Borrowed Funds

Borrowed funds are summarized as follows at

December

31:

	2016					2015
			Weighted					Weighted
			Average					Average
	Amount		Rate			Amount		Rate
	(Dollars in thousands)

FHLB-NY advances - fixed rate:
Due in 2016	$	-		-	%	$	386,152		1.04	%
Due in 2017		550,981		1.02			250,708		1.29
Due in 2018		259,088		1.27			265,088		1.30
Due in 2019		149,112		1.48			94,710		1.64
Due in 2020		105,206		1.42			110,000		2.98
Due in 2021		94,803		1.47			-		-

Total FHLB-NY advances		1,159,190		1.21			1,106,658		1.40

Repurchase agreements- fixed rate:
Due in 2016		-		-			38,000		1.92
Due in 2017		-		-			38,000		4.16
Due in 2020		-		-			40,000		3.45
Total repurchase agreements		-		-			116,000		3.18

Federal funds purchased
Due in 2016		-		-			20,000		0.56

Subordinated debentures - fixed rate through 2021
Due in 2026		73,414		5.36			-		-

Junior subordinated debentures - adjustable rate
Due in 2037		33,959		4.28			29,018		5.67

Total borrowings	$	1,266,563		1.53	%	$	1,271,676		1.65	%

The FHLB-NY advances are fixed rate borrowings with no call provisions. The borrowings terms rage from

one

day to

five

years.

During

2016,

$130.0

million in FHLB-NY advances at an average cost of

2.82%

and

$78.0

million in securities sold under agreements to repurchase, at an average cost of

3.80%,

were extinguished prior to their scheduled maturity dates, incurring a prepayment penalty totaling

$10.4

million. During

2015,

80.0

million in FHLB-NY fixed rate advances were modified from an average cost of

4.41%

to an average cost of

3.46%.

This modification extended the maturity on the advances by an average of

2.3

years without incurring a prepayment penalty.

During

2014,

$66.9

million in long-term FHLB-NY advances at an average cost of

2.98%

and

$30.0

million in securities sold under agreements to repurchase at an average cost of

4.98%,

were prepaid while incurring a prepayment penalty totaling

$5.2

million.

December

31,

2016,

the Bank was able to borrow up to

$2,703.1

million from the FHLB-NY in Federal Home Loan Bank advances and letters of credit. As of

December

31,

2016,

the Bank had

$1,506.4

million outstanding in combined balances of FHLB-NY advances and letters of credit. At

December

31,

2016,

the Bank also has unsecured lines of credit with other commercial banks totaling

$100.0

million.

As part of the Company’s strategy to finance investment opportunities and manage its cost of funds, the Company can enter into repurchase agreements with broker-dealers and the FHLB-NY. These agreements are recorded as financing transactions and the obligations to repurchase are reflected as a liability in the Consolidated Statements of Financial Condition. The securities underlying the agreements are delivered to the broker-dealers or the FHLB-NY who arrange the transaction. The securities remain registered in the name of the Company and are returned upon the maturity of the agreement. The Company retains the right of substitution of collateral throughout the terms of the agreements. As a condition of the repurchase agreements the Company is required to provide sufficient collateral. If the fair value of the collateral were to fall below the required level, the Company is obligated to pledge additional collateral. All the repurchase agreements were collateralized by mortgage-backed securities. At

December

31,

2016,

the Company did

not

have any repurchase agreements outstanding.

Information relating to these agreements at or for the years ended

December

is as follows:

	2016			2015			2014
	(Dollars in thousands)
Book value of collateral	$	-		$	131,421		$	142,925
Estimated fair value of collateral		-			131,421			142,925
Average balance of outstanding agreements during the year		64,087			116,000			137,824
Maximum balance of outstanding agreements at a month end during the year		116,000			116,000			155,300
Average interest rate of outstanding agreements during the year		3.26	%		3.22	%		3.40	%

Pursuant to a blanket collateral agreement with the FHLB-NY, advances are secured by all of the Bank’s stock in the FHLB-NY and certain qualifying mortgage loans in an amount at least equal to

110%

of the advances outstanding. The Bank

may

also pledge mortgage-backed and mortgage-related securities, and other securities not otherwise pledged.

During the year ended

December

31,

2016,

the Holding Company issued subordinated debt with an aggregated principal amount of

$75.0

million, receiving net proceeds totaling

$73.4

million. The subordinated debt was issued at

5.25%

fixed-to-floating rate maturing in

2026.

The debt is fixed-rate for the

first

five

years, after which it resets quarterly. Additionally, the debt is callable at par quarterly through its maturity date beginning

December

15,

2021.

The subordinated debentures were structured to qualify as Tier

capital for regulatory purposes. Subordinated debt totaled

$73.4

million at

December

31,

2016,

which included

$1.6

million of unamortized debt issuance costs. These costs are being amortized over the life of the debt.

The following table shows the terms of the subordinated debt issued by the Holding Company:

	Subordinated Debentures
Issue Date		December 12, 2016
Initial Rate		5.25	%
First Reset Date		December 15, 2021
First Call Date		December 15, 2021
Spread over 3-month LIBOR		3.44	%
Maturity Date		December 15, 2026

The Holding Company has

three

trusts formed under the laws of the State of Delaware for the purpose of issuing capital and common securities, and investing the proceeds thereof in junior subordinated debentures of the Holding Company. Each of these trusts issued

$20.6

million of securities which had a fixed-rate for the

first

five

years, after which they reset quarterly based on a spread over

-month LIBOR. The securities were

first

callable at par after

five

years, and pay cumulative dividends. The Holding Company has guaranteed the payment of these trusts’ obligations under their capital securities. The terms of the junior subordinated debentures are the same as those of the capital securities issued by the trusts. The junior subordinated debentures issued by the Holding Company are carried at fair value in the consolidated financial statements.

may

not redeem the subordinated debt prior to

December

15,

2021,

except that the Company

may

redeem the subordinated debt at any time, at its option, in whole but not in part, subject to obtaining any required regulatory approvals, if (i) a change or prospective change in law occurs that could prevent the Company from deducting interest payable on the subordinated debt for U.S. federal income tax purposes, (ii) a subsequent event occurs that precludes the subordinated debt from being recognized as Tier

capital for regulatory capital purposes, or (iii) the Company is required to register as an investment company under the Investment Company Act of

1940,

as amended, in each case, at a redemption price equal to

100%

of the principal amount of the subordinated debt plus any accrued and unpaid interest through, but excluding, the redemption date.

The table below shows the terms of the securities issued by the trusts.

	Flushing Financial Capital Trust II			Flushing Financial Capital Trust III			Flushing Financial Capital Trust IV
Issue Date		June 20, 2007			June 21, 2007			July 3, 2007
Initial Rate		7.14	%		6.89	%		6.85	%
First Reset Date		September 1, 2012			June 15, 2012			July 30, 2012
Spread over 3-month LIBOR		1.41	%		1.44	%		1.42	%
Maturity Date		September 1, 2037			September 15, 2037			July 30, 2037

The consolidated financial statements do not include the securities issued by the trusts, but rather include the junior subordinated debentures of the Holding Company.