ITEM 2.

This Quarterly Report on Form 10-Q ("Quarterly Report") should be read in conjunction with the more detailed and comprehensive disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2008. In addition, please read this section in conjunction with our Consolidated Financial Statements and Notes to Consolidated Financial Statements contained herein.

As used in this discussion and analysis, the words "we," "us," "our" and the "Company" are used to refer to Flushing Financial Corporation and our consolidated subsidiaries, including Flushing Savings Bank, FSB (the "Savings Bank") and Flushing Commercial Bank (the "Commercial Bank"), collectively, the "Banks."

Statements contained in this Quarterly Report relating to plans, strategies, objectives, economic performance and trends, projections of results of specific activities or investments and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, the factors set forth in the preceding paragraph and elsewhere in this Quarterly Report, and in other documents filed by us with the Securities and Exchange Commission from time to time, including, without limitation, our Annual Report on Form 10-K for the year ended December 31, 2008. Forward-looking statements may be identified by terms such as "may," "will," "should," "could," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "forecasts," "potential" or "continue" or similar terms or the negative of these terms. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We have no obligation to update these forward-looking statements.

Executive Summary

We are a Delaware corporation organized in May 1994 to serve as the holding company for the Savings Bank, a federally chartered, Federal Deposit Insurance Corporation ("FDIC") insured savings institution, originally organized in 1929. Our common stock is publicly traded on the NASDAQ Global Select Market under the symbol "FFIC". The Savings Bank is a community oriented savings institution offering a wide variety of financial services to meet the needs of the businesses and consumers in the communities it serves. The Savings Bank conducts its business through fifteen banking offices located in Queens, Brooklyn, Manhattan and Nassau County, and its Internet banking division, "iGObanking.comŽ". During 2007, the Savings Bank formed a wholly-owned subsidiary, Flushing Commercial Bank, for the limited purpose of accepting municipal deposits and state funds in the State of New York.

Our principal business is attracting retail deposits from the general public and investing those deposits together with funds generated from ongoing operations and borrowings, primarily in (1) originations and purchases of one-to-four family (focusing on mixed-use properties - properties that contain both residential dwelling units and commercial units), multi-family residential and commercial real estate mortgage loans; (2) construction loans, primarily for residential properties; (3) Small Business Administration ("SBA") loans and other small business loans; (4) mortgage loan surrogates such as mortgage-backed securities; and (5) U.S. government securities, corporate fixed-income securities and other marketable securities. We also originate certain other consumer loans. Our revenues are derived principally from interest on our mortgage and other loans and mortgage-backed securities portfolio, and interest and dividends on other investments in our securities portfolio. Our primary sources of funds are deposits, Federal Home Loan Bank of New York ("FHLB-NY") borrowings, repurchase agreements, principal and interest payments on loans, mortgage-backed and other securities, proceeds from sales of securities and, to a lesser extent, proceeds from sales of loans. As a federal savings bank, the Savings Bank's primary regulator is the Office of Thrift Supervision ("OTS"). Deposits are insured to the maximum allowable amount by the FDIC.

Our strategy is to continue our focus as an institution serving consumers, businesses, and governmental units in our local markets. In furtherance of this objective, we intend to: (1) continue our emphasis on the origination of multi-family residential, commercial real estate and one-to-four family mixed-use property mortgage loans, (2) transition from a traditional thrift to a more 'commercial-like' banking institution, (3) increase our commitment to the multi-cultural marketplace, with a particular focus on the Asian community in Queens, (4) maintain asset quality, (5) manage deposit growth and maintain a low cost of funds, utilizing the Internet banking division to grow deposits, (6) cross sell to lending and deposit customers, (7) actively pursue deposits from local area government units, (8) manage interest rate risk, (9) explore new business opportunities, and (10) manage capital. There can be no

assurance that we will be able to effectively implement this strategy. Our strategy is subject to change by the Board of Directors.

Our results of operations depend primarily on net interest income, which is the difference between the income earned on our interest-earning assets and the cost of our interest-bearing liabilities. Net interest income is the result of our interest rate margin, which is the difference between the average yield earned on interest-earning assets and the average cost of interest-bearing liabilities, adjusted for the difference in the average balance of interest-earning assets as compared to the average balance of interest-bearing liabilities. We also generate non-interest income from loan fees, service charges on deposit accounts, mortgage servicing fees, and other fees, income earned on Bank Owned Life Insurance ("BOLI"), dividends on FHLB-NY stock and net gains and losses on sales of securities and loans. Our operating expenses consist principally of employee compensation and benefits, occupancy and equipment costs, other general and administrative expenses and income tax expense. Our results of operations also can be significantly affected by our periodic provision for loan losses and specific provision for losses on real estate owned. Such results also are significantly affected by general economic and competitive conditions, including changes in market interest rates, the strength of the local economy, government policies and actions of regulatory authorities.

Our investment policy, which is approved by the Board of Directors, is designed primarily to manage the interest rate sensitivity of our overall assets and liabilities, to generate a favorable return without incurring undue interest rate and credit risk, to complement our lending activities and to provide and maintain liquidity. In establishing our investment strategies, we consider our business and growth strategies, the economic environment, out interest rate risk exposure, our interest rate sensitivity "gap" position, the types of securities to be held, and other factors. We classify our investment securities as available for sale.

We carry a portion of our financial assets and financial liabilities at fair value under Statement of Financial Accounting Standards ("SFAS") No.159. We believe that by electing the fair value option on certain financial assets and financial liabilities it will allow us to better react to changes in interest rates. However, valuing financial assets and financial liabilities at fair value can at times have a significant impact on our financial statements, as changes in fair value of financial assets and financial liabilities are reflected in non-interest income on our Consolidated Statements of Income and Comprehensive Income.

We recorded a provision for loan losses of $4.5 million during the three months ended March 31, 2009, which reduced diluted earnings per common share, on an after-tax basis, by $0.12. Non-performing loans increased $19.5 million to $59.4 million at March 31, 2009 from $40.0 million at December 31, 2008.The increase in non-performing loans primarily consists of mortgage loans that are located in the New York City metropolitan market. Historically, we have not incurred losses on mortgage loans, primarily due to conservative underwriting standards that include, among other things, a loan to value ratio of 75% or less and debt coverage ratio of at least 125%. However, given the increase in non-performing loans and current economic uncertainties, management, as a result of the regular analysis of the adequacy of the allowance for loan losses deemed it necessary to record this additional provision for possible loan losses. See "-ALLOWANCE FOR LOAN LOSSES".

We also recorded a net after-tax gain of $1.3 million, or $0.06 per diluted common share, for the three months ended March 31, 2009 to recognize the change in value of financial assets and financial liabilities carried at fair value under SFAS No. 159. The three months ended March 31, 2008 included a net after-tax loss of $0.9 million, or $0.04 per diluted share to recognize the change in value of financial assets and financial liabilities carried at fair value under SFAS No. 159. Additionally, the three months ended March 31, 2008 included receipt of a $2.4 million settlement of the WorldCom Fraud case, which increased diluted earnings per common share, on an after-tax basis, by $0.06.

Net income for the three months ended March 31, 2009 was $6.3 million, a decrease of $0.8 million, or 11.8%, from the $7.2 million earned during the period ended March 31, 2008. Diluted earnings per common share for the first quarter of 2009 was $0.26, a decrease of $0.09, or 25.7%, from the $0.35 earned in the comparable quarter a year ago.

This has been an extremely difficult time for the banking industry and the economy as a whole. We have been facing difficult challenges, and expect to continue to do so in the future. Despite the turmoil in the markets, the net interest margin for the three months ended March 31, 2009 improved over the prior year comparable period by 14 basis points to 2.72%. This resulted in a $5.3 million increase in net interest income for the three months ended March 31, 2009 to $26.1 million from $20.7 million for the comparable prior year period.

At March 31, 2009, total assets were $4,068.5 million, an increase of $119.0 million, or 3.0%, from $3,949.5 million at December 31, 2008. Total loans, net increased $68.1 million, or 2.3%, during the three months ended March 31, 2009 to $3,028.7 million from $2,960.7 million at December 31, 2008. Loan originations were $123.5 million for

the three months ended March 31, 2009, a decrease of $98.6 million from $222.1 million for the three months ended March 31, 2008 as loan demand has declined due to the current economic environment. At March 31, 2009, loan applications in process totaled $180.3 million, compared to $268.8 million at March 31, 2008 and $185.4 million at December 31, 2008. During the quarter ended March 31, 2009, mortgage-backed securities increased $62.7 million, or 9.3%, to $737.5 million, while other securities decreased $8.1 million, or 11.1%, to $64.4 million. During the quarter ended March 31, 2009, there were purchases of $85.6 million of mortgage-backed securities, some of which were made to support the activities of the Commercial Bank. Other securities primarily consist of securities issued by government agencies and mutual or bond funds that invest in government and government agency securities.

Total liabilities were $3,758.6 million at March 31, 2009, an increase of $110.6 million, or 3.0%, from December 31, 2008. During the three months ended March 31, 2009, due to depositors increased $144.0 million to $2,581.6 million, as a result of increases of $85.0 million in NOW accounts, $45.2 million in savings accounts and $16.2 million in certificate of deposit accounts. Borrowed funds decreased $28.9 million to $1,110.0 million at March 31, 2009 from $1,138.9 million at December 31, 2008. In addition, mortgagors' escrow deposits increased $4.0 million during the quarter ended March 31, 2009.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND
2008

General. Net income for the three months ended March 31, 2009 was $6.3 million, a decrease of $0.8 million, or 11.8%, from $7.2 million for the three months ended March 31, 2008. Diluted earnings per common share were $0.26 for the three months ended March 31, 2009, a decrease of $0.09, or 25.7%, from $0.35 for the three months ended March 31, 2008. The return on average assets was 0.63% for the three months ended March 31, 2009, as compared to 0.84% for the three months ended March 31, 2008, while the return on average equity was 8.42% for the three months ended March 31, 2009 as compared to 12.27% for the three months ended March 31, 2008.

Interest Income. Total interest and dividend income increased $3.7 million, or 7.0%, to $57.2 million for the three months ended March 31, 2009 from $53.4 million for the three months ended March 31, 2008. The increase in interest income is attributed to the growth in the average balance of interest-earning assets, which increased $628.0 million to $3,837.3 million, partially offset by a 70 basis point reduction in the yield of interest-earning assets to 5.96% for the three months ended March 31, 2009 from 6.66% for the quarter ended March 31, 2008. The decline in the yield of interest-earning assets was primarily due to a 57 basis point reduction in the yield of the loan portfolio combined with a $374.9 million increase in the combined average balances of the securities portfolio and interest earning deposits, which have a lower yield than total interest-earning assets. The 57 basis point decline in the yield of the loan portfolio to 6.35% for the three months ended March 31, 2009 from 6.92% for the three months ended March 31, 2008, was primarily due to a decline in prepayment penalty income, adjustable rate loans adjusting down as rates have continued to decline, and an increase in non-accrual loans for which we do not accrue interest income. The yield was positively impacted by the average rate on mortgage loans originated during the past twelve months being higher than the average rate of both the existing loan portfolio and mortgage loans which were paid-in-full during the period. The yield on the mortgage loan portfolio declined 50 basis points to 6.41% for the quarter ended March 31, 2009 from 6.91% for the quarter ended March 31, 2008. The yield on the mortgage loan portfolio, excluding prepayment penalty income, declined 38 basis points to 6.35% for the three months ended March 31, 2009 from 6.73% for the three months ended March 31, 2008. The decline in the yield of interest-earning assets was partially offset by an increase of $253.2 million in the average balance of the loan portfolio to $2,986.0 million for the three months ended March 31, 2009.

Interest Expense. Interest expense decreased $1.6 million, or 4.9%, to $31.1 million for the three months ended March 31, 2009 from $32.7 million for the three months ended March 31, 2008. The decrease in interest expense is due to the reduction in the cost of interest-bearing liabilities, which decreased 82 basis points to 3.43% for the three months ended March 31, 2009 from 4.25% for the comparable prior year period. This decrease was partially offset with a $551.8 million increase in the average balance of interest-bearing liabilities to $3,628.7 million. The decrease in cost of interest-bearing liabilities is attributed to the Federal Open Market Committee lowering the overnight interest rate throughout 2008, and maintaining the targeted Fed Funds rate in a range of 0.00% to 0.25% during the first quarter of 2009. This has allowed us to reduce the rates we pay on our deposit products. Certificates of deposit, money market accounts, saving accounts and NOW accounts decreased 98 basis points, 176 basis points, 80 basis points and 33 basis points respectively, for the three months ended March 31, 2009 compared to the three months ended March 31, 2008. This resulted in a decrease in the cost of due to depositors of 107 basis points to 2.97% for the three months ended March 31, 2009 compared to the three months ended March 31, 2008. The cost of borrowed

funds also declined 12 basis points to 4.62% for the three months ended March 31, 2009 compared to the three months ended March 31, 2008. The average balance of the higher-costing certificates of deposit increased $327.1 million, for the quarter ended March 31, 2009 compared to the prior year period. In addition, the combined average balances of lower-costing savings, money market and NOW accounts increased a total of $262.8 million for the quarter ended March 31, 2009 compared to the prior year period.

Net Interest Income. For the three months ended March 31, 2009, net interest income was $26.1 million, an increase of $5.3 million, or 25.8%, from $20.7 million for the three months ended March 31, 2008. The increase in net interest income is attributed to an increase in the average balance of interest-earning assets of $628.0 million to $3,837.3 million, combined with an increase in the net interest spread of 12 basis points to 2.53% for the quarter ended March 31, 2009 from 2.41% for the comparable period in 2008. The yield on interest-earning assets decreased 70 basis points to 5.96% for the three months ended March 31, 2009 from 6.66% in the three months ended March 31, 2008. The cost of interest-bearing liabilities decreased 82 basis points to 3.43% for the three months ended March 31, 2009 from 4.25% for the comparable prior year period. The net interest margin increased 14 basis points to 2.72% for the three months ended March 31, 2009 from 2.58% for the three months ended March 31, 2008. Excluding prepayment penalty income, the net interest margin would have been 2.67% and 2.44% for the three month periods ended March 31, 2009 and 2008, respectively.

Provision for Loan Losses. The provision for loan losses for the three months ended March 31, 2009 was $4.5 compared to $0.3 million recorded in the quarter ended March 31, 2008. The provision for loan losses recorded in 2009 was primarily due to an increase in non-performing loans. This increase in non-performing loans primarily consists of mortgage loans that are located in the New York City metropolitan market. Historically, we have not incurred losses on mortgage loans, primarily due to conservative underwriting standards that include, among other things, a loan to value ratio of 75% or less and a debt coverage ratio of at least 125%. However, given the increase in non-performing loans and current economic uncertainties, management, as a result of the regular quarterly analysis of the allowance for loans losses, deemed it necessary to record an additional provision for possible loan losses in the first quarter of 2009. We have not been directly affected by the recent increase in defaults on sub-prime mortgages as we do not originate, or hold in portfolio, sub-prime mortgages. However, we saw a $19.5 million increase in non-performing loans to $59.4 million at March 31, 2009 from December 31, 2008. We had net charge-offs of $248,000 for the three months ended March 31, 2009, compared to $86,000 for the comparable period in 2008. See "-ALLOWANCE FOR LOAN LOSSES".

Non-Interest Income. Non-interest income for the three months ended March 31, 2009 increased by $0.7 million, or 17.8%, for the three months ended March 31, 2009 to $4.7 million, as compared to $4.0 million for the quarter ended March 31, 2008. There was a $2.3 million gain in the fair value of financial instruments accounted for under SFAS No. 159 in three months ended March 31, 2009 compared to a $1.6 million loss recorded in the comparable prior year period. The increased income recorded from financial instruments accounted for under SFAS No. 159 was partially offset by decreases in loan fee income of $0.3 million due to a decrease in fees received when loans satisfy, and $0.5 million in dividend income on FHLB-NY stock. In addition the three months ended March 31, 2008 included receipt of a $2.4 million settlement on the WorldCom Fraud case. This amount was received as a result of a class action litigation settlement, and was included in Other Income.

Non-Interest Expense. Non-interest expense was $16.0 million for the three months ended March 31, 2009, an increase of $2.8 million, or 21.0%, from $13.2 million for the three months ended March 31, 2008. Employee salary and benefits increased $1.0 million, which is primarily attributed to the growth of the Bank, including one new branch, increased costs for postretirement benefits, and grants of restricted stock awards in the first quarter of 2009. FDIC insurance increased $0.7 million compared to the comparable prior period as the credits we received to offset FDIC insurance charges were fully utilized in the first quarter of 2008, and the FDIC raised the deposit insurance premiums during 2009. Other operating expense increased $0.6 million primarily due to the accelerated vesting of RSU awards granted to directors during January of 2009 and not granted in the comparable prior year period. The 2005 Omnibus Plan was amended in January 2009 to change the annual grant date of awards to directors from June to January of each year. The efficiency ratio was 67.0% and 56.1% for the three months ended, March 31, 2009 and 2008, respectively.

Income before Income Taxes. Income before the provision for income taxes decreased $0.9 million, or 8.3%, to $10.2 million for the three months ended March 31, 2009 from $11.2 million for the three months ended March 31, 2008 for the reasons discussed above.

Provision for Income Taxes. Income tax expense decreased $0.1 million, to $3.9 million, for the three months ended March 31, 2009 as compared to $4.0 million for the three months ended March 31, 2008. This decrease was due to reduced pre-tax income partially offset by an increase in the effective tax rate for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008. The effective tax rate was 38.4% and 36.0% for the three-month periods ended March 31, 2009 and 2008, respectively. The increase in the effective tax rate for the three months ended March 31, 2009 from the three months ended March 31, 2008 is primarily attributed to the loss of dividend income on the preferred shares of Fannie Mae and Freddie Mac, a significant portion of which is tax exempt, and non-deductible compensation of certain executives due to our participation in the U.S. Treasury's Capital Purchase Program ("CPP").

FINANCIAL CONDITION

Assets. At March 31, 2009, total assets were $4,068.5 million, an increase of $119.0 million, or 3.0%, from $3,949.5 million at December 31, 2008. Total loans, net increased $68.1 million, or 2.3%, during the three months ended March 31, 2009 to $3,028.7 million from $2,960.7 million at December 31, 2008. Loan originations were $123.5 million for the three months ended March 31, 2009, a decrease of $98.6 million from $222.1 million from the three months ended March 31, 2008, as loan demand has declined due to the current economic environment. At March 31, 2009, loan applications in process totaled $180.3 million, compared to $268.8 million at March 31, 2008 and $185.4 million at December 31, 2008.

The following table shows loan originations and purchases for the periods indicated.

                                                     For the three months
                                                       ended March 31,

         (In thousands)                                2009         2008

         Multi-family residential                  $     36,947   $  47,482
         Commercial real estate (1)                      36,662      42,933
         One-to-four family - mixed-use property          6,108      34,618
         One-to-four family - residential (2)             7,014      68,021
         Construction                                     5,281       9,502
         Small business administration(3)                 1,112       3,195
         Taxi medallion(4)                               22,906       3,156
         Commercial business and other                    7,468      13,193

         Total                                     $    123,498   $ 222,100

(1) Includes purchases of $2.9 million and $2.5 million in the three months ended March 31, 2009 and 2008, respectively.

(2) Includes purchases of $50.0 million in the three months ended March 31, 2008.

(3) Includes purchases of $0.4 million in the three months ended March 31, 2008.

(4) Includes purchases of $5.9 million in the three months ended March 31, 2009.

As we continue to increase our loan portfolio, management continues to adhere to our conservative underwriting standards. Although non-accrual loans have increased, primarily due to the current economic environment, we have been able to minimize charge-offs of losses from impaired loans and maintain asset quality as we take a proactive approach to managing delinquent loans, including conducting site examinations and encouraging borrowers to meet with one of our representatives. We have been developing short-term payment plans that enable certain borrowers to bring their loans current. We review our delinquencies on a loan by loan basis, diligently exploring ways to help borrowers meet their obligations and return them back to current status as soon as possible. We have increased staffing that handles the delinquent loans by hiring people experienced in loan workouts. Our non-performing assets were $60.2 million at March 31, 2009 an increase of $19.5 million from $40.7 million at December 31, 2008, and an increase of $52.3 million from $7.9 million at March 31, 2008. Total non-performing assets as a percentage of total assets were 1.48% at March 31, 2009 compared to 1.03% at December 31, 2008 and 0.23% as of March 31, 2008. The ratio of allowance for loan losses to total non-performing loans was 26% at March 31, 2009, compared to 28% at December 31, 2008 and 87% at March 31, 2008.

. . .