credits		(6	)		(6	)
Unrealized gains (losses) on securities, net		(4,203	)		1,217
Comprehensive income	$	2,721		$	8,489

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)	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	6,756		$	7,129
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		6,000			6,000
Depreciation and amortization of bank premises and equipment		767			834
Amortization of premium, net of accretion of discount		1,774			1,561
Net loss from fair value adjustments		123			448
Net loss from sale of loans		9			-
Net gain from sale of securities		(2,858	)		-
Income from bank owned life insurance		(825	)		(696	)
Stock-based compensation expense		1,993			1,418
Deferred compensation		(423	)		(306	)
Amortization of core deposit intangibles		117			117
Excess tax benefit from stock-based payment arrangements		(245	)		(106	)
Deferred income tax provision		904			713
Decrease in prepaid FDIC assessment		927			946
Increase (decrease) in other liabilities		2,089			(1,676	)
Decrease in other assets		3,004			540
Net cash provided by operating activities		20,112			16,922

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of bank premises and equipment		(283	)		(470	)
Net (purchase) redemptions of Federal Home Loan Bank of New York shares		3,651			(1,976	)
Purchases of securities available for sale		(171,018	)		(122,512	)
Proceeds from sales and calls of securities		96,396			-
Proceeds from maturities and prepayments of securities available for sale		37,461			39,035
Net (originations) and repayment of loans		4,426			(19,871	)
Purchases of loans		(452	)		(3,456	)
Proceeds from sale of real estate owned		1,793			624
Proceeds from sale of delinquent loans		8,166			9,091
Net cash used in investing activities		(19,860	)		(99,535	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in non-interest bearing deposits		4,445			12,921
Net (decrease) increase in interest-bearing deposits		72,700			(743	)
Net increase in mortgagors' escrow deposits		14,025			11,457
Net (repayment) proceeds from short-term borrowed funds		(121,500	)		58,500
Proceeds from long-term borrowings		110,271			47,414
Repayment of long-term borrowings		(69,912	)		(62,000	)
Purchases of treasury stock		(954	)		(1,652	)
Excess tax benefit from stock-based payment arrangements		245			106
Proceeds from issuance of common stock upon exercise of stock options		22			244
Cash dividends paid		(3,973	)		(3,965	)
Net cash provided by financing activities		5,369			62,282

Net increase (decrease) in cash and cash equivalents		5,621			(20,331	)
Cash and cash equivalents, beginning of period		40,425			55,721
Cash and cash equivalents, end of period	$	46,046		$	35,390

SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid	$	15,652		$	16,995
Income taxes paid		1,581			5,218
Taxes paid if excess tax benefits were not tax deductible		1,826			5,324
Non-cash activities:
Securities purchased not yet settled		14,308			-
Loans transferred to Other Real Estate Owned		679			1,293
Loans provided for the sale of Other Real Estate Owned		2,088			221
Loans held for investment transferred to loans held for sale		7,682			-

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

(Unaudited)

	For the three months ended March 31,
(Dollars in thousands, except per share data)	2013			2012

Common Stock
Balance, beginning of period	$	315		$	315
No activity		-			-
Balance, end of period	$	315		$	315
Additional Paid-In Capital
Balance, beginning of period	$	198,314		$	195,628
Award of common shares released from Employee Benefit Trust (133,656 and 146,735 common shares for the three months ended March 31, 2013 and 2012, respectively)		1,563			1,363
Shares issued upon vesting of restricted stock unit awards (98,610 and 85,163 common shares for the three months ended March 31, 2013 and 2012, respectively)		78			151
Issuance upon exercise of stock options (42,400 and 56,850 common shares for the three months ended March 31, 2013 and 2012, respectively)		55			73
Stock-based compensation activity, net		(120	)		4
Stock-based income tax benefit		245			106
Balance, end of period	$	200,135		$	197,325
Treasury Stock
Balance, beginning of period	$	(10,257	)	$	(7,355	)
Purchases of outstanding shares (18,560 and 97,200 common shares for the three months ended March 31, 2013 and 2012, respectively)		(301	)		(1,282	)
Shares issued upon vesting of restricted stock unit awards (151,652 and 113,993 common shares for the three months ended March 31, 2013 and 2012, respectively)		1,983			1,343
Issuance upon exercise of stock options (52,320 and 67,330 common shares for the three months ended March 31, 2013 and 2012, respectively)		691			802
Purchases of shares to fund options exercised (39,957 and 40,866 common shares for the three months ended March 31, 2013 and 2012, respectively)		(637	)		(548	)
Repurchase of shares to satisfy tax obligations (42,666 and 27,883 common shares for the three months ended March 31, 2013 and 2012, respectively)		(653	)		(370	)
Balance, end of period	$	(9,174	)	$	(7,410	)
Retained Earnings
Balance, beginning of period	$	241,856		$	223,510
Net income		6,756			7,129
Cash dividends declared and paid on common shares ($0.13 per common share for the three months ended March 31, 2013 and 2012)		(3,973	)		(3,965	)
Issuance upon exercise of stock options (9,920 and 10,480 common shares for the three months ended March 31, 2013 and 2012, respectively)		(35	)		(24	)
Shares issued upon vesting of restricted stock unit awards (53,042 and 28,830 common shares for the three months ended March 31, 2013 and 2012, respectivley)		(99	)		(97	)
Balance, end of period	$	244,505		$	226,553
Accumulated Other Comprehensive Income
Balance, beginning of period	$	12,137		$	4,813
Change in net unrealized gains (losses) on securities available for sale, net of taxes of approximately $2,013 and ($962) for the three months ended March 31, 2013 and 2012, respectively		(2,594	)		1,217
Amortization of actuarial losses, net of taxes of approximately ($135) and ($117) for the three months ended March 31, 2013 and 2012, respectively		174			149
Amortization of prior service credits, net of taxes of approximately $5 for the three months ended March 31, 2013 and 2012)		(6	)		(6	)
Reclassification adjustment for losses included in net income, net of taxes of approximatley $1,249 for the three months ended March 31, 2013		(1,609	)		-
Balance, end of period	$	8,102		$	6,173

Total Stockholders' Equity	$	443,883		$	422,956

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

Flushing Financial Corporation (the “Holding Company”), a Delaware corporation, is a bank holding company. On February 28, 2013 the Holding Company’s wholly owned subsidiary Flushing Savings Bank, FSB (the “Savings Bank”), merged with and into (the “Merger”) Flushing Commercial Bank. Flushing Commercial Bank was the surviving entity of the Merger and its name was changed to Flushing Bank. References herein to the “Bank” mean the Savings Bank (including its wholly owned subsidiary, Flushing Commercial Bank) prior to the Merger and the surviving entity after the Merger. The Holding Company and its direct and indirect wholly-owned subsidiaries, including the Bank, Flushing Preferred Funding Corporation, Flushing Service Corporation, and FSB Properties Inc., are collectively herein referred to as “we,” “us,” “our” and the “Company.”

The Merger was the result of the combination of two entities under common control, and in accordance with ASC 805-50-30-5, the Bank measured the recognized assets and liabilities transferred at their carrying amounts (historical cost) for this transaction.

The primary business of the Holding Company is the operation of its wholly-owned subsidiary, the Bank. 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 Holding Company also owns Flushing Financial Capital Trust II, Flushing Financial Capital Trust III, and Flushing Financial Capital Trust IV (the “Trusts”), which are special purpose business trusts. The Trusts are not included in the Company’s consolidated financial statements as the Company would not absorb the losses of the Trusts if losses were to occur.

The accompanying unaudited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry. The information furnished in these interim statements reflects all adjustments 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, 2012.

When necessary, 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. Estimates that are particularly susceptible to change in the near term are used in connection with the determination of the allowance for loan losses (“ALLL”), the evaluation of goodwill for impairment, the evaluation of the need for a valuation allowance of the Company’s deferred tax assets, the evaluation of other-than-temporary impairment (“OTTI”) on securities and the valuation of certain financial instruments. The current economic environment has increased the degree of uncertainty inherent in these material estimates. Actual results could differ from these estimates.

3.	Earnings Per Share

Earnings per share is computed in accordance with Accounting Standards Codification (“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.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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

	For the three months ended March 31,
	2013			2012
	(In thousands, except per share data)
Net income, as reported	$	6,756		$	7,129
Divided by:
Weighted average common shares outstanding		30,449			30,396
Weighted average common stock equivalents		32			24
Total weighted average common shares outstanding and common stock equivalents		30,481			30,420

Basic earnings per common share	$	0.22		$	0.23
Diluted earnings per common share (1)	$	0.22		$	0.23
Dividend payout ratio		59.1	%		56.5	%

(1)

For the three months ended March 31, 2013, options to purchase 542,400 shares at an average exercise price of $17.66 were not included in the computation of diluted earnings per common share as they were anti-dilutive. For the three months ended March 31, 2012, options to purchase 720,340 shares at an average exercise price of $16.71were not included in the computation of diluted earnings per common share as they were anti-dilutive.

4.	Debt and Equity Securities

The Company’s investments in equity securities that have readily determinable fair values and all investments in debt securities 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 three month periods ended March 31, 2013 and 2012. 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, 2013:

	Amortized Cost		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
	(In thousands)
U.S. government agencies	$	10,006	$	10,020	$	14	$	-
Corporate		103,668		108,323		4,674		19
Municipals		81,113		81,200		417		330
Mutual funds		21,823		21,823		-		-
Other		18,172		14,227		17		3,962
Total other securities		234,782		235,593		5,122		4,311
REMIC and CMO		492,492		509,440		19,445		2,497
GNMA		37,487		40,843		3,356		-
FNMA		193,310		197,903		5,322		729
FHLMC		16,068		16,515		447		-
Total mortgage-backed securities		739,357		764,701		28,570		3,226
Total securities available for sale	$	974,139	$	1,000,294	$	33,692	$	7,537

The table above includes commitments to purchase securities totaling $14.3 million which settled during April 2013.

Mortgage-backed securities shown in the table above include two private issue collateralized mortgage obligations (“CMOs”) that are collateralized by commercial real estate mortgages with amortized cost and market values totaling $18.0 million and $18.4 million, respectively, at March 31, 2013. The remaining private issue mortgage-backed securities are backed by one-to-four family residential mortgage loans.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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 the individual securities have been in a continuous unrealized loss position at March 31, 2013:

	Total				Less than 12 months				12 months or more
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
Corporate	$	9,981	$	19	$	9,981	$	19	$	-	$	-
Municipals		21,666		330		21,666		330		-		-
Other		5,600		3,962		-		-		5,600		3,962
Total other securities		37,247		4,311		31,647		349		5,600		3,962
REMIC and CMO		130,532		2,497		106,771		560		23,761		1,937
FNMA		73,523		729		73,523		729		-		-
Total mortgage-backed securities		204,055		3,226		180,294		1,289		23,761		1,937
Total securities available for sale	$	241,302	$	7,537	$	211,941	$	1,638	$	29,361	$	5,899

OTTI losses 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, the investor 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 in the Consolidated Statements of Income. Amounts relating to factors other than credit losses are recorded in accumulated other comprehensive income (“AOCI”) 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, 2013. 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 in AOCI, net of tax. 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 and the noncredit related impairment being recorded in AOCI, 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 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; (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) for 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.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Corporate:

The unrealized losses in Corporate securities at March 31, 2013 consist of losses on one Corporate security. The unrealized loss was caused by movements in interest rates. It is not anticipated that this security would be settled at a price that is less than the amortized cost of the Company’s investment. This security 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 this security and it is more likely than not the Company will not be required to sell the security before recovery of the security’s 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 security. Therefore, the Company did not consider this investment to be other-than-temporarily impaired at March 31, 2013.

Municipals:

The unrealized losses in Municipal securities at March 31, 2013, consist of losses on eight municipal securities. The unrealized losses 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, 2013.

Other Securities:

The unrealized losses in Other Securities at March 31, 2013, consist of losses on one single issuer trust preferred security and two pooled trust preferred securities. The unrealized losses on such 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 the Company owns. The Company’s management evaluates these securities using an impairment model, through an independent third party, that is applied to debt securities. In estimating OTTI 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 security 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 Federal Deposit Insurance Corporation (“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.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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 no issuers in our pooled trust preferred securities which had a Texas Ratio in excess of 50.00%. We assigned a zero default rate to these issuers. Our 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) two issuers totaling $7.7 million will prepay in the second quarter of 2013 and two issuers totaling $21.5 million will prepay in the second quarter of 2015; (2) senior classes will not call the debt on their portions; and (3) use of the forward London Interbank Offered Rate (“LIBOR”) curve. The cash flows were discounted at the effective rate for each security.

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 security as well as the single issuer trust preferred security both 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 – Net gain (loss) from fair value adjustments. 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, 2013, 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, 2013.

At March 31, 2013, 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, 2013. The class the Company owns in pooled trust preferred securities does not have any excess subordination.

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

Single issuer	n/a	1	$	300	$	295	$	-	None	None	BB-
Single issuer	n/a	1		500		517		-	None	None	B+
Pooled issuer	B1	19		5,617		2,880		2,196	24.8%	0.0%	C
Pooled issuer	C1	19		3,645		2,425		1,542	21.3%	0.0%	C
Total			$	10,062	$	6,117	$	3,738

REMIC and CMO:

The unrealized losses in Real Estate Mortgage Investment Conduit (“REMIC”) and CMO securities at March 31, 2013 consist of seven issues from the Federal Home Loan Mortgage Corporation (“FHLMC”), six issues from the Federal National Mortgage Association (“FNMA”) and five private issues.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The unrealized losses on the REMIC and CMO securities issued by FHLMC and 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, 2013.

The unrealized losses at March 31, 2013 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, one of these securities is performing according to its terms, with four of these securities remitting less than the full principal amount due. The principal loss for these four securities totaled $0.2 million for the three months ended March 31, 2013. These losses were anticipated in the cumulative credit related OTTI charges recorded for these four 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 not recorded during the three months ended March 31, 2013.

It is not anticipated at this time that the five private issue CMOs would be settled at a price that is less than the current amortized cost of the Company’s investment. 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, 2013.

At March 31, 2013, the Company held five private issue CMOs which had a current credit rating of at least one rating below investment grade.

The following table details the five private issue CMOs that were evaluated to determine if they were other-than-temporarily impaired at March 31, 2013:

							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		NJ		TX		CO		Score
	(Dollars in thousands)

1	$	9,478	$	8,845	$	10,432	$	3,470	2006	05/25/36	D	40	%					16	%							716
2		4,216		3,695		4,353		727	2006	08/19/36	D	58	%											10	%	737
3		4,420		4,169		4,815		1,107	2006	08/25/36	D	35	%	15	%											711
4		3,309		3,150		3,828		780	2006	08/25/36	D	41	%	14	%			13	%			10	%			724
5		4,275		3,903		4,551		222	2006	03/25/36	CC	24	%			21	%	12	%	12	%					710
Total	$	25,698	$	23,762	$	27,979	$	6,306

FNMA:

The unrealized losses in FNMA securities at March 31, 2013 consist of losses on nine FNMA securities. The unrealized losses 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, 2013.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table details gross unrealized losses recorded in AOCI and the ending credit loss amount on debt securities, as of March 31, 2013, for which the Company has recorded a credit related OTTI charge in the Consolidated Statements of Income:

(in thousands)	Amortized Cost		Fair Value		Gross Unrealized Losses Recorded In AOCI		Ending Credit Loss Amount

Private issued CMO's (1)	$	25,698	$	23,762	$	1,937	$	2,271
Trust preferred securities (1)		9,262		5,305		3,957		3,738
Total	$	34,960	$	29,067	$	5,894	$	6,009

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

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 AOCI for the period indicated:

(in thousands)	For the three months ended March 31, 2013
Beginning balance	$	6,178

Recognition of actual losses		(169	)
OTTI charges due to credit loss recorded in earnings		-
Securities sold during the period		-
Securities where there is an intent to sell or requirement to sell		-
Ending balance	$	6,009

The following table details the amortized cost and estimated fair value of the Company’s securities classified as available for sale at March 31, 2013, 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	$	22,823	$	22,823
Due after one year through five years		59,256		62,081
Due after five years through ten years		49,774		51,110
Due after ten years		102,929		99,579
Total other securities		234,782		235,593
Mortgage-backed securities		739,357		764,701
Total securities available for sale	$	974,139	$	1,000,294

During the three months ended March 31, 2013, as part of a balance sheet restructuring, the Company sold $68.5 million in mortgage-backed securities and recorded gross gains of $3.2 million and gross losses of $0.3 million. The Company did not sell any securities during the three months ended March 31, 2012.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2012:

	Amortized Cost		Fair Value		Gross Unrealized Gains		Gross Unrealized Losses
	(In thousands)
U.S. government agencies	$	31,409	$	31,513	$	104	$	-
Corporate		83,389		87,485		4,096		-
Municipals		74,228		75,297		1,152		83
Mutual funds		21,843		21,843		-		-
Other		17,797		13,315		17		4,499
Total other securities		228,666		229,453		5,369		4,582
REMIC and CMO		453,468		474,050		23,690		3,108
GNMA		43,211		46,932		3,721		-
FNMA		168,040		175,929		7,971		82
FHLMC		22,562		23,202		640		-
Total mortgage-backed securities		687,281		720,113		36,022		3,190
Total securities available for sale	$	915,947	$	949,566	$	41,391	$	7,772

Mortgage-backed securities shown in the table above include two private issue CMOsthat are collateralized by commercial real estate mortgages with an amortized cost and market value of $15.2 million and $15.7 million, respectively, at December 31, 2012. The remaining private issue 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 position, at December 31, 2012.

	Total				Less than 12 months				12 months or more
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In thousands)
Municipals	$	9,782	$	83	$	9,782	$	83	$	-	$	-
Other		5,064		4,499		-		-		5,064		4,499
Total other securities		14,846		4,582		9,782		83		5,064		4,499

REMIC and CMO		64,126		3,108		40,651		155		23,475		2,953
FNMA		10,331		82		10,331		82		-		-
Total mortgage-backed securities		74,457		3,190		50,982		237		23,475		2,953
Total securities available for sale	$	89,303	$	7,772	$	60,764	$	320	$	28,539	$	7,452

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 (the “Board of Directors”) reviews and approves management’s evaluation of the adequacy of the allowance for loan losses on a quarterly basis.

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 for loan losses 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.

The Company recognizes 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. 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 become 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 generally charged-off. Management reviews the allowance for loan losses on a quarterly basis and records 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.

A loan is considered impaired when, based upon the most 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 Company reviews 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. The Company does 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.

The Company evaluates the underlying collateral through a third party appraisal, or when a third party appraisal is not available, the Company will use an internal evaluation. The internal evaluations are performed using an income approach or a sales approach. 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 an internal evaluation is used, we place greater reliance on the income approach to value the collateral.

In preparing internal evaluations of property values, the Company seeks 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. These internal evaluations primarily focus on the income approach and comparable sales data to value the property.

As of March 31, 2013, the Company utilized recent third party appraisals of the collateral to measure impairment for $86.1 million, or 78.1%, of collateral dependent impaired loans and used internal evaluations of the property’s value for $24.5 million, or 21.9%, of collateral dependent impaired loans.

The Company may restructure a loan to enable a borrower to continue making payments when it is deemed to be in the Company’s best long-term interest. This restructure may include reducing the interest rate or amount of the monthly payment for a specified period of time, after which the interest rate and repayment terms revert to the original terms of the loan. We classify these loans as Troubled Debt Restructured (“TDR”) when the Bank grants a concession to a borrower who is experiencing financial difficulties.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

These restructurings have not included a reduction of principal balance. The Company believes that restructuring these loans in this manner will allow certain borrowers to become and remain current on their loans. All loans classified as TDR are considered impaired, however TDR loans which have been current for six consecutive months at the time they are restructured as TDR remain on accrual status and are not included as part of non-performing loans. Loans which were delinquent at the time they are restructured as a TDR are placed on non-accrual status and reported as non-performing loans 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 placed on non-accrual status and reported as non-performing loans.

The allocation of a portion of the allowance for loan losses for a performing TDR loan is based upon the present value of the future expected cash flows discounted at the loan’s original effective rate, or for a non-performing TDR which is collateral dependent, the fair value of the collateral. At March 31, 2013, there were no commitments to lend additional funds to borrowers whose loans were modified to a TDR. The modification of loans to a TDR did not have a significant effect on our operating results, nor did it require a significant allocation of the allowance for loan losses.

The following table shows loans modified and classified as TDR during the three months ended March 31, 2013 and 2012:

	For the three months ended March 31, 2013					For the three months ended March 31, 2012
(Dollars in thousands)	Number		Balance		Modification description	Number		Balance		Modification description


Multi-family residential		1	$	413	Received a below market interest rate and the loan amortization was extended		-	$	-
Commercial real estate		1		273	Received a below market interest rate and the loan amortization was extended		1		1,388	Received a below market interest rate, loan amortization term extended and loan term extended
One-to-four family - mixed-use property		-		-			2		462	Received a below market interest rate
Commercial business and other		1		615	Received a below market interest rate and the loan term was extended		-		-
Total		3	$	1,301			3	$	1,850

The recorded investment of each of the loans modified and classified to a TDR, presented in the table above, was unchanged as there was no principal forgiven in any of these modifications.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The following table shows our recorded investment for loans classified as TDR that are performing according to their restructured terms at the periods indicated:

	March 31, 2013				December 31, 2012
(Dollars in thousands)	Number of contracts		Recorded investment		Number of contracts		Recorded investment

Multi-family residential		9	$	2,816		8	$	2,347
Commercial real estate		6		8,698		5		8,499
One-to-four family - mixed-use property		7		2,326		7		2,336
One-to-four family - residential		1		372		1		374
Construction		1		3,137		1		3,805
Commercial business and other		3		3,135		2		2,540
Total performing troubled debt restructured		27	$	20,484		24	$	19,901

During the three months ended March 31, 2013, there were no loans classified as TDR transferred to non-accrual status.

The following table shows our recorded investment for loans classified as TDR that are not performing according to their restructured terms at the periods indicated:

	March 31, 2013				December 31, 2012
(Dollars in thousands)	Number of contracts		Recorded investment		Number of contracts		Recorded investment

Multi-family residential		-	$	-		2	$	323
Commercial real estate		2		2,987		2		3,075
One-to-four family - mixed-use property		2		688		2		816
Construction		1		7,296		1		7,368
Total troubled debt restructurings that subsequently defaulted		5	$	10,971		7	$	11,582

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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

(Dollars in thousands)	March 31, 2013		December 31, 2012

Loans ninety days or more past due and still accruing:
Multi-family residential	$	1,073	$	-
Co-operative apartment		103		-
Commercial Business and other		602		644
Total		1,778		644

Non-accrual mortgage loans:
Multi-family residential		18,569		13,095
Commercial real estate		13,811		15,640
One-to-four family - mixed-use property		10,523		16,553
One-to-four family - residential		13,547		13,726
Co-operative apartments		160		234
Construction		7,396		7,695
Total		64,006		66,943

Non-accrual non-mortgage loans:
Small Business Administration		458		283
Commercial Business and other		12,640		16,860
Total		13,098		17,143

Total non-accrual loans		77,104		84,086


Total non-accrual loans and loans ninety days or more past due and still accruing	$	78,882	$	84,730

The following is a summary of interest foregone on non-accrual loans and loans classified as TDR for the periods indicated:

	For the three months ended March 31,
	2013		2012
	(In thousands)
Interest income that would have been recognized had the loans performed in accordance with their original terms	$	2,202	$	2,646
Less: Interest income included in the results of operations		243		147
Total foregone interest	$	1,959	$	2,499

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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, 2013:

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


Multi-family residential	$	14,669	$	2,879	$	18,688	$	36,236	$	1,492,117	$	1,528,353
Commercial real estate		11,067		1,309		13,812		26,188		481,744		507,932
One-to-four family - mixed-use property		22,994		2,293		10,135		35,422		580,239		615,661
One-to-four family - residential		4,067		705		13,209		17,981		179,287		197,268
Co-operative apartments		-		-		161		161		8,060		8,221
Construction loans		-		-		7,396		7,396		3,556		10,952
Small Business Administration		31		-		458		489		8,323		8,812
Taxi medallion		-		-		-		-		8,777		8,777
Commercial business and other		62		1		11,451		11,514		291,212		302,726
Total	$	52,890	$	7,187	$	75,310	$	135,387	$	3,053,315	$	3,188,702

The following table shows an age analysis of our recorded investment in loans at December 31, 2012:

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

Multi-family residential	$	24,059	$	4,828	$	13,095	$	41,982	$	1,492,456	$	1,534,438
Commercial real estate		9,764		3,622		15,639		29,025		486,413		515,438
One-to-four family - mixed-use property		21,012		3,368		16,554		40,934		596,419