SMALL ENOUGH TO KNOW YOU.
LARGE ENOUGH TO HELP YOU.
2 016 A N N UA L R EP O R T
Financial HigHligHts
(Dollars in thousands, except per share data)
Selected Financial Condition Data
Total assets
Loans, net
Securities held to maturity
Securities available for sale
Certificate of deposit
Other deposit accounts
Stockholders’ equity
Dividends paid per common share
Book value per common share
Selected Operating Data
Net interest income
Net income
Basic earnings per common share
Diluted earnings per common share
Selected Financial Ratios and Other Data
Performance ratios:
Return on average assets
Return on average equity
Interest rate spread
Net interest margin
Efficiency ratio
Equity to total assets
Non-performing assets to total assets
Allowance for loan losses to gross loans
Allowance for loan losses to total non-performing loans
At or for the years ended
December 31,
2016
$ 6,058,487
$ 4,813,464
$
37,735
$ 861,381
$ 1,372,115
$ 2,833,516
$ 513,853
$
$
0.68
17.95
2015
$ 5,704,634
$ 4,366,444
$
6,180
$ 993,397
$ 1,403,302
$ 2,489,245
$ 473,067
$
$
0.64
16.41
$ 167,086
$ 154,420
$
$
$
64,916
2.24
2.24
$
$
$
46,209
1.59
1.59
1.10%
13.07%
2.86%
2.97%
59.64%
8.48%
0.36%
0.46%
103.80%
0.86%
9.93%
2.94%
3.04%
58.57%
8.29%
0.54%
0.49%
82.58%
FlusHing Financial corporation (Nasdaq: FFIC) is the holding
company for Flushing Bank®, a New York State–chartered commercial bank insured by
the Federal Deposit Insurance Corporation. The Bank serves consumers, businesses,
professionals, corporate clients, and public entities by offering a full complement of deposit,
loan, and cash management services through its 19 banking offices located in Queens,
Brooklyn, Manhattan, and Nassau County. As a leader in real estate lending, the Bank’s
experienced lending team creates mortgage solutions for real estate owners and property
managers both within and outside the New York City metropolitan area. The Bank also
operates an online banking division, iGObanking.com®, which offers competitively priced
deposit products to consumers nationwide.
1
2.5
2.0
1.5
1.0
0.5
0.0
15
12
9
6
3
0
to our sHareHolders,
We continue to recognize changes in
consumer preferences and provide
We are pleased to report that 2016 was
customers with account access, product
another successful year for our company.
Diluted Earnings
per Common Share
We achieved full-year record GAAP
(in dollars)
choices, and delivery channels that enable
them to bank where, when, and how they
Net Loan Portfolio
(in millions)
earnings per diluted share of $2.24 and
$2.50
record net interest income of $167.1 million.
5000
choose. Our ultimate goal is to deliver
$5,000
a consistent and superior customer
1.50
0.50
2.00
Many strategic accomplishments fueled
4000
our strong performance, including core
experience at every touchpoint. In
4,000
December, we piloted a video banking
3,000
deposit growth, continued pristine credit
service which improves our ability to
quality, and a second consecutive year with
1.00
2000
service customers via our enhanced ATMs.
2,000
over $1 billion in total loan originations
This innovative technology connects
and purchases. Importantly, we executed
on our strategy shift to increase net interest
0
0
’12
’13
’14
’15
’16
1,000
customers via video with a dedicated
personal banker, extending our hours
’14
’16
’13
’15
’12
0
3000
1000
income by focusing on yield, as opposed
to 11 p.m.
to volume.
We completed several strategic actions to
better position our company for profitable
growth in 2017 and beyond, including:
Return on Average Equity
(percent)
200
• Obtained favorable, investment-grade
15%
credit ratings with a “Stable” outlook for
150
both the Company and the Bank from
12
The Kroll Bond Rating Agency.
• Raised $75 million of subordinated debt
9
100
to fund balance sheet growth and further
6
enhance our already strong regulatory
50
capital ratios.
3
• Successfully restructured our balance
0
0
sheet to support net interest margin in
’12
’15
’14
’13
’16
Total Shareholder Return
(percent)
Median
FFIC
200%
150
100
50
0
’12
’13
’14
’15
’16
a rising rate environment and continued
to grow adjustable-rate commercial
Source: SNL Financial, 12/31/2011–12/31/2016.
Median represents public banks and thrifts headquartered
in the New York Metro MSA, excluding merger targets,
with assets between $1.5B and $50B.
business loans.
2
2.5
2.0
1.5
1.0
0.5
0.0
15
12
9
6
3
0
Our focus remains on enhancing the
Diluted Earnings
per Common Share
(in dollars)
customer experience as we continue to
$2.50
invest in technology and convert selected
5000
branches to our Universal Banker model.
2.00
1.00
We converted two branches in 2016 and
plan to convert additional branches in 2017.
1.50
3000
These enhancements will provide our
customers with cutting-edge technology
4000
2000
and a higher-quality experience while
0.50
1000
further reducing overall costs.
0
’12
’13
’14
’15
’16
2.5
0
Our strategic plan continues to emphasize
2.0
assets with the best risk-adjusted returns by
focusing on diversified growth of multifamily,
1.5
commercial real estate, and commercial
1.0
business loans while maintaining a
conservative approach to managing risk.
Return on Average Equity
(percent)
200
0.5
Stress testing and portfolio management
15%
have enhanced our disciplined approach to
0.0
150
due diligence and overall risk management
12
of commercial real estate concentration.
9
100
Our strategic objectives remain focused on:
6
• Increasing our lending portfolio
50
• Managing expenses
3
• Developing programs to retain and
15
0
attract customers
’16
’13
’12
’15
’14
0
• Exploring new business niches
12
• Enhancing our information technology
9
We have made great strides in improving
6
the quality of our credit and managing our
funding costs. Our strong capital levels,
3
ability to grow core deposits, and unwavering
0
credit discipline all position Flushing Bank
uniquely well for what lies ahead.
3
Net Loan Portfolio
(in millions)
$5,000
4,000
3,000
2,000
Diluted Earnings
per Common Share
(in dollars)
1,000
$2.50
0
2.00
’12
’13
’14
’15
’16
Net Loan Portfolio
(in millions)
5000
4000
Our brand message, “Small enough to
1.50
Total Shareholder Return
know you. Large enough to help you.”
(percent)
1.00
encapsulates our vision to be the preeminent
3000
2000
Median
FFIC
community bank in our multicultural
0.50
200%
1000
market. We create value and attract new
0
customers by delivering a consistent and
’14
superior experience through quality service
150
’12
’16
’15
’13
0
and personalized attention. We know our
customers and take pride in meeting
100
their needs.
50
Return on Average Equity
(percent)
15%
0
’12
’13
’14
’15
’16
200
150
Source: SNL Financial, 12/31/2011–12/31/2016.
Median represents public banks and thrifts headquartered
in the New York Metro MSA, excluding merger targets,
with assets between $1.5B and $50B.
100
12
9
6
3
0
50
0
’12
’13
’14
’15
’16
’12
’13
’14
’15
’16
Source: SNL Financial, 12/31/2011–12/31/2016.
Median represents public banks and thrifts headquartered
in the New York Metro MSA, excluding merger targets,
with assets between $1.5B and $50B.
’12
’13
’14
’15
’16
Total Shareholder Return
(percent)
Median
FFIC
200%
$5,000
4,000
3,000
2,000
1,000
0
150
100
50
0
We would not be able to accomplish our
profitably and delivered solid financial
goals without our dedicated employees
performance even during challenging times.
who are the face of our brand and our
We are pleased that John will remain a
connection to the communities we
Director on our Boards.
serve. They provide quality service and
personalized attention to our customers.
Importantly, we welcome Alfred A. DelliBovi
We remain confident that our team and
as our new Chairman of the Board. Al has
our brand will continue to drive our positive
been a member of our Board since 2014
momentum in 2017 and beyond.
and has served on the Executive, Audit,
Risk and Compliance, and Investment
In summary, we remain well-capitalized and
Committees. Al has held many prestigious
positioned to deliver profitable growth and
positions in both the public and private
long-term value to our shareholders. As
sectors. His broad expertise in all aspects
we look forward, we are poised to take
of banking make him uniquely qualified for
advantage of the opportunities that our
his new role as Chairman of the Board of
markets present while maintaining the
Flushing Financial Corporation.
flexibility to respond to the challenges that
will inevitably arise. Our management depth
and track record for delivering results
will enable us to continue to succeed in
2.5
a rapidly changing environment. We
continue to focus on maintaining strong
2.0
risk management practices, including
conservative underwriting standards and
1.5
improving yields, to achieve desired
1.0
risk-adjusted returns.
0.5
Before closing, we want to thank John E. Roe,
Sr. who, as previously announced, retired as
0.0
Chairman of the Board effective February 3,
Diluted Earnings
per Common Share
(in dollars)
Net Loan Portfolio
(in millions)
$2.50
2.00
1.50
1.00
0.50
0
5000
4000
3000
2000
1000
0
’12
’13
’14
’15
’16
’12
’13
’14
’15
’16
2017. John was Chairman since February
In closing, it is with sincere appreciation
2011 and a member of the Board of Directors
that we thank our Board of Directors and
of the Company since its formation in 1994
Advisory Boards for their vision and
and of the Bank since 1968. Under John’s
guidance. We are grateful to our
leadership, Flushing Financial has grown
employees for their dedication and
Return on Average Equity
(percent)
4
15
12
9
6
3
0
15%
12
9
6
3
0
200
150
100
50
0
$5,000
4,000
3,000
2,000
1,000
0
150
100
50
0
Total Shareholder Return
(percent)
Median
FFIC
200%
’12
’13
’14
’15
’16
’12
’13
’14
’15
’16
Source: SNL Financial, 12/31/2011–12/31/2016.
Median represents public banks and thrifts headquartered
in the New York Metro MSA, excluding merger targets,
with assets between $1.5B and $50B.
commitment, and to our customers
for allowing us to serve them. And to
you, our shareholders, many thanks
for your continued trust and support.
in MeMoriaM
Michael J. Hegarty
1939–2017
On January 29, 2017, Michael J. Hegarty, our former
President and Chief Executive Officer, passed away
at the age of 77. Michael joined the Company as
a Director in 1987. In 1995, he became Executive
Vice President, Corporate Secretary and Chief
Operating Officer of the Company and the Bank.
He served as President and Chief Executive
Officer of the Company and the Bank from
October 1998 until his retirement in June 2005.
After his retirement, he remained a Director until
his passing. Prior to Flushing Financial, he was
Vice President of Finance, Corporate Secretary
and Treasurer, Director and Chairman of the Audit
Committee of EDO Corporation, and earlier in
his career, Mr. Hegarty was an accountant with
the firm Peat, Marwick, Mitchell and Company.
Michael’s extensive experience made him a
valuable member of our Board of Directors.
“We are deeply saddened by Mike’s passing.
Mike was a great mentor who was always generous
with his time and his insights. He was a kind soul
with a sharp wit, and was truly committed to the
success of our Company, its employees, and its
investors. We will be forever grateful to Mike for
his dedication and service to Flushing Financial
Corporation and the Bank. Under his leadership,
Flushing Financial Corporation grew as a public
company. It has been our privilege to work
alongside Mike for all these years. He will be
greatly missed by all.”
John E. Roe, Sr.
Chairman of the Board, 2011–2017
Alfred A. DelliBovi
Chairman of the Board, Effective February 3, 2017
John R. Buran
President and Chief Executive Officer
AT YOUR SERVICE
Providing timely, innovative, and flexible
solutions that meet the changing financial
needs of our customers is one of our core
competencies. Our goal is to continue to
enhance our product offerings to provide
a full array of financial solutions designed
to meet the evolving needs of our business
and consumer clients. We continue to
enhance our branch network with new
services and tools to improve our customer
interactions. Recent enhancements include:
Universal Banker approach
Creates a stronger banking relationship,
as customers can rely on a single point
of contact for all their needs, from simple
transactions to consultative services.
assisted service kiosk (ask)
Handles almost any type of transaction in
an intuitive, user-friendly manner, including
cashing checks or withdrawing cash in the
denominations that customers prefer. Our
relationship-driven branch staff spends
less time now on transactions and more
time providing individualized financial
guidance.
video Banker
Connects customers with live bankers
during off-hours through a video-chat
platform. Customers can get assistance
with their questions about account
information, debit card limits, ATM
functionality, and more.
Our focus is on being innovative and forward-thinking
to create customer value by introducing new
ways for customers to engage with us.
7
ANYTIME, ANYWHERE
We continue to strengthen our Internet
banking platform with online and mobile
solutions that evolve with the latest
technology, and provide customers access
to their accounts when and where they
need it.
MoBile Banking
Provides on-the-go account management
from most mobile devices, including the
ability to pay bills, check balances, view
recent transactions, and transfer funds
to/from Flushing Bank accounts.
FlUshing Bank FlexiBle deposit®
Enables customers to deposit checks
remotely into their Flushing Bank accounts
using their iPhone® or Android™ devices,
or their PCs with a desktop scanner.
reMote deposit
Allows business customers to deposit
checks into their accounts from their
offices using a scanner attached to their
computers.
cash Manager direct
Permits business customers to review their
account balances and transaction details
online, as well as to transfer funds, pay
bills, initiate wire transfers, originate ACH
payments, and request stop payments.
We continue to research and deploy
new technologies that will enhance customer
access and engagement.
9
6
THE RIGHT SOLUTIONS
retail Banking Our retail branch network
focuses on delivering a consistent and
superior customer experience and
expanding relationships with our customers
in the New York metropolitan area. Our
online bank, iGObanking.com, strives for the
same while serving consumers nationwide.
BUsiness Banking Our business and corporate
banking professionals deliver the highest
level of customized service to all corporate
banking customers. We offer a full suite of
products and lending solutions, including
credit lines, term loans, equipment financing,
owner-occupied commercial real estate
mortgages, SBA loans, deposit products,
and cash management services designed
for small, middle market, and large
corporate clients.
real estate lending Our real estate team,
composed of experienced lenders with
local market knowledge, takes a community-
based approach that features solutions
with competitive rates, such as long-term,
fixed-rate programs. Our prudent lending
philosophy enables us to grow our
multifamily and mixed-use portfolio while
maintaining high credit standards.
governMent Banking Our government
banking team focuses exclusively on serving
the unique needs of public entities,
municipalities, and school districts across
the New York area. We offer expert service,
customized solutions (including operating
and investment accounts), traditional
collateral options, letters of credit, and
reciprocal deposits with full FDIC coverage.
We are in the relationship-building business and are
well-positioned to take advantage of new market opportunities.
11
FOR YOU AND THE COMMUNITY
At the heart of our community-based
approach to banking relationships is the
philosophy that we are “Small enough
to know you. Large enough to help
you.” We offer the products, services,
and conveniences associated with large
commercial banks combined with the
personalized, relationship-based attention
you would expect from a community bank.
At Flushing Bank, we recognize the
importance of our presence and role in
the community and believe it is our
responsibility to do more for our customers
and the communities we serve. For almost
90 years, we have been integrally connected
to these communities, and we support
their prosperity and diversity.
As a community-focused organization that
has distinguished itself as a leader in serving
multicultural neighborhoods, we are proud
to sponsor cultural and charitable events
throughout our markets. We pride ourselves
on staffing our branches with bankers who
can communicate in the languages and
dialects prevalent within our multicultural
customer base to help ensure a first-rate
experience for every customer.
We are large enough to help with banking and lending
solutions, but small enough to take the time to know our customers
and develop solid banking relationships.
12
2016 FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
UNITED STATES
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
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.)
220 RXR Plaza, Uniondale, New York 11556
(Address of principal executive offices)
(718) 961-5400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock $0.01 par value (and
associated Preferred Stock Purchase Rights)
(Title of each class)
Securities registered pursuant to Section 12(g) of the Act: None.
NASDAQ Global Select Market
(Name of exchange on which registered)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in rule 405 of the Securities
Act. Yes X No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act. Yes X No
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of
this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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. (Check one):
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
As of June 30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter; the
aggregate market value of the voting stock held by non-affiliates of the registrant was $542,576,000. This figure is based
on the closing price on that date on the NASDAQ Global Select Market for a share of the registrant’s Common Stock,
$0.01 par value, which was $19.88.
The number of shares of the registrant’s Common Stock outstanding as of February 28, 2017 was 28,810,855
shares.
Portions of the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 31,
2017 are incorporated herein by reference in Part III.
DOCUMENTS INCORPORATED BY REFERENCE
i
TABLE OF CONTENTS
PART I
Page
Item 1. Business. .................................................................................................................................... 1
GENERAL
Overview................................................................................................................................ 1
Market Area and Competition ............................................................................................... 3
Lending Activities ................................................................................................................. 4
Loan Portfolio Composition ........................................................................................ 4
Loan Maturity and Repricing ...................................................................................... 8
Multi-Family Residential Lending .............................................................................. 9
Commercial Real Estate Lending ................................................................................ 9
One-to-Four Family Mortgage Lending – Mixed-Use
Properties ................................................................................................................... 10
One-to-Four Family Mortgage Lending – Residential
Properties ................................................................................................................... 10
Construction Loans .................................................................................................... 11
Small Business Administration Lending ................................................................... 12
Taxi medallion ........................................................................................................... 12
Commercial Business and Other Lending ................................................................. 12
Loan Extensions, Renewals, Modifications and
Restructuring ............................................................................................................. 13
Loan Approval Procedures and Authority ................................................................. 13
Loan Concentrations .................................................................................................. 14
Loan Servicing ........................................................................................................... 14
Asset Quality ....................................................................................................................... 14
Loan Collection ......................................................................................................... 14
Troubled Debt Restructured ...................................................................................... 15
Delinquent Loans and Non-performing Assets ......................................................... 16
Other Real Estate Owned .......................................................................................... 18
Environmental Concerns Relating to Loans .............................................................. 18
Classified Assets ........................................................................................................ 18
Allowance for Loan Losses ................................................................................................. 20
Investment Activities ........................................................................................................... 24
General ...................................................................................................................... 24
Mortgage-backed securities ....................................................................................... 25
Sources of Funds .................................................................................................................. 28
General ...................................................................................................................... 28
Deposits ..................................................................................................................... 28
Borrowings ................................................................................................................ 32
Subsidiary Activities ............................................................................................................ 33
Personnel.............................................................................................................................. 34
Omnibus Incentive Plan ....................................................................................................... 34
FEDERAL, STATE AND LOCAL TAXATION
Federal Taxation .................................................................................................................. 34
General ...................................................................................................................... 34
Bad Debt Reserves .................................................................................................... 34
i
Distributions .............................................................................................................. 34
Corporate Alternative Minimum Tax ........................................................................ 35
State and Local Taxation ..................................................................................................... 35
New York State and New York City Taxation .......................................................... 35
New Jersey State Taxation ........................................................................................ 35
Delaware State Taxation ............................................................................................ 35
REGULATION
General ................................................................................................................................. 36
The Dodd - Frank Act .......................................................................................................... 36
Basel III ............................................................................................................................... 37
Volcker Rule ........................................................................................................................ 37
New York State Law............................................................................................................ 38
FDIC Regulation .................................................................................................................. 39
Transactions with Affiliates ................................................................................................. 42
Community Reinvestment Act ............................................................................................. 42
Federal Reserve System ....................................................................................................... 43
Federal Home Loan Bank System ....................................................................................... 43
Holding Company Regulations ............................................................................................ 43
Acquisition of the Holding Company .................................................................................. 44
Consumer Financial Protection Bureau ............................................................................... 44
Mortgage Banking and Related Consumer Protection Regulations ..................................... 44
Available Information .......................................................................................................... 45
Item 1A. Risk Factors .......................................................................................................................... 45
Changes in Interest, Including the Potential for Negative Interest Rates, May
Significantly Impact Our Financial Condition and Results of Operations ..................... 46
Our Lending Activities Involve Risks that May Be Exacerbated Depending on the
Mix of Loan Types ......................................................................................................... 46
Failure to Effectively Manage Our Liquidity Could Significantly Impact Our
Financial Condition and Results of Operations .............................................................. 47
Our Ability to Obtain Brokered Deposits as an Additional Funding Source Could
be Limited ....................................................................................................................... 47
The Markets in Which We Operate Are Highly Competitive.............................................. 48
Our Results of Operations May Be Adversely Affected by Changes in National
and/or Local Economic Conditions ................................................................................ 48
Changes in Laws and Regulations Could Adversely Affect Our Business.......................... 48
Current Conditions in, and Regulation of, the Banking Industry May Have a
Material Adverse Effect on Our Results of Operations .................................................. 49
The FDIC’s Adopted Restoration Plan and the Related Increased Assessment Rate
Schedule May Have a Material Effect on Our Results of Operations ............................ 50
A Failure in or Breach of Our Operational or Security Systems or Infrastructure, or
Those of Our Third Party Vendors and Other Service Providers, Including as a
Result of Cyber Attacks, could Disrupt Our Business, Result in the Disclosure
or Misuse of Confidential or Proprietary Information, Damage Our Reputation,
Increase Our Costs and Cause Losses............................................................................. 51
We May Experience Increased Delays in Foreclosure Proceedings .................................... 52
We May Need to Recognize Other-Than-Temporary Impairment Charges in the
Future .............................................................................................................................. 52
Our Inability to Hire or Retain Key Personnel Could Adversely Affect Our
Business. ......................................................................................................................... 52
We Are Not Required to Pay Dividends on Our Common Stock. ....................................... 52
ii
Goodwill Recorded as a Result of Acquisitions Could Become Impaired,
Negatively Impacting Our Earnings and Capital ............................................................ 53
We May Not Fully Realize the Expected Benefit of Our Deferred Tax Assets ................... 53
Item 1B. Unresolved Staff Comments ................................................................................................. 53
Item 2. Properties ................................................................................................................................. 53
Item 3. Legal Proceedings.................................................................................................................... 53
Item 4. Mine Safety Disclosures .......................................................................................................... 53
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities ........................................................................... 54
Stock Performance Graph .................................................................................................... 56
Item 6. Selected Financial Data ........................................................................................................... 57
Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations ....................................................................................................................... 59
General ................................................................................................................................. 59
Overview.............................................................................................................................. 59
Management Strategy ................................................................................................ 60
Trends and Contingencies ......................................................................................... 62
Interest Rate Sensitivity Analysis ........................................................................................ 64
Interest Rate Risk ................................................................................................................. 65
Analysis of Net Interest Income .......................................................................................... 66
Rate/Volume Analysis ......................................................................................................... 68
Comparison of Operating Results for the Years Ended December 31, 2016 and
2015 ................................................................................................................................ 68
Comparison of Operating Results for the Years Ended December 31, 2015 and
2014 ................................................................................................................................ 70
Liquidity, Regulatory Capital and Capital Resources .......................................................... 72
Critical Accounting Policies ................................................................................................ 74
Contractual Obligations ....................................................................................................... 75
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .............................................. 76
Item 8. Financial Statements and Supplementary Data ....................................................................... 77
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .......................................................................................................... 144
Item 9A. Controls and Procedures ..................................................................................................... 144
Item 9B. Other Information ............................................................................................................... 144
PART III
Item 10. Directors, Executive Officers and Corporate Governance .................................................. 145
Item 11. Executive Compensation ..................................................................................................... 145
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters .............................................................................................. 145
Item 13. Certain Relationships and Related Transactions, and Director Independence .................... 145
Item 14. Principal Accounting Fees and Services .............................................................................. 145
PART IV
Item 15. Exhibits, Financial Statement Schedules ............................................................................. 146
(a) 1. Financial Statements ..................................................................................................... 146
(a) 2. Financial Statement Schedules ..................................................................................... 146
iii
(a) 3. Exhibits Required by Securities and Exchange Commission
Regulation S-K ................................................................................................................ 147
SIGNATURES
POWER OF ATTORNEY
iv
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
Statements contained in this Annual Report on Form 10-K (this “Annual Report”) relating to plans, strategies,
economic performance and trends, projections of results of specific activities or investments and other statements that are
not descriptions of historical facts may be forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is
inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated
due to a number of factors, which include, but are not limited to, factors discussed under the captions “Business —
General — Allowance for Loan Losses” and “Business — General — Market Area and Competition” in Item 1 below,
“Risk Factors” in Item 1A below, in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Overview” in Item 7 below, and elsewhere in this Annual Report and in other documents filed by the
Company with the Securities and Exchange Commission from time to time. 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.
PART I
As used in this Annual Report on Form 10-K, the words “we,” “us,” “our” and the “Company” are used to
refer to Flushing Financial Corporation and our consolidated subsidiaries, including the surviving entity of the merger
(the “Merger”) on February 28, 2013 of our wholly owned subsidiary, Flushing Savings Bank, FSB (the “Savings
Bank”) with and into Flushing Commercial Bank (the “Commercial Bank”). The surviving entity of the Merger was the
Commercial Bank, whose name has been changed to “Flushing Bank.” References herein to the “Bank” mean the
Savings Bank (including its wholly owned subsidiary, the Commercial Bank) prior to the Merger and the surviving entity
after the Merger.
Item 1. Business.
Overview
GENERAL
We are a Delaware corporation organized in May 1994. The Bank was organized in 1929 as a New York State-
chartered mutual savings bank. In 1994, the Bank converted to a federally chartered mutual savings bank and changed its
name from Flushing Savings Bank to Flushing Savings Bank, FSB. The Bank converted from a federally chartered
mutual savings bank to a federally chartered stock savings bank on November 21, 1995, at which time Flushing
Financial Corporation acquired all of the stock of the Savings Bank. On February 28, 2013, the Savings Bank merged
with and into the Commercial Bank, with the Commercial Bank as the surviving entity. Pursuant to the Merger, the
Commercial Bank’s charter was changed to a full-service New York State commercial bank charter, and its name was
changed to Flushing Bank. Also in connection with the Merger, Flushing Financial Corporation became a bank holding
company. We have not made any significant changes to our operations or services as a result of the Merger. The primary
business of Flushing Financial Corporation has been the operation of the Bank. The Bank owns three subsidiaries:
Flushing Preferred Funding Corporation, Flushing Service Corporation, and FSB Properties Inc. The Bank has an
internet branch, iGObanking.com®. The activities of Flushing Financial Corporation are primarily funded by dividends,
if any, received from the Bank, issuances of junior subordinated debt, and issuances of equity securities. Flushing
Financial Corporation’s common stock is traded on the NASDAQ Global Select Market under the symbol “FFIC.”
Flushing Financial Corporation 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 formed to issue a
total of $60.0 million of capital securities and $1.9 million of common securities (which are the only voting securities).
Flushing Financial Corporation owns 100% of the common securities of the Trusts. The Trusts used the proceeds from
the issuance of these securities to purchase junior subordinated debentures from Flushing Financial Corporation. The
Trusts are not included in our consolidated financial statements as we would not absorb the losses of the Trusts if losses
were to occur.
Unless otherwise disclosed, the information presented in this Annual Report reflects the financial condition and
results of operations of Flushing Financial Corporation, the Bank and the Bank’s subsidiaries on a consolidated basis
1
(collectively, the “Company”). Management views the Company as operating a single unit – a community bank.
Therefore, segment information is not provided. At December 31, 2016, the Company had total assets of $6.1 billion,
deposits of $4.2 billion and stockholders’ equity of $513.9 million.
Our principal business is attracting retail deposits from the general public and investing those deposits together
with funds generated from ongoing operations and borrowings, primarily in (1) originations and purchases of multi-
family residential properties, commercial business loans, commercial real estate mortgage loans and, to a lesser extent,
one-to-four family (focusing on mixed-use properties, which are properties that contain both residential dwelling units
and commercial units); (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 including overdraft lines of credit. At December 31, 2016, we had gross loans outstanding of
$4,819.1 million (before the allowance for loan losses and net deferred costs), with gross mortgage loans totaling
$4,187.8 million, or 86.9% of gross loans, and non-mortgage loans totaling $631.3 million, or 13.1% of gross loans.
Mortgage loans are primarily multi-family, commercial and one-to-four family mixed-use properties, which totaled
82.6% of gross 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, other securities and to a lesser extent proceeds
from sales of securities and loans. The Bank’s primary regulator is the New York State Department of Financial Services
(“NYDFS”) (formerly, the New York State Banking Department), and its primary federal regulator is the Federal
Deposit Insurance Corporation (“FDIC”). Deposits are insured to the maximum allowable amount by the FDIC.
Additionally, the Bank is a member of the Federal Home Loan Bank (“FHLB”) system.
Our operating results are significantly affected by national and local economic conditions, including the
strength of the local economy. The unemployment rate was 5.2% at December 2016 and 2015, for the New York City
region, according to the New York Department of Labor. In this economic environment, we saw improvements in our
non-performing loans. Non-performing loans totaled $21.4 million, $26.1 million and $34.2 million at December 31,
2016, 2015 and 2014, respectively. Foreclosed properties decreased by 89.2% to $0.5 million at December 31, 2016
from $4.9 million at December 31, 2015. Additionally, net charge-offs of impaired loans decreased in 2016 to a recovery
of $0.7 million from net charge-offs of $2.6 million for the year ended December 31, 2015, as we continue to maintain
conservative underwriting standards to reduce risk.
Our operating results are also affected by extensions, renewals, modifications and restructuring of loans in our
loan portfolio. Loans which are renewed, modified or restructured are required to be fully underwritten in accordance
with our policy for new loans, except when the borrower is seeking a reduction in the interest rate due to a decline in
interest rates in the market, or for a loan classified as a troubled debt restructured (“TDR”). Our policy for modifying a
loan due to the borrower’s request for changes in the terms will depend on the change requested. The borrower must be
current and have a good payment history to have a loan modified. If the borrower is seeking additional funds, the loan is
fully underwritten in accordance with our policy for new loans. If the borrower is seeking a reduction in the interest rate
due to a decline in interest rates in the market, we generally limit our review as follows: (1) for income producing
properties and business loans, to a review of the operating results of the property/business and a satisfactory inspection
of the property, and (2) for one-to-four residential properties, to a satisfactory inspection of the property. Our policy on
restructuring a loan when the loan will be classified as a TDR requires the loan to be fully underwritten in accordance
with Company policy. The borrower must demonstrate the ability to repay the loan under the new terms. When the
restructuring results in a TDR, we may waive some requirements of Company policy provided the borrower has
demonstrated the ability to meet the requirements of the restructured loan and repay the restructured loan. While our
formal lending policies do not prohibit making additional loans to a borrower or any related interest of the borrower who
is past due in principal or interest more than 90 days, it has been our practice not to make additional loans to a borrower
or a related interest of the borrower if the borrower is past due more than 90 days as to principal or interest. During the
last three fiscal years, we did not make any additional loans to a borrower or any related interest of the borrower who
was past due in principal or interest more than 90 days. All extensions, renewals, restructurings and modifications must
be approved by either the Board of Directors of the Bank (the “Bank Board of Directors”) or its Loan Committee (the
“Loan Committee”).
Our operating results are also affected by losses on non-performing loans. Our policy requires a reappraisal by
an independent third party when a loan becomes twelve months delinquent. We generally obtain a reappraisal by an
2
independent third party for loans over 90 days delinquent when the outstanding loan balance is at least $1.0 million. We
also obtain reappraisals when our internally prepared valuation of a property indicates there has been a decline in value
below the outstanding balance of the loan, or when a property inspection has indicated significant deterioration in the
condition of the property. These internal valuations are prepared when a loan becomes 90 days delinquent.
The Bank has a business banking unit which focuses on the development of a full complement of commercial
business deposit, loan and cash management products. As of December 31, 2016 and 2015, the business banking unit
had $613.0 million and $525.3 million, respectively, in gross loans outstanding and $144.4 million and $146.3 million,
respectively, of customer deposits.
The Bank has an internet branch, iGObanking.com®, which provides access to consumers in markets outside
our geographic locations. Accounts can be opened online at www.iGObanking.com or by mail. Currently
iGObanking.com® does not accept loan applications. As of December 31, 2016 and 2015, iGObanking.com® had
$417.3 million and $323.7 million, respectively, of customer deposits.
The Bank has a governmental banking unit, which provides banking services to public entities including
counties, cities, towns, villages, school districts, libraries, fire districts and the various courts throughout the New York
City metropolitan area. At December 31, 2016 and 2015, the government banking unit had $1,062.1 million and $975.9
million, respectively, in customer deposits.
Market Area and Competition
We are a community oriented financial institution offering a wide variety of financial services to meet the needs
of the communities we serve. The Bank’s main office is in Uniondale, New York, located in Nassau County. At
December 31, 2016, the Bank operated out of 19 full-service offices, located in the New York City Boroughs of Queens,
Brooklyn, and Manhattan, and in Nassau County, New York. We also operate an internet branch, iGObanking.com®. We
maintain our executive offices in Uniondale in Nassau County, New York. Substantially all of our mortgage loans are
secured by properties located in the New York City metropolitan area.
We face intense competition both in making loans and in attracting deposits. Competition for loans in our
market is primarily based on the types of loans offered and the related terms for these loans, including fixed-rate versus
adjustable-rate loans and the interest rate on the loan. For adjustable rate loans, competition is also based on the repricing
period, the index to which the rate is referenced, and the spread over the index rate. Also, competition is influenced by
the ability of a financial institution to respond to customer requests and to provide the borrower with a timely decision to
approve or deny the loan application.
Our market area has a high density of financial institutions, many of which have greater financial resources,
name recognition and market presence, and all of which are competitors to varying degrees. Particularly intense
competition exists for deposits, as we compete with 115 banks and thrifts in the counties in which we have branch
locations. Our market share of deposits, as of June 30, 2016, in these counties was approximately 0.33% of the total
deposits of these FDIC insured competing financial institutions, and we are the 25th largest financial institution. In
addition, we compete with credit unions, the stock market and mutual funds for customers’ funds. Competition for
deposits in our market and for national brokered deposits is primarily based on the types of deposits offered and rate paid
on the deposits. Particularly intense competition also exists in all of the lending activities we emphasize. In addition to
the financial institutions mentioned above, we compete against mortgage banks and insurance companies located both
within our market and available on the internet. Competition for loans in our market is primarily based on the types of
loans offered and the related terms for these loans, including fixed-rate versus adjustable-rate loans and the interest rate
on the loan. For adjustable rate loans, competition is also based on the repricing period, the index to which the rate is
referenced, and the spread over the index rate. Also, competition is influenced by the ability of a financial institution to
respond to customer requests and to provide the borrower with a timely decision to approve or deny the loan application.
The internet banking arena also has many larger financial institutions which have greater financial resources, name
recognition and market presence. Our future earnings prospects will be affected by our ability to compete effectively
with other financial institutions and to implement our business strategies. Our strategy for attracting deposits includes
using various marketing techniques, delivering enhanced technology and customer friendly banking services, and
focusing on the unique personal and small business banking needs of the multi-ethnic communities we serve. Our
strategy for attracting new loans is primarily dependent on providing timely response to applicants and maintaining a
network of quality brokers. See “Risk Factors – The Markets in Which We Operate Are Highly Competitive” included in
Item 1A of this Annual Report.
3
For a discussion of our business strategies, see “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Overview — Management Strategy” included in Item 7 of this Annual Report.
Lending Activities
Loan Portfolio Composition. Our loan portfolio consists primarily of mortgage loans secured by multi-family
residential, commercial real estate, one-to-four family mixed-use property, one-to-four family residential property, and
commercial business loans. In addition, we also offer construction loans, SBA loans and other consumer loans.
Substantially all of our mortgage loans are secured by properties located within our market area. At December 31, 2016,
we had gross loans outstanding of $4,819.1 million (before the allowance for loan losses and net deferred costs).
In recent years we have focused our mortgage loan origination efforts on multi-family residential mortgage
loans, although starting in 2014 we increased our focus on commercial real estate and business loans with full banking
relationships. In prior years we had focused our mortgage loan originations on multi-family residential, commercial real
estate and one-to-four family mixed-use property mortgage loans. These loans generally have higher yields than one-to-
four family residential properties, and include prepayment penalties that we collect if the loans pay in full prior to the
contractual maturity. We expect to continue this emphasis on multi-family residential mortgage loans, commercial real
estate and business loans with full banking relationships through marketing and by maintaining competitive interest rates
and origination fees. Our marketing efforts include frequent contact with mortgage brokers and other professionals who
serve as referral sources.
Fully underwritten one-to-four family residential mortgage loans generally are considered by the banking
industry to have less risk than other types of loans. Multi-family residential, commercial real estate and one-to-four
family mixed-use property mortgage loans generally have higher yields than one-to-four family residential property
mortgage loans and shorter terms to maturity, but typically involve higher principal amounts and may expose the lender
to a greater risk of credit loss than one-to-four family residential property mortgage loans. The greater risk associated
with multi-family residential, commercial real estate and one-to-four family mixed-use property mortgage loans could
require us to increase our provisions for loan losses and to maintain an allowance for loan losses as a percentage of total
loans in excess of the allowance we currently maintain. We continually review the composition of our mortgage loan
portfolio to manage the risk in the portfolio. See “General – Overview” in this Item 1 of this Annual Report. To date, we
have not experienced significant losses in our multi-family residential, commercial real estate and one-to-four family
mixed-use property mortgage loan portfolios.
Our mortgage loan portfolio consists of adjustable rate mortgage (“ARM”) loans and fixed-rate mortgage loans.
Interest rates we charge on loans are affected primarily by the demand for such loans, the supply of money available for
lending purposes, the rate offered by our competitors and the creditworthiness of the borrower. Many of those factors
are, in turn, affected by local and national economic conditions, and the fiscal, monetary and tax policies of the federal,
state and local governments.
In general, consumers show a preference for ARM loans in periods of high interest rates and for fixed-rate loans
when interest rates are low. In periods of declining interest rates, we may experience refinancing activity in ARM loans,
as borrowers show a preference to lock-in the lower rates available on fixed-rate loans. In the case of ARM loans we
originated, volume and adjustment periods are affected by the interest rates and other market factors as discussed above
as well as consumer preferences. We have not in the past, nor do we currently, originate ARM loans that provide for
negative amortization.
At December 31, 2016, we had $11.5 million in construction loans outstanding. We obtain a first lien position
on the underlying collateral, and generally obtain guarantees on construction loans. These loans generally have a term of
two years or less. Construction loans involve a greater degree of risk than other loans because, among other things, the
underwriting of such loans is based on an estimated value of the developed property, which can be difficult to ascertain
in light of uncertainties inherent in such estimations. In addition, construction lending entails the risk that the project
may not be completed due to cost overruns or changes in market conditions. The greater risk associated with
construction loans could require us to increase our provision for loan losses, and to maintain an allowance for loan losses
as a percentage of total loans in excess of the allowance we currently maintain.
The business banking unit focuses on loan and deposit relationships to businesses located within our market
area. These loans are generally personally guaranteed by the owners, and may be secured by the assets of the business,
including real estate. The interest rate on these loans is generally an adjustable rate based on a published index. These
loans, while providing us a higher rate of return, also present a higher level of risk. The greater risk associated with
business loans could require us to increase our provision for loan losses, and to maintain an allowance for loan losses as
4
a percentage of total loans in excess of the allowance we currently maintain. To date, we have not incurred significant
losses in our business loan portfolio.
At times, we may purchase loans from banks, mortgage bankers and other financial institutions when the loans
complement our loan portfolio strategy. Loans purchased must meet our underwriting standards when they were
originated. Our lending activities are subject to federal and state laws and regulations. See “— Regulation.”
5
The following table sets forth the composition of our loan portfolio at the dates indicated.
2016
Amount
Percent
of Total
2015
Amount
Percent
of Total
At December 31,
2014
Percent
of Total
Amount
(Dollars in thousands)
2013
Amount
Percent
of Total
2012
Amount
Percent
of Total
$
2,178,504
1,246,132
%
45.21
25.86
$
2,055,228
1,001,236
%
46.98
22.90
$
1,923,460
621,569
%
50.64
16.36
$
1,712,039
512,552
%
50.02
14.97
$
1,534,438
515,438
%
47.62
16.00
558,502
11.59
573,043
13.11
573,779
15.10
595,751
17.40
637,353
19.79
185,767
7,418
11,495
3.85
0.15
0.24
187,838
8,285
7,284
4.30
0.19
0.17
187,572
9,835
5,286
4.94
0.26
0.14
193,726
10,137
4,247
5.66
0.30
0.12
198,968
6,303
14,381
6.18
0.20
0.45
Mortgage Loans:
Multi-family residential
Commercial real estate
One-to-four family -
mixed-use property
One-to-four family -
residential (1)
Co-operative apartment (2)
Construction
Gross mortgage loans
4,187,818
86.90
3,832,914
87.65
3,321,501
87.44
3,028,452
88.47
2,906,881
90.24
Non-mortgage loans:
Small Business Administration
Taxi medallion
Commercial business and other
Gross non-mortgage loans
15,198
18,996
597,122
631,316
0.32
0.39
12.39
13.10
12,194
20,881
506,622
539,697
0.28
0.48
11.59
12.35
7,134
22,519
447,500
477,153
0.19
0.59
11.78
12.56
7,792
13,123
373,641
394,556
0.23
0.38
10.92
11.53
9,496
9,922
295,076
314,494
0.29
0.31
9.16
9.76
Gross loans
4,819,134
100.00
%
4,372,611
100.00
%
3,798,654
100.00
%
3,423,008
100.00
%
3,221,375
100.00
%
Unearned loan fees and deferred
costs, net
Less: Allowance for loan losses
Loans, net
16,559
(22,229)
4,813,464
$
15,368
(21,535)
4,366,444
$
11,719
(25,096)
3,785,277
$
11,170
(31,776)
3,402,402
$
12,746
(31,104)
3,203,017
$
(1)
(2)
One-to-four family residential mortgage loans also include home equity and condominium loans. At December 31, 2016, gross home equity loans totaled $52.4 million and condominium loans
totaled $22.7 million.
Consists of loans secured by shares representing interests in individual co-operative units that are generally owner occupied.
6
The following table sets forth our loan originations (including the net effect of refinancing) and the changes in
our portfolio of loans, including purchases, sales and principal reductions for the years indicated:
(In thousands)
Mortgage Loans
At beginning of year
Mortgage loans originated:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartment
Construction
Total mortgage loans originated
Mortgage loans purchased:
Multi-family residential
Commercial real estate
Total mortgage loans purchased
Less:
Principal reductions
Loans transferred to loans held for sale
Mortgage loan sales
Charge-offs
Mortgage loan foreclosures
At end of year
Non-mortgage loans
At beginning of year
Loans originated:
Small Business Administration
Commercial business
Other
Total other loans originated
Non-mortgage loans purchased:
Taxi Medallion
Commercial business
Total non-mortgage loans purchased
Less:
Non-mortgage loan sales
Loans transferred to loans held for sale
Principal reductions
Charge-offs
For the years ended December 31,
2015
2016
2014
$
3,832,914
$
3,321,501
$
3,028,452
245,175
296,620
62,735
24,820
470
15,772
645,592
126,022
26,101
152,123
434,587
-
7,259
419
546
205,393
376,036
68,295
40,831
1,625
4,999
697,179
168,450
76,053
244,503
416,101
300
11,057
1,440
1,371
314,148
165,054
50,070
24,727
170
1,566
555,735
106,830
14,794
121,624
363,206
-
12,871
1,780
6,453
$
4,187,818
$
3,832,914
$
3,321,501
$
539,697
$
477,153
$
394,556
8,447
290,444
1,738
300,629
-
34,594
34,594
3,211
-
239,653
740
11,261
243,316
2,777
257,354
-
34,425
34,425
3,935
-
222,895
2,405
1,611
227,904
3,056
232,571
14,431
33,805
48,236
4
1,150
196,394
662
At end of year
$
631,316
$
539,697
$
477,153
7
Loan Maturity and Repricing. The following table shows the maturity of our total loan portfolio at December 31, 2016. Scheduled repayments are shown in
the maturity category in which the payments become due.
(In thousands)
Amounts due within one year
Amounts due after one year:
One to two years
Two to three years
Three to five years
Over five years
Total due after one year
Total amounts due
Sensitivity of loans to changes in
interest rates - loans due
after one year:
Fixed rate loans
Adjustable rate loans
Total loans due after one year
Multi-family
residential
Commercial
real estate
Mortgage loans
One-to-four
family
mixed-use
property
One-to-four
family
residential
Non-mortgage loans
Co-operative
apartment
Construction
Small Business
Administration
Taxi
Medallion
Commercial
business
and other
Total loans
$
206,074
$
176,764
$
38,803
$
7,756
$
251
$
7,799
$
2,176
$
12,055
$
180,982
$
632,660
184,443
181,955
179,895
1,426,137
1,972,430
2,178,504
$
132,153
113,596
106,904
716,715
1,069,368
1,246,132
$
28,609
27,404
27,268
436,418
519,699
558,502
$
7,170
7,048
7,128
156,665
178,011
185,767
$
260
260
260
6,387
7,167
7,418
$
3,696
-
-
-
3,696
11,495
$
1,463
1,309
1,151
9,099
13,022
15,198
$
4,235
2,706
-
-
6,941
18,996
$
79,689
65,210
55,841
215,400
416,140
597,122
$
441,718
399,488
378,447
2,966,821
4,186,474
4,819,134
$
$
$
$
$
$
$
$
354,707
1,617,723
1,972,430
$
86,742
982,626
1,069,368
87,321
432,378
519,699
31,701
146,310
178,011
858
6,309
7,167
$
-
3,696
3,696
$
$
$
$
$
$
$
3,828
9,194
13,022
6,357
584
6,941
$
$
171,436
244,704
416,140
$
742,950
3,443,524
4,186,474
$
8
Multi-Family Residential Lending. Loans secured by multi-family residential properties were $2,178.5 million,
or 45.21% of gross loans at December 31, 2016. Our multi-family residential mortgage loans had an average principal
balance of $1.0 million at December 31, 2016, and the largest multi-family residential mortgage loan held in our
portfolio had a principal balance of $28.0 million. We offer both fixed-rate and adjustable-rate multi-family residential
mortgage loans, with maturities of up to 30 years.
In underwriting multi-family residential mortgage loans, we review the expected net operating income
generated by the real estate collateral securing the loan, the age and condition of the collateral, the financial resources
and income level of the borrower and the borrower’s experience in owning or managing similar properties. We typically
require debt service coverage of at least 125% of the monthly loan payment. We generally originate these loans up to
only 75% of the appraised value or the purchase price of the property, whichever is less. Any loan with a final loan-to-
value ratio in excess of 75% must be approved by the Bank Board of Directors or the Loan Committee as an exception to
policy. We generally rely on the income generated by the property as the primary means by which the loan is repaid.
However, personal guarantees may be obtained for additional security from these borrowers. We typically order an
environmental report on our multi-family and commercial real estate loans.
Loans secured by multi-family residential property generally involve a greater degree of risk than residential
mortgage loans and carry larger loan balances. The increased credit risk is the result of several factors, including the
concentration of principal in a smaller number of loans and borrowers, the effects of general economic conditions on
income producing properties and the increased difficulty in evaluating and monitoring these types of loans. Furthermore,
the repayment of loans secured by multi-family residential property is typically dependent upon the successful operation
of the related property, which is usually owned by a legal entity with the property being the entity’s only asset. If the
cash flow from the property is reduced, the borrower’s ability to repay the loan may be impaired. If the borrower
defaults, our only remedy may be to foreclose on the property, for which the market value may be less than the balance
due on the related mortgage loan. Loans secured by multi-family residential property also may involve a greater degree
of environmental risk. We seek to protect against this risk through obtaining an environmental report. See “—Asset
Quality — Environmental Concerns Relating to Loans.”
At December 31, 2016, $1,792.9 million, or 82.30%, of our multi-family mortgage loans consisted of ARM
loans. We offer ARM loans with adjustment periods typically of five years and for terms of up to 30 years. Interest rates
on ARM loans currently offered by us are adjusted at the beginning of each adjustment period based upon a fixed spread
above the FHLB-NY corresponding Regular Advance Rate. From time to time, due to competitive forces, we may
originate ARM loans at an initial rate lower than the fully indexed rate as a result of a discount on the spread for the
initial adjustment period. Multi-family adjustable-rate mortgage loans generally are not subject to limitations on interest
rate increases either on an adjustment period or aggregate basis over the life of the loan; however, the loans generally
contain interest rate floors. We originated and purchased multi-family ARM loans totaling $330.6 million, $339.5
million and $398.9 million during 2016, 2015 and 2014, respectively.
At December 31, 2016, $385.7 million, or 17.70%, of our multi-family mortgage loans consisted of fixed rate
loans. Our fixed-rate multi-family mortgage loans are generally originated for terms up to 15 years and are competitively
priced based on market conditions and our cost of funds. We originated and purchased $40.6 million, $34.3 million and
$22.1 million of fixed-rate multi-family mortgage loans in 2016, 2015 and 2014, respectively.
Commercial Real Estate Lending. Loans secured by commercial real estate were $1,246.1 million, or 25.86%
of gross loans, at December 31, 2016. Our commercial real estate mortgage loans are secured by properties such as office
buildings, hotels/motels, nursing homes, small business facilities, strip shopping centers and warehouses. At December
31, 2016, our commercial real estate mortgage loans had an average principal balance of $1.8 million and the largest of
such loans, which was secured by seven multi-tenant shopping centers, had a principal balance of $42.7 million.
Commercial real estate mortgage loans are generally originated in a range of $100,000 to $6.0 million.
In underwriting commercial real estate mortgage loans, we employ the same underwriting standards and
procedures as are employed in underwriting multi-family residential mortgage loans.
Commercial real estate mortgage loans generally carry larger loan balances than one-to-four family residential
mortgage loans and involve a greater degree of credit risk for the same reasons applicable to multi-family residential
mortgage loans.
At December 31, 2016, $1,132.5 million, or 90.88%, of our commercial mortgage loans consisted of ARM
loans. We offer ARM loans with adjustment periods of one to five years and generally for terms of up to 15 years.
Interest rates on ARM loans currently offered by us are adjusted at the beginning of each adjustment period based upon a
9
fixed spread above the FHLB-NY corresponding Regular Advance Rate. From time to time, we may originate ARM
loans at an initial rate lower than the index as a result of a discount on the spread for the initial adjustment period.
Commercial adjustable-rate mortgage loans generally are not subject to limitations on interest rate increases either on an
adjustment period or aggregate basis over the life of the loan; however, the loans generally contain interest rate floors.
We originated and purchased commercial ARM loans totaling $293.9 million, $441.1 million and $169.6 million during
2016, 2015 and 2014, respectively.
At December 31, 2016, $113.6 million, or 9.12%, of our commercial mortgage loans consisted of fixed-rate
loans. Our fixed-rate commercial mortgage loans are generally originated for terms up to 20 years and are competitively
priced based on market conditions and our cost of funds. We originated and purchased $28.8 million, $11.0 million and
$10.2 million of fixed-rate commercial mortgage loans in 2016, 2015 and 2014, respectively.
One-to-Four Family Mortgage Lending – Mixed-Use Properties. We offer mortgage loans secured by one-to-
four family mixed-use properties. These properties contain up to four residential dwelling units and a commercial unit.
We offer both fixed-rate and adjustable-rate one-to-four family mixed-use property mortgage loans with maturities of up
to 30 years and a general maximum loan amount of $1.0 million. Loan originations primarily result from applications
received from mortgage brokers and mortgage bankers, existing or past customers, and persons who respond to our
marketing efforts and referrals. One-to-four family mixed-use property mortgage loans were $558.5 million, or 11.59%
of gross loans, at December 31, 2016.
In underwriting one-to-four family mixed-use property mortgage loans, we employ the same underwriting
standards as are employed in underwriting multi-family residential mortgage loans.
At December 31, 2016, $452.6 million, or 81.03%, of our one-to-four family mixed-use property mortgage
loans consisted of ARM loans. We offer adjustable-rate one-to-four family mixed-use property mortgage loans with
adjustment periods typically of five years and for terms of up to 30 years. Interest rates on ARM loans currently offered
by the Bank are adjusted at the beginning of each adjustment period based upon a fixed spread above the FHLB-NY
corresponding Regular Advance Rate. From time to time, we may originate ARM loans at an initial rate lower than the
index as a result of a discount on the spread for the initial adjustment period. One-to-four family mixed-use property
adjustable-rate mortgage loans generally are not subject to limitations on interest rate increases either on an adjustment
period or aggregate basis over the life of the loan; however, the loans generally contain interest rate floors. We originated
and purchased one-to-four family mixed-use property ARM loans totaling $72.4 million, $54.6 million and $39.4 million
during 2016, 2015 and 2014, respectively.
At December 31, 2016, $105.9 million, or 18.97%, of our one-to-four family mixed-use property mortgage
loans consisted of fixed-rate loans. Our fixed-rate one-to-four family mixed-use property mortgage loans are originated
for terms of up to 15 years and are competitively priced based on market conditions and the Bank’s cost of funds. We
originated and purchased $15.6 million, $13.7 million and $10.7 million of fixed-rate one-to-four family mixed-use
property mortgage loans in 2016, 2015 and 2014, respectively.
One-to-Four Family Mortgage Lending – Residential Properties. We offer mortgage loans secured by one-to-
four family residential properties, including townhouses and condominium units. For purposes of the description
contained in this section, one-to-four family residential mortgage loans, co-operative apartment loans and home equity
loans are collectively referred to herein as “residential mortgage loans.” We offer both fixed-rate and adjustable-rate
residential mortgage loans with maturities of up to 30 years and a general maximum loan amount of $1.0 million. Loan
originations generally result from applications received from mortgage brokers and mortgage bankers, existing or past
customers, and referrals. Residential mortgage loans were $193.2 million, or 4.00% of gross loans, at December 31,
2016.
We generally originate residential mortgage loans in amounts up to 80% of the appraised value or the sale price,
whichever is less. We may make residential mortgage loans with loan-to-value ratios of up to 90% of the appraised value
of the mortgaged property; however, private mortgage insurance is required whenever loan-to-value ratios exceed 80%
of the appraised value of the property securing the loan.
In addition to income verified loans, we have in the past originated residential mortgage loans to self-employed
individuals within our local community based on stated income and verifiable assets that allowed us to assess repayment
ability, provided that the borrower’s stated income is considered reasonable for the borrower’s type of business. The
preponderance of stated income one-to-four family residential mortgage loans were made available to self-employed
individuals within our local community for their primary residence. Our underwriting standards required that we verify
the assets of the borrowers and the sources of their cash flows. The information reviewed for purchases included at least
three months and refinances included at least one month of personal bank statements (checking and savings accounts),
10
statements of investment accounts, business checking account statements (when applicable), and other information
provided by the borrowers about their personal holdings. Our review of these bank statements allowed us to assess
whether or not their stated income appeared reasonable in comparison to their cash flows, and if their income level
supported their personal holdings. We also obtained and reviewed credit reports on these borrowers. An acceptable credit
report was one of the key factors in approving this type of mortgage loan. We obtained appraisals from an independent
third party for the property, and limited the amount we lent on the properties to 80% of the lesser of the property’s
appraised value or the purchase price. Home equity lines of credit were offered on one-to-four residential properties to
homeowners based on various levels of income verification. We limited the amount available under a home equity line
of credit to 80% of the lesser of the appraised value of the property or the purchase price. These loans involve a higher
degree of risk as compared to our other fully underwritten residential mortgage loans as there is a greater opportunity for
self-employed borrowers to falsify or overstate their level of income and ability to service indebtedness. This risk is
mitigated by the requirements discussed above in our loan policy. In addition, since 2009, the underwriting standards for
home equity loans were modified to discontinue originating home equity lines of credit without verifying the borrower’s
income. We also discontinued offering one-to-four family residential property mortgage loans to self-employed
individuals based on stated income and verifiable assets in June 2010. We had $9.0 million and $9.9 million outstanding
of one-to four family residential mortgage loans originated to individuals based on stated income and verifiable assets at
December 31, 2016 and 2015, respectively. We had $38.6 million and $41.4 million advanced on home equity lines of
credit for which we did not verify the borrowers’ income at December 31, 2016 and 2015, respectively.
At December 31, 2016, $151.0 million, or 81.29%, of our residential mortgage loans consisted of ARM loans.
We offer ARM loans with adjustment periods of one, three, five, seven or ten years. Interest rates on ARM loans
currently offered by us are adjusted at the beginning of each adjustment period based upon a fixed spread above the
FHLB-NY corresponding Regular Advance Rate. From time to time, we may originate ARM loans at an initial rate
lower than the index as a result of a discount on the spread for the initial adjustment period. ARM loans generally are
subject to limitations on interest rate increases of 2% per adjustment period and an aggregate adjustment of 6% over the
life of the loan and have interest rate floors. We originated and purchased adjustable rate residential mortgage loans
totaling $24.3 million, $39.2 million and $21.0 million during 2016, 2015 and 2014, respectively.
The retention of ARM loans in our portfolio helps us reduce our exposure to interest rate risks. However, in an
environment of rapidly increasing interest rates, it is possible for the interest rate increase to exceed the maximum
aggregate adjustment on one-to-four family residential ARM loans and negatively affect the spread between our interest
income and our cost of funds.
ARM loans generally involve credit risks different from those inherent in fixed-rate loans, primarily because if
interest rates rise, the underlying payments of the borrower rise, thereby increasing the potential for default. However,
this potential risk is lessened by our policy of originating one-to-four family residential ARM loans with annual and
lifetime interest rate caps that limit the increase of a borrower’s monthly payment.
At December 31, 2016, $34.8 million, or 18.71%, of our residential mortgage loans consisted of fixed-rate
loans. Our fixed-rate residential mortgage loans typically are originated for terms of 15 and 30 years and are
competitively priced based on market conditions and our cost of funds. We originated and purchased $0.9 million, $3.3
million and $3.9 million in 15-year fixed-rate residential mortgages in 2016, 2015 and 2014, respectively. We did not
originate or purchase any 30-year fixed-rate residential mortgages in 2016, 2015 and 2014.
At December 31, 2016, home equity loans totaled $52.4 million, or 1.09%, of gross loans. Home equity loans
are included in our portfolio of residential mortgage loans. These loans are offered as adjustable-rate “home equity lines
of credit” on which interest only is due for an initial term of 10 years and thereafter principal and interest payments
sufficient to liquidate the loan are required for the remaining term, not to exceed 30 years. These adjustable “home
equity lines of credit” may include a “floor” and/or a “ceiling” on the interest rate that we charge for these loans. These
loans also may be offered as fully amortizing closed-end fixed-rate loans for terms up to 15 years. The majority of home
equity loans originated are owner occupied one-to-four family residential properties and condominium units. To a lesser
extent, home equity loans are also originated on one-to-four residential properties held for investment and second homes.
All home equity loans are subject to an 80% loan-to-value ratio computed on the basis of the aggregate of the first
mortgage loan amount outstanding and the proposed home equity loan. They are generally granted in amounts from
$25,000 to $300,000.
Construction Loans. At December 31, 2016, construction loans totaled $11.5 million, or 0.24%, of gross loans.
Our construction loans primarily have been made to finance the construction of one-to-four family residential properties,
multi-family residential properties and residential condominiums. We also, to a limited extent, finance the construction
of commercial real estate. Our policies provide that construction loans may be made in amounts up to 70% of the
11
estimated value of the developed property and only if we obtain a first lien position on the underlying real estate.
However, we generally limit construction loans to 60% of the estimated value of the developed property. In addition, we
generally require personal guarantees on all construction loans. Construction loans are generally made with terms of two
years or less. Advances are made as construction progresses and inspection warrants, subject to continued title searches
to ensure that we maintain a first lien position. We made construction loans of $15.8 million, $5.0 million and $1.6
million during 2016, 2015 and 2014, respectively.
Construction loans involve a greater degree of risk than other loans because, among other things, the
underwriting of such loans is based on an estimated value of the developed property, which can be difficult to ascertain
in light of uncertainties inherent in such estimations. In addition, construction lending entails the risk that the project
may not be completed due to cost overruns or changes in market conditions.
Small Business Administration Lending. At December 31, 2016, SBA loans totaled $15.2 million, representing
0.32%, of gross loans. These loans are extended to small businesses and are guaranteed by the SBA up to a maximum of
85% of the loan balance for loans with balances of $150,000 or less, and to a maximum of 75% of the loan balance for
loans with balances greater than $150,000. We also provide term loans and lines of credit up to $350,000 under the SBA
Express Program, on which the SBA provides a 50% guaranty. The maximum loan size under the SBA guarantee
program was $2.0 million, with a maximum loan guarantee of $1.5 million. The Small Business Jobs Act of 2010
permanently increased the limits to a maximum loan size of $5.0 million, with a maximum loan guarantee of $3.75
million. All SBA loans are underwritten in accordance with SBA Standard Operating Procedures which requires
collateral and the personal guarantee of the owners with more than 20% ownership from SBA borrowers. Typically,
SBA loans are originated in the range of $25,000 to $2.0 million with terms ranging from one to seven years and up to
25 years for owner occupied commercial real estate mortgages. SBA loans are generally offered at adjustable rates tied
to the prime rate (as published in the Wall Street Journal) with adjustment periods of one to three months. At times, we
may sell the guaranteed portion of certain SBA term loans in the secondary market, realizing a gain at the time of sale,
and retaining the servicing rights on these loans, collecting a servicing fee of approximately 1%. We originated and
purchased $8.4 million, $11.3 million and $1.6 million of SBA loans during 2016, 2015 and 2014, respectively.
Taxi Medallion. At December 31, 2016, taxi medallion loans consisted of loans made to New York City and
Chicago taxi medallion owners, which are secured by liens on the taxi medallions, totaling $19.0 million, or 0.39%, of
gross loans. In 2015, we decided to no longer originate or purchase taxi medallion loans. Therefore, we did not originate
or purchase any taxi medallion loans in 2016 or 2015, but originated and purchased $14.4 million during 2014.
Commercial Business and Other Lending. At December 31, 2016, commercial business and other loans totaled
$597.1 million, or 12.39%, of gross loans. We originate and purchase commercial business loans and other loans for
business, personal, or household purposes. Commercial business loans are provided to businesses in the New York City
metropolitan area with annual sales of up to $250.0 million. Our commercial business loans include lines of credit and
term loans including owner occupied mortgages. These loans are secured by business assets, including accounts
receivables, inventory and real estate and generally require personal guarantees. The Bank also, at times, enters into
participations/syndications with other banks on senior secured commercial business loans. Commercial business loans
are generally originated in a range of $100,000 to $10.0 million.
At December 31, 2016, $409.7 million, or 68.61%, of our commercial business loans consisted of adjustable
rate loans. We generally offer adjustable rate loans with adjustment periods of five years for owner occupied mortgages
and for lines of credit the adjustment period is generally monthly. Interest rates on adjustable rate loans currently offered
by us are adjusted at the beginning of each adjustment period based upon a fixed spread above the FHLB-NY
corresponding Regular Advance Rate for owner occupied mortgages and a fixed spread above the London Interbank
Offered Rate (“LIBOR”) or Prime Rate for lines of credit. Commercial business adjustable-rate loans generally are not
subject to limitations on interest rate increases either on an adjustment period or aggregate basis over the life of the loan,
however they generally are subject to interest rate floors.
At December 31, 2016, $187.4 million, or 31.39%, of our commercial business loans consisted of fixed-rate
loans. Our fixed-rate commercial business loans are generally originated for terms up to 20 years and are competitively
priced based on market conditions and our cost of funds.
Other loans generally consist of overdraft lines of credit. Generally, unsecured consumer loans are limited to
amounts of $5,000 or less for terms of up to five years. We originated and purchased $1.7 million, $2.8 million and $3.1
million of other loans during 2016, 2015 and 2014, respectively. The underwriting standards employed by us for
consumer and other loans include a determination of the applicant’s payment history on other debts and assessment of
the applicant’s ability to meet payments on all of his or her obligations. In addition to the creditworthiness of the
12
applicant, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan
amount. Unsecured loans tend to have higher risk, and therefore command a higher interest rate.
Loan Extensions, Renewals, Modifications and Restructuring. Extensions, renewals, modifications or
restructuring a loan, other than a loan that is classified as a TDR, requires the loan to be fully underwritten in accordance
with our policy. The borrower must be current to have a loan extended, renewed or restructured. Our policy for
modifying a mortgage loan due to the borrower’s request for changes in the terms will depend on the changes requested.
The borrower must be current and have a good payment history to have a loan modified. If the borrower is seeking
additional funds, the loan is fully underwritten in accordance with our policy for new loans. If the borrower is seeking a
reduction in the interest rate due to a decline in interest rates in the market, we generally limit our review as follows: (1)
for income producing properties and business loans, to a review of the operating results of the property/business and a
satisfactory inspection of the property, and (2) for one-to-four residential properties, to a satisfactory inspection of the
property. Our policy on restructuring a loan when the loan will be classified as a TDR requires the loan to be fully
underwritten in accordance with Company policy. The borrower must demonstrate the ability to repay the loan under the
new terms. When the restructuring results in a TDR, we may waive some requirements of Company policy provided the
borrower has demonstrated the ability to meet the requirements of the restructured loan and repay the restructured loan.
While our formal lending policies do not prohibit making additional loans to a borrower or any related interest of the
borrower who is past due in principal or interest more than 90 days, it has been our practice not to make additional loans
to a borrower or a related interest of the borrower if the borrower is past due more than 90 days as to principal or interest.
During the most recent three fiscal years, we did not make any additional loans to a borrower or any related interest of
the borrower who was past due in principal or interest more than 90 days. All extensions, renewals, restructurings and
modifications must be approved by the appropriate Loan Committee.
Loan Approval Procedures and Authority. The Board of Directors of the Company (the “Board of Directors”)
approved lending policies establishing loan approval requirements for our various types of loan products. Our
Residential Mortgage Lending Policy (which applies to all one-to-four family mortgage loans, including residential and
mixed-use property) establishes authorized levels of approval. One-to-four family mortgage loans that do not exceed
$750,000 require two signatures for approval, one of which must be from either the Senior Executive Vice President, the
Executive Vice President or a Senior Vice President (collectively, “Authorized Officers”) and the other from a Senior
Underwriter, Manager, Underwriter or Junior Underwriter in the Residential Mortgage Loan Department (collectively,
“Loan Officers”), and ratification by the Management Loan Committee. For one-to-four family mortgage loans in excess
of $750,000 up to $2.5 million, three signatures are required for approval, at least two of which must be from Authorized
Officers, and the other one may be a Loan Officer, and ratification by the Management Loan Committee and the
Director’s Loan Committee. The Director’s Loan Committee or the Bank Board of Directors also must approve one-to-
four family mortgage loans in excess of $2.5 million. Pursuant to our Commercial Real Estate Lending Policy, loans
secured by commercial real estate and multi-family residential properties up to $2.0 million are approved by the
Executive Vice President of Commercial Real Estate and the Senior Executive Vice President, Chief of Real Estate
Lending and then ratified by the Management Loan Committee and/or the Director’s Loan Committee. Loans provided
in excess of $2.0 million and up to and including $5.0 million must be submitted to the Management Loan Committee
for final approval and then to the Director’s Loan Committee and/or Board of Directors for ratification. Loans in excess
of $5.0 million and up to and including $25.0 million must be submitted to the Director’s Loan Committee and/ or the
Board of Directors for approval. Loan amounts in excess of $25.0 million must be approved by the Board of Directors.
In accordance with our Business Credit Policy all business and SBA loans up to $2.5 million must be approved
by the Business Loan Committee and ratified by the Management Loan Committee. Business and SBA loans in excess of
$2.5 million up to $5.0 million must be approved by the Management Loan Committee and ratified by the Loan
Committee. Commercial business and other loans require two signatures from the Business Loan Committee for
approval.
Our Construction Loan Policy requires construction loans up to and including $1.0 million must be approved by
the Senior Executive Vice President, Chief of Real Estate Lending and the Executive Vice President of Commercial Real
Estate, and ratified by the Management Loan Committee or the Director’s Loan Committee. Such loans in excess of $1.0
million up to and including $2.5 million require the same officer approvals, approval of the Management Loan
Committee, and ratification of the Director’s Loan Committee or the Bank Board of Directors. Construction loans in
excess of $15.0 million require the same officer approvals, approval by the Management Loan Committee, and approval
of the Bank Board of Directors. Any loan, regardless of type, that deviates from our written credit policies must be
approved by the Loan Committee or the Bank Board of Directors.
For all loans originated by us, upon receipt of a completed loan application, a credit report is ordered and
certain other financial information is obtained. An appraisal of the real estate intended to secure the proposed loan is
13
required to be received. An independent appraiser designated and approved by us currently performs such appraisals.
Our staff appraisers review all appraisals. The Bank Board of Directors annually approves the independent appraisers
used by the Bank and approves the Bank’s appraisal policy. It is our policy to require borrowers to obtain title insurance
and hazard insurance on all real estate loans prior to closing. For certain borrowers, and/or as required by law, the Bank
may require escrow funds on a monthly basis together with each payment of principal and interest to a mortgage escrow
account from which we make disbursements for items such as real estate taxes and, in some cases, hazard insurance
premiums.
Loan Concentrations. The maximum amount of credit that the Bank can extend to any single borrower or
related group of borrowers generally is limited to 15% of the Bank’s unimpaired capital and surplus, or $91.1 million at
December 31, 2016. Applicable laws and regulations permit an additional amount of credit to be extended, equal to 10%
of unimpaired capital and surplus, if the loan is secured by readily marketable collateral, which generally does not
include real estate. See “-Regulation.” However, it is currently our policy not to extend such additional credit. At
December 31, 2016, there were no loans in excess of the maximum dollar amount of loans to one borrower that the Bank
was authorized to make. At that date, the three largest concentrations of loans to one borrower consisted of loans secured
by commercial real estate, multi-family income producing properties and business loans with an aggregate principal
balance of $74.0 million, $60.0 million and $54.5 million for each of the three borrowers, respectively.
Loan Servicing. At December 31, 2016, we were servicing $1.3 million of mortgage loans and $13.1 million of
SBA loans for others. Our policy is to retain the servicing rights to the mortgage and SBA loans that we sell in the
secondary market, other than non-performing loans that are sold with servicing released to the buyer. In order to increase
revenue, management intends to continue this policy.
Asset Quality
Loan Collection. When a borrower fails to make a required payment on a loan, we take a number of steps to
induce the borrower to cure the delinquency and restore the loan to current status. In the case of mortgage loans, personal
contact is made with the borrower after the loan becomes 30 days delinquent. We take a proactive approach to managing
delinquent loans, including conducting site examinations and encouraging borrowers to meet with one of our
representatives. When deemed appropriate, we develop short-term payment plans that enable borrowers to bring their
loans current, generally within six to nine months. At times, when a borrower is experiencing financial difficulties, we
may restructure a loan to enable a borrower to continue making payments when it is deemed to be in our best long-term
interest. This restructure may include reducing the interest rate or amount of the monthly payment for a specified period
of time, after which the interest rate and repayment terms revert to the original terms of the loan. We classify these loans
as TDR. At December 31, 2016, we had $17.8 million of loans classified as TDR, with $17.4 million of these loans
performing according to their restructured terms and $0.4 million not performing according to their restructured terms.
We review delinquencies on a loan by loan basis, diligently exploring ways to help borrowers meet their obligations and
return them back to current status, and we have increased staffing to handle delinquent loans by hiring people
experienced in loan workouts.
When the borrower has indicated that they will be unable 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, the loan is classified as non-performing. 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. At December 31, 2016, there were two loans, which totaled $0.4 million,
past due 90 days or more and still accruing interest.
Upon classifying a loan as non-performing, we review available information and conditions that relate to the
status of the loan, including the estimated value of the loan’s collateral and any legal considerations that may affect the
borrower’s ability to continue to make payments. Based upon the available information, we will consider the sale of the
loan or retention of the loan. If the loan is retained, we may continue to work with the borrower to collect the amounts
due or start foreclosure proceedings. If a foreclosure action is initiated and the loan is not brought current, paid in full, or
refinanced before the foreclosure sale, the real property securing the loan is sold at foreclosure or by us as soon thereafter
as practicable.
Once the decision to sell a loan is made, we determine what we would consider adequate consideration to be
obtained when that loan is sold, based on the facts and circumstances related to that loan. Investors and brokers are then
contacted to seek interest in purchasing the loan. We have been successful in finding buyers for some of our non-
performing loans offered for sale that are willing to pay what we consider to be adequate consideration. Terms of the sale
include cash due upon closing of the sale, no contingencies or recourse to us, servicing is released to the buyer and time
is of the essence. These sales usually close within a reasonably short time period.
14
This strategy of selling non-performing loans has allowed us to optimize our return by quickly converting our
non-performing loans to cash, which can then be reinvested in earning assets. This strategy also allows us to avoid
lengthy and costly legal proceedings that may occur with non-performing loans. There can be no assurances that we will
continue this strategy in future periods, or if continued, we will be able to find buyers to pay adequate consideration.
The following tables show delinquent and non-performing loans sold during the period indicated:
(Dollars in thousands)
Count
Proceeds
Net recoveries
Gross gains
Gross losses
For the years ended December 31,
2016
2014
2015
26
23
34
$
7,965
48
265
-
$
8,986
134
71
2
$
15,857
357
67
-
On mortgage loans or loan participations purchased by us for whom the seller retains the servicing rights, we
receive monthly reports with which we monitor the loan portfolio. Based upon servicing agreements with the servicers of
the loans, we rely upon the servicer to contact delinquent borrowers, collect delinquent amounts and initiate foreclosure
proceedings, when necessary, all in accordance with applicable laws, regulations and the terms of the servicing
agreements between us and our servicing agents. The servicers are required to submit monthly reports on their collection
efforts on delinquent loans. At December 31, 2016, we held $742.6 million of loans that were serviced by others.
In the case of commercial business or other loans, we generally send the borrower a written notice of non-
payment when the loan is first past due. In the event payment is not then received, additional letters and phone calls
generally are made in order to encourage the borrower to meet with one of our representatives to discuss the
delinquency. If the loan still is not brought current and it becomes necessary for us to take legal action, which typically
occurs after a loan is delinquent 90 days or more, we may attempt to repossess personal or business property that secures
an SBA loan, commercial business loan or consumer loan.
Troubled Debt Restructured . We have restructured certain problem loans for borrowers who are experiencing
financial difficulties by either: reducing the interest rate until the next reset date, extending the amortization period
thereby lowering the monthly payments, deferring a portion of the interest payment, or changing the loan to interest only
payments for a limited time period. At times, certain problem loans have been restructured by combining more than one
of these options. These restructurings have not included a reduction of principal balance. We believe that restructuring
these loans in this manner will allow certain borrowers to become and remain current on their loans. These restructured
loans are classified TDR. Loans which have been current for six consecutive months at the time they are restructured as
TDR remain on accrual status. Loans which were delinquent at the time they are restructured as a TDR are placed on
non-accrual status until they have made timely payments for six consecutive months.
15
The following table shows our recorded investment in loans classified as TDR that are performing according to
their restructured terms at the periods indicated:
(Dollars in thousands)
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Construction
Small Business Administration
Taxi medallion
Commercial business and other
Total performing troubled debt restructured
2016
2015
At December 31,
2014
2013
2012
$
$
$
$
$
2,572
2,062
1,800
591
-
-
9,735
675
17,435
2,626
2,371
2,052
343
-
34
-
2,083
9,509
3,035
2,373
2,381
354
-
-
-
2,249
10,392
3,087
2,407
2,692
364
746
-
-
4,406
13,702
2,347
7,190
2,336
374
3,805
-
-
3,849
19,901
$
$
$
$
$
Loans that are restructured as TDR but are not performing in accordance with the restructured terms are
excluded from the TDR table above, as they are placed on non-accrual status and reported as non-performing loans. At
December 31, 2016 and 2015, there was one loan for $0.4 million which was restructured as TDR which was not
performing in accordance with its restructured terms.
Delinquent Loans and Non-performing Assets. We generally discontinue accruing interest on delinquent loans
when a loan is 90 days past due or foreclosure proceedings have been commenced, whichever first occurs. At that time,
previously accrued but uncollected interest is reversed from income. Loans in default 90 days or more as to their
maturity date but not their payments, however, continue to accrue interest as long as the borrower continues to remit
monthly payments.
16
The following table shows our non-performing assets, including loans held for sale, at the dates indicated.
During the years ended December 31, 2016, 2015 and 2014, the amounts of additional interest income that would have
been recorded on non-accrual loans, had they been current, totaled $1.5 million, $1.7 million and $2.1 million,
respectively. These amounts were not included in our interest income for the respective periods.
(Dollars in thousands)
Loans 90 days or more past due
and still accruing:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family - residential
Construction
Commercial Business and other
Total
Non-accrual mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartments
Construction
Total
Non-accrual non-mortgage loans:
Small Business Administration
Taxi Medallion
Commercial Business and other
Total
Total non-accrual loans
Total non-performing loans
Other non-performing assets:
Real Estate Owned
Investment securities
Total
2016
2015
At December 31,
2014
2013
2012
-
$
-
386
-
-
-
386
$
233
1,183
611
13
1,000
220
3,260
$
676
820
405
14
-
386
2,301
$
52
-
-
15
-
539
606
-
$
-
-
-
-
644
644
1,837
1,148
4,025
8,241
-
-
15,251
1,886
3,825
68
5,779
21,030
21,416
533
-
533
3,561
2,398
5,952
10,120
-
-
22,031
218
-
568
786
22,817
26,077
4,932
-
4,932
6,878
5,689
6,936
11,244
-
-
30,747
-
-
1,143
1,143
31,890
34,191
6,326
-
6,326
13,682
9,962
9,063
13,250
57
-
46,014
-
-
2,348
2,348
48,362
48,968
2,985
1,871
4,856
16,486
15,640
18,280
13,726
234
7,695
72,061
283
-
16,860
17,143
89,204
89,848
5,278
3,332
8,610
Total non-performing assets
$
21,949
$
31,009
$
40,517
$
53,824
$
98,458
Non-performing loans to gross loans
Non-performing assets to total assets
0.44%
0.36%
0.60%
0.54%
0.90%
0.80%
1.43%
1.14%
2.79%
2.21%
17
The following table shows our delinquent loans that are less than 90 days past due and still accruing interest at
the periods indicated:
December 31, 2016
60 - 89
days
30 - 59
days
(In thousands)
December 31, 2015
30 - 59
60 - 89
days
days
(In thousands)
$
$
$
$
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Construction loans
Small Business Administration
Commercial business and other
Total
287
22
762
-
-
-
1
1,072
2,575
3,363
4,671
3,831
-
13
22
14,475
804
153
1,257
154
-
-
2
2,370
9,422
2,820
8,630
4,261
-
42
-
25,175
$
$
$
$
Other Real Estate Owned. We aggressively market our Other Real Estate Owned (“OREO”) properties. At
December 31, 2016, we owned one OREO properties with a fair value of $0.5 million. At December 31, 2015, we owned
four OREO properties with a combined fair value of $4.9 million. At December 31, 2014, we owned eight OREO
properties with a combined fair value of $6.3 million.
We may obtain physical possession of residential real estate collateralizing a consumer mortgage loan via
foreclosure as an in-substance repossession. During the year ended December 31, 2016, we did not foreclose on any
consumer mortgages through in-substance repossession. At December 31, 2016, 2015 and 2014, we held foreclosed
residential real estate totaling $0.5 million, $0.1 million and $1.3 million, respectively. Included within net loans as of
December 31, 2016 was a recorded investment of $11.4 million of consumer mortgage loans secured by residential real
estate properties for which formal foreclosure proceedings were in process according to local requirements of the
applicable jurisdiction.
Environmental Concerns Relating to Loans. We currently obtain environmental reports in connection with the
underwriting of commercial real estate loans, and typically obtain environmental reports in connection with the
underwriting of multi-family loans. For all other loans, we obtain environmental reports only if the nature of the current
or, to the extent known to us, prior use of the property securing the loan indicates a potential environmental risk.
However, we may not be aware of such uses or risks in any particular case, and, accordingly, there is no assurance that
real estate acquired by us in foreclosure is free from environmental contamination or that, if any such contamination or
other violation exists, whether we will have any liability.
Classified Assets. Our policy is to review our assets, focusing primarily on the loan portfolio, OREO and the
investment portfolios, to ensure that the credit quality is maintained at the highest levels. When weaknesses are
identified, immediate action is taken to correct the problem through direct contact with the borrower or issuer. We then
monitor these assets, and, in accordance with our policy and current regulatory guidelines, we designate them as “Special
Mention,” which is considered a “Criticized Asset,” and “Substandard,” “Doubtful,” or “Loss” which are considered
“Classified Assets,” as deemed necessary. These loan designations are updated quarterly. We designate an asset as
Substandard when a well-defined weakness is identified that jeopardizes the orderly liquidation of the debt. We
designate an asset as Doubtful when it displays the inherent weakness of a Substandard asset with the added provision
that collection of the debt in full, on the basis of existing facts, is highly improbable. We designate an asset as Loss if it
is deemed the debtor is incapable of repayment. We do not hold any loans designated as loss, as loans that are designated
as Loss are charged to the Allowance for Loan Losses. Assets that are non-accrual are designated as Substandard,
Doubtful or Loss. We designate an asset as Special Mention if the asset does not warrant designation within one of the
other categories, but does contain a potential weakness that deserves closer attention. Our total Criticized and Classified
assets were $72.6 million at December 31, 2016, an increase of $17.8 million from $54.8 million at December 31, 2015.
The increase in criticized and classified assets was primarily due to an increase in special mention and substandard taxi
medallion loans and special mention commercial business and other loans.
18
The following table sets forth the Bank's Criticized and Classified assets at December 31, 2016:
(In thousands)
Special Mention
Substandard
Doubtful
Loss
Total
Loans:
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Construction loans
Small Business Administration
Taxi medallion
Commercial business and other
Total loans
Other Real Estate Owned
Total
$
7,133
2,941
4,197
1,205
-
540
2,715
9,924
28,655
$
3,351
4,489
7,009
9,399
-
436
16,228
2,493
43,405
$
-
28,655
533
43,938
$
-
$
-
-
-
-
-
54
-
54
-
54
$
-
$
-
-
-
-
-
-
-
-
-
$
-
$
10,484
7,430
11,206
10,604
-
976
18,997
12,417
72,114
533
72,647
$
The following table sets forth the Bank's Criticized and Classified assets at December 31, 2015:
(In thousands)
Special Mention
Substandard
Doubtful
Loss
Total
Loans:
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Construction loans
Small Business Administration
Taxi medallion
Commercial business and other
Total loans
Other Real Estate Owned
Total
$
4,361
1,821
3,087
1,437
-
229
-
-
10,935
$
5,421
3,812
10,990
12,255
1,000
224
2,118
3,123
38,943
$
-
10,935
4,932
43,875
$
-
$
-
-
-
-
-
-
-
-
-
$
-
-
$
-
-
-
-
-
-
-
-
-
$
-
$
9,782
5,633
14,077
13,692
1,000
453
2,118
3,123
49,878
4,932
54,810
$
On a quarterly basis all mortgage loans that are classified as Substandard or Doubtful are internally reviewed
for impairment, based on updated cash flows for income producing properties, or updated independent appraisals. The
loan balances of collateral dependent loans reviewed for impairment are then compared to the loans updated fair value.
We consider fair value of collateral dependent loans to be 85% of the appraised or internally estimated value of the
property, except for taxi medallion loans. The fair value of the underlying collateral of taxi medallion loans is the most
recent reported arm’s length transaction. The balance which exceeds fair value is generally charged-off against the
allowance for loan losses. At December 31, 2016, the current loan-to-value ratio on our collateral dependent loans
reviewed for impairment was 48.15%.
19
Allowance for Loan Losses
We have established and maintain on our books an allowance for loan losses (“ALL”) that is designed to
provide a reserve against estimated losses inherent in our overall loan portfolio. The allowance is established through a
provision for loan losses based on management’s evaluation of the risk inherent in the various components of the loan
portfolio and other factors, including historical loan loss experience (which is updated quarterly), current economic
conditions, delinquency and non-accrual trends, classified loan levels, risk in the portfolio and volumes and trends in
loan types, recent trends in charge-offs, changes in underwriting standards, experience, ability and depth of our lenders,
collection policies and experience, internal loan review function and other external factors. Additionally, we segregated
our loans into two portfolios based on year of origination. One portfolio is loans originated after December 31, 2009 and
the second portfolio loans originated prior to January 1, 2010. Our decision to segregate the portfolio based upon
origination dates was based on changes made in our underwriting standards during 2009. By the end of 2009, all loans
were being underwritten based on revised and tightened underwriting standards. Loans originated prior to 2010 have a
higher delinquency rate and loss history. Each of the years in the portfolio for loans originated prior to 2010 has a similar
delinquency rate. The determination of the amount of the allowance for loan losses includes estimates that are
susceptible to significant changes due to changes in appraisal values of collateral, national and local economic conditions
and other factors. We review our loan portfolio by separate categories with similar risk and collateral characteristics.
Impaired loans are segregated and reviewed separately. All non-accrual loans are classified impaired. Impaired loans
secured by collateral are reviewed based on the fair value of their collateral. For non-collateralized impaired loans,
management estimates any recoveries that are anticipated for each loan. In connection with the determination of the
allowance, the market value of collateral ordinarily is evaluated by our staff appraiser. On a quarterly basis, the estimated
values of impaired mortgage loans are internally reviewed, based on updated cash flows for income producing
properties, and at times an updated independent appraisal is obtained. The loan balances of collateral dependent impaired
loans are then compared to the property’s updated fair value. We consider fair value of collateral dependent loans to be
85% of the appraised or internally estimated value of the property. The fair value of the underlying collateral of taxi
medallion loans is the value of the underlying medallion based upon the most recently reported arm’s length transaction.
When there is no recent sale activity, the fair value is calculated using capitalization rates. In addition, taxi medallion
loans with a loan-to-value greater than 100% are classified as impaired and allocated a portion of the reserve in the
amount of the excess of the loan-to-value over the loan’s principal balance. The balance which exceeds fair value is
generally charged-off, except for taxi medallion loans. The 85% is based on the actual net proceeds the Bank has
received from the sale of OREO as a percentage of OREO’s appraised value. When evaluating a loan for impairment,
we do not rely on guarantees, and the amount of impairment, if any, is based on the fair value of the collateral. We do not
carry loans at a value in excess of the fair value due to a guarantee from the borrower. Impaired mortgage loans that were
written down resulted from quarterly reviews or updated appraisals that indicated the properties’ estimated value had
declined from when the loan was originated. The Board of Directors reviews and approves the adequacy of the
allowance for loan losses on a quarterly basis.
In assessing the adequacy of the allowance, we review our loan portfolio by separate categories which have
similar risk and collateral characteristics, e.g., multi-family residential, commercial real estate, one-to-four family mixed-
use property, one-to-four family residential, co-operative apartment, construction, SBA, commercial business, taxi
medallion and consumer loans. General provisions are established against performing loans in our portfolio in amounts
deemed prudent based on our qualitative analysis of the factors, including the historical loss experience, delinquency
trends and local economic conditions. Non-performing loans totaled $21.4 million and $26.1 million at December 31,
2016 and 2015, respectively. The Bank’s underwriting standards generally require a loan-to-value ratio of no more than
75% at the time the loan is originated. At December 31, 2016, the outstanding principal balance of our impaired
mortgage loans was approximately 39% of the estimated current value of the supporting collateral, after considering the
charge-offs that have been recorded. We incurred total net recoveries (charge-offs) of $0.7 million and ($2.6) million
during the years ended December 31, 2016 and 2015, respectively. The improvement in non-performing loans allowed
us to not record a provision for the year ended December 31, 2016 and record a benefit in the provision for loan losses of
$1.0 million and $6.0 million for the years ended December 31, 2015 and 2014, respectively. Management has
concluded, and the Board of Directors has concurred, that at December 31, 2016, the allowance was sufficient to absorb
losses inherent in our loan portfolio.
Our determination as to the classification of our assets and the amount of our valuation allowance is subject to
review by our regulators, which can require the establishment of additional general allowances or specific loss
allowances or require charge-offs. Such authorities may require us to make additional provisions to the allowance based
on their judgments about information available to them at the time of their examination. A policy statement provides
20
guidance for examiners in determining whether the levels of general valuation allowances for banking institutions are
adequate. The policy statement requires that if a bank’s general valuation allowance policies and procedures are deemed
to be inadequate, recommendations for correcting deficiencies, including any examiner concerns regarding the level of
the allowance, should be noted in the report of examination. Additional supervisory action may also be taken based on
the magnitude of the observed shortcomings in the allowance process, including the materiality of any error in the
reported amount of the allowance.
During the year ended December 31, 2106, the portion of the ALL related to the loss history declined. Charge-
offs recorded in the past twelve quarters have decreased as credit conditions have improved. The percentage of loans
originated prior to 2009, compared to the total loan portfolio, is decreasing as scheduled amortization and repayments
have occurred. These reductions in the ALL were partially offset by an additional allocation to our taxi medallion
portfolio coupled with an increase in the outstanding loan balances. Management believes that our current allowance for
loan losses is adequate in light of current economic conditions, the composition of our loan portfolio, the level and type
of delinquent loans, our level of classified loans, charge-offs recorded and other available information and the Board of
Directors concurs in this belief. At December 31, 2016, the total allowance for loan losses was $22.2 million,
representing 103.80% of non-performing loans and 101.28% of non-performing assets, compared to 82.58% of non-
performing loans and 69.45% of non-performing assets at December 31, 2015. We continue to monitor and, as
necessary, modify the level of our allowance for loan losses in order to maintain the allowance at a level which we
consider adequate to provide for probable loan losses based on available information.
Many factors may require additions to the allowance for loan losses in future periods beyond those currently
revealed. These factors include further adverse changes in economic conditions, changes in interest rates and changes in
the financial capacity of individual borrowers (any of which may affect the ability of borrowers to make repayments on
loans), changes in the real estate market within our lending area and the value of collateral, or a review and evaluation of
our loan portfolio in the future. The determination of the amount of the allowance for loan losses includes estimates that
are susceptible to significant changes due to changes in appraised values of collateral, national and local economic
conditions, interest rates and other factors. In addition, our overall level of credit risk inherent in our loan portfolio can
be affected by the loan portfolio’s composition. At December 31, 2016, multi-family residential, commercial real estate,
construction and one-to-four family mixed-use property mortgage loans, totaled 82.9% of our gross loans. The greater
risk associated with these loans, as well as business loans, could require us to increase our provisions for loan losses and
to maintain an allowance for loan losses as a percentage of total loans that is in excess of the allowance we currently
maintain. Provisions for loan losses are charged against net income. See “—Lending Activities” and “—Asset Quality.”
21
The following table sets forth changes in, and the balance of, our allowance for loan losses.
(Dollars in thousands)
2016
At and for the years ended December 31,
2014
2015
2013
2012
Balance at beginning of year
$
21,535
$
25,096
$
31,776
$
31,104
$
30,344
Provision (benefit) for loan losses
-
(956)
(6,021)
13,935
21,000
Loans charged-off:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartment
Construction
SBA
Taxi Medallion
Commercial business and other loans
Total loans charged-off
Recoveries:
Mortgage loans
SBA, commercial business and other loans
Total recoveries
Net recoveries (charge-offs)
(161)
-
(144)
(114)
-
-
(529)
(142)
(69)
(1,159)
1,493
360
1,853
694
(474)
(32)
(592)
(342)
-
-
(34)
-
(2,371)
(3,845)
888
352
1,240
(1,161)
(325)
(423)
(103)
-
-
(49)
-
(381)
(2,442)
1,515
268
1,783
(3,585)
(1,051)
(4,206)
(701)
(108)
(2,678)
(457)
-
(2,057)
(14,843)
(6,016)
(2,746)
(4,286)
(1,583)
(62)
(4,591)
(324)
-
(1,661)
(21,269)
1,407
173
1,580
838
191
1,029
(2,605)
(659)
(13,263)
(20,240)
Balance at end of year
$
22,229
$
21,535
$
25,096
$
31,776
$
31,104
Ratio of net (recoveries) charge-offs during the year
to average loans outstanding during the year
Ratio of allowance for loan losses to
gross loans at end of the year
Ratio of allowance for loan losses to
-0.02%
0.06%
0.02%
0.41%
0.64%
0.46%
0.49%
0.66%
0.93%
0.97%
non-performing loans at the end of the year
103.80%
82.58%
73.40%
64.89%
34.62%
Ratio of allowance for loan losses to
non-performing assets at the end of the year
101.28%
69.45%
61.94%
59.04%
31.59%
22
Loan Category
Mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family
mixed-use property
One-to-four family
residential
Co-operative apartment
Construction
The following table sets forth our allocation of the allowance for loan losses to the total amount of loans in each of the categories listed at the dates
indicated. The numbers contained in the “Amount” column indicate the allowance for loan losses allocated for each particular loan category. The numbers
contained in the column entitled “Percentage of Loans in Category to Total Loans” indicate the total amount of loans in each particular category as a percentage
of our loan portfolio.
2016
Percent
of Loans in
Category to
Total loans
Amount
2015
Percent
of Loans in
Category to
Total loans
Amount
At December 31,
2014
2013
2012
Percent
of Loans in
Category to
Total loans
Percent
of Loans in
Category to
Total loans
Amount
Percent
of Loans in
Category to
Total loans
Amount
Amount
(Dollars in thousands)
$
5,923
4,487
45.21 %
25.86
$
6,718
4,239
%
46.98
22.90
$
8,827
4,202
%
50.64
16.36
$
12,084
4,959
%
50.02
14.97
$
13,001
5,705
%
47.62
16.00
2,903
1,015
-
92
11.59
3.85
0.15
0.24
4,227
1,227
-
50
Gross mortgage loans
14,420
86.90
16,461
Non-mortgage loans:
Small Business Administration
Taxi Medallion
Commercial business and other
Gross non-mortgage loans
481
2,243
4,492
7,216
0.32
0.39
12.39
13.10
262
343
4,469
5,074
13.11
4.30
0.19
0.17
87.65
0.28
0.48
11.59
12.35
5,840
1,690
-
42
20,601
279
11
4,205
4,495
15.10
4.94
0.26
0.14
87.44
0.19
0.59
11.78
12.56
6,328
2,079
104
444
25,998
458
-
5,320
5,778
17.40
5.66
0.30
0.12
88.47
0.23
0.38
10.92
11.53
5,960
1,999
46
66
26,777
505
7
3,815
4,327
19.79
6.18
0.20
0.45
90.24
0.29
0.31
9.16
9.76
Unallocated
Total loans
593
22,229
$
-
100.00
%
-
21,535
$
-
100.00
%
-
25,096
$
-
100.00
%
-
31,776
$
-
100.00
%
-
31,104
$
-
100.00
%
23
Investment Activities
General. 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, our interest rate
risk exposure, our interest rate sensitivity “gap” position, the types of securities to be held, and other factors. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview—Management
Strategy” in Item 7 of this Annual Report.
Although we have authority to invest in various types of assets, we primarily invest in mortgage-backed
securities, securities issued by mutual or bond funds that invest in government and government agency securities,
municipal bonds, corporate bonds and collateralized loan obligations (“CLO”). We did not hold any issues of foreign
sovereign debt at December 31, 2016 and 2015.
Our Investment Committee meets quarterly to monitor investment transactions and to establish investment
strategy. The Board of Directors reviews the investment policy on an annual basis and investment activity on a monthly
basis.
We classify our investment securities as available for sale when management intends to hold the securities for
an indefinite period of time or when the securities may be utilized for tactical asset/liability purposes and may be sold
from time to time to effectively manage interest rate exposure and resultant prepayment risk and liquidity needs.
Securities are classified as held-to-maturity when management intends to hold the securities until maturity. We carry
some of our investments under the fair value option. Unrealized gains and losses for investments carried under the fair
value option are included in our Consolidated Statements of Income. Unrealized gains and losses on securities available
for sale, other than unrealized credit losses considered other than temporary, are excluded from earnings and included in
accumulated other comprehensive loss (a separate component of equity), net of taxes. Securities held-to-maturity are
carried at their cost basis. At December 31, 2016, we had $861.4 million in securities available for sale and $37.7 million
in securities held-to-maturity, which together represented 14.83% of total assets. These securities had an aggregate
market value at December 31, 2016 that was approximately 1.7 times the amount of our equity at that date.
There were no credit related OTTI charges recorded during the years ended December 31, 2016, 2015 and 2014.
As a result of the magnitude of our holdings of securities available for sale, changes in interest rates could produce
significant changes in the value of such securities and could produce significant fluctuations in our operating results and
equity. (See Notes 6 and 18 of Notes to Consolidated Financial Statements, included in Item 8 of this Annual Report.)
24
The table below sets forth certain information regarding the amortized cost and market values of our securities
portfolio, interest-earning deposits and federal funds sold, at the dates indicated. Securities available for sale are recorded
at market value. (See Notes 6 and 18 of Notes to Consolidated Financial Statements, included in Item 8 of this Annual
Report.)
2016
Amortized
Cost
Fair
Value
At December 31,
2015
Amortized
Cost
Fair
Value
(In thousands)
2014
Amortized
Cost
Fair
Value
$
37,735
37,735
$
35,408
35,408
$
6,180
6,180
$
6,180
6,180
-
$
-
-
$
-
124,984
110,000
85,470
320,454
21,366
1,019
6,344
7,363
402,636
1,319
109,493
5,378
518,826
868,009
126,903
102,910
86,365
316,178
21,366
1,019
6,342
7,361
401,370
1,427
108,351
5,328
516,476
861,381
127,696
115,976
53,225
296,897
21,290
871
6,343
7,214
469,987
11,635
170,327
16,961
668,910
994,311
131,583
111,674
52,898
296,155
21,290
871
6,341
7,212
469,936
11,798
170,057
16,949
668,740
993,397
145,864
90,719
-
236,583
148,896
91,273
-
240,169
21,118
21,118
864
6,234
7,098
504,207
13,862
169,956
14,505
702,530
864
6,226
7,090
505,768
14,159
170,367
14,639
704,933
967,329
973,310
25,771
25,771
32,825
32,825
22,977
22,977
Securities held-to-maturity
Bonds and other debt securities:
Municipal securities
Total bonds and other debt securities
Securities available for sale
Bonds and other debt securities:
Municipal securities
Corporate debentures
Collateralized loan obligations
Total bonds and other debt securities
Mutual funds
Equity securities:
Common stock
Preferred stock
Total equity securities
Mortgage-backed securities:
REMIC and CMO
GNMA
FNMA
FHLMC
Total mortgage-backed securities
Total securities available for sale
Interest-earning deposits and
Federal funds sold
Total
$
931,515
$
922,560
$
1,033,316
$
1,032,402
$
990,306
$
996,287
Mortgage-backed securities. At December 31, 2016, we had $516.5 million invested in mortgage-backed
securities, of which $2.8 million was invested in adjustable-rate mortgage-backed securities. The mortgage loans
underlying these adjustable-rate securities generally are subject to limitations on annual and lifetime interest rate
increases. We anticipate that investments in mortgage-backed securities may continue to be used in the future to
supplement mortgage-lending activities. Mortgage-backed securities are more liquid than individual mortgage loans and
may be used more easily to collateralize our obligations, including collateralizing of the governmental deposits of the
Bank.
25
The following table sets forth our mortgage-backed securities purchases, sales and principal repayments for the
years indicated:
2016
For the years ended December 31,
2015
(In thousands)
2014
Balance at beginning of year
$
668,740
$
704,933
$
756,156
Purchases of mortgage-backed securities
90,572
169,383
125,897
Amortization of unearned premium, net of
accretion of unearned discount
Net change in unrealized gains on mortgage-backed
securities available for sale
Net realized gains (losses) recorded on mortgage-backed
securities carried at fair value
Net change in interest due on securities carried at fair value
(2,086)
(2,747)
(2,699)
(2,180)
(2,573)
11,117
(33)
-
77
(6)
84
(8)
Sales of mortgage-backed securities
(126,045)
(103,100)
(85,021)
Principal repayments received on
mortgage-backed securities
(112,492)
(97,227)
(100,593)
Net decrease in mortgage-backed securities
(152,264)
(36,193)
(51,223)
Balance at end of year
$
516,476
$
668,740
$
704,933
While mortgage-backed securities carry a reduced credit risk as compared to whole loans, such securities
remain subject to the risk that a fluctuating interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate of such mortgage loans and so affect both
the prepayment speed and value of such securities.
26
The table below sets forth certain information regarding the amortized cost, fair value, annualized weighted average yields and maturities of our investment in debt
and equity securities and interest-earning deposits at December 31, 2016. The stratification of balances is based on stated maturities. Assumptions for repayments and
prepayments are not reflected for mortgage-backed securities. Securities available for sale are carried at their fair value in the consolidated financial statements and securities
held-to-maturity are carried at their amortized cost.
One year or Less
One to Five Years
Five to Ten Years
More than Ten Years
Total Securities
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
(Dollars in thousands)
Weighted
Average
Yield
Average
Remaining
Years to
Maturity
Amortized
Cost
Fair
Value
Weighted
Average
Yield
Securities held-to-maturity
Bonds and other debt securities:
Municipal securities
Total bonds and other debt securities
Securities available for sale
Bonds and other debt securities:
Municipal securities
Corporate debentures
CLO
Total bonds and other debt securities
Mutual funds
Equity securities:
Common stock
Preferred stock
Total equity securities
Mortgage-backed securities:
REMIC and CMO
GNMA
FNMA
FHLMC
Total mortgage-backed securities
$
15,870
15,870
%
1.04
1.04
-
$
-
-
-
%
-
$
-
-
-
%
$
21,865
21,865
%
3.27
3.27
15.41
15.41
$
37,735
37,735
$
35,408
35,408
%
2.33
2.33
-
$
-
-
-
-
-
-
-
%
$
1,781
-
-
1,781
%
4.86
-
-
4.86
$
19,430
55,000
36,919
111,349
%
4.52
2.89
2.87
3.17
$
103,773
55,000
48,551
207,324
%
4.72
4.05
3.18
4.18
21,366
1.84
-
-
-
-
-
4
-
4
-
-
-
-
-
6.00
-
6.00
0.75
-
-
-
-
5,073
-
9,915
65
15,053
-
-
-
-
4.22
-
3.65
6.41
3.85
-
-
-
-
7,891
-
26,268
1,195
35,354
-
-
-
-
2.99
-
2.44
4.27
2.62
-
-
1,019
6,344
7,363
389,672
1,319
73,306
4,118
468,415
4.28
6.95
6.58
2.85
5.90
2.89
3.33
2.87
-
-
-
-
-
-
14.76
9.17
10.02
11.58
N/A
N/A
N/A
N/A
27.31
18.44
14.76
23.55
24.60
N/A
$
124,984
110,000
85,470
320,454
$
126,903
102,910
86,365
316,178
21,366
21,366
%
4.69
3.47
3.05
3.83
1.84
1,019
6,344
7,363
402,636
1,319
109,493
5,378
518,826
1,019
6,342
7,361
401,370
1,427
108,351
5,328
516,476
25,771
25,771
4.28
6.95
6.58
2.87
5.90
2.85
3.58
2.88
0.75
Interest-earning deposits
25,771
Total
$
63,011
1.19
%
$
16,834
3.96
%
$
146,703
3.04
%
$
704,967
3.31
%
20.32
$
931,515
$
922,560
3.13
%
27
Sources of Funds
General. Deposits, FHLB-NY borrowings, other borrowings, repurchase agreements, principal and interest
payments on loans, mortgage-backed and other securities, and proceeds from sales of loans and securities are our
primary sources of funds for lending, investing and other general purposes.
Deposits. We offer a variety of deposit accounts having a range of interest rates and terms. Our deposits
primarily consist of savings accounts, money market accounts, demand accounts, NOW accounts and certificates of
deposit. We have a relatively stable retail deposit base drawn from our market area through our 19 full-service
offices. We seek to retain existing depositor relationships by offering quality service and competitive interest rates,
while keeping deposit growth within reasonable limits. It is management’s intention to balance its goal to maintain
competitive interest rates on deposits while seeking to manage its cost of funds to finance its strategies.
In addition to our full-service offices we have an internet branch “iGObanking.com®”, which currently
offers savings accounts, money market accounts, checking accounts, and certificates of deposit. This allows us to
compete on a national scale without the geographical constraints of physical locations. Since the number of U.S.
households with accounts at Web-only banks has grown, our strategy was to join the market place by creating a
branch that offers clients the simplicity and flexibility of a virtual online bank, which is a division of a stable,
traditional bank that was established in 1929. At December 31, 2016 and 2015, total deposits for iGObanking.com®
were $417.3 million and $323.7 million, respectively.
We have a government banking division, which prior to the Merger in 2013 operated as the Commercial
Bank, a New York State-chartered commercial bank, which provided banking services to public municipalities,
including counties, cities, towns, villages, school districts, libraries, fire districts, and the various courts throughout
the New York City metropolitan area as an additional source of deposits. At December 31, 2016 and 2015, total
deposits in our government banking division totaled $1,062.1 million and $975.9 million, respectively.
Our core deposits, consisting of savings accounts, NOW accounts, money market accounts, and non-
interest bearing demand accounts, are typically more stable and lower costing than other sources of funding.
However, the flow of deposits into a particular type of account is influenced significantly by general economic
conditions, changes in prevailing interest rates, and competition. We experienced an increase in our due to
depositors’ during 2016 of $309.7 million. During the year ended December 31, 2016, the cost of our interest-
bearing due to depositors’ accounts increased one basis point to 0.89% from 0.88% for the year ended December 31,
2015. This increase in the cost of deposits was primarily due to increases in the cost of money market, NOW and
savings accounts of 21 basis points, seven basis points and four basis points, respectively, partially offset by a
decrease of nine basis points in the cost of certificates of deposit. The increase in the cost of money market accounts
was primarily due to our shifting of Government NOW deposits to a money market product which does not require
us to provide collateral, allowing us to invest these funds in higher yielding assets. The cost of NOW and savings
accounts increased as we increased the rate we pay on some of our products to attract additional deposits. The
decrease in the cost of certificates of deposit was primarily due to maturing issuances being replaced at lower rates.
While we are unable to predict the direction of future interest rate changes, if interest rates rise during 2017, the
result could be an increase in our cost of deposits, which could reduce our net interest margin. Similarly, if interest
rates remain at their current level or decline in 2017, we could see a decline in our cost of deposits, which could
increase our net interest margin.
Included in deposits are certificates of deposit with balances of $100,000 or more (excluding brokered
deposits issued in $1,000 amounts under a master certificate of deposit) totaling $648.1 million, $484.7 million and
$403.1 million at December 31, 2016, 2015 and 2014, respectively.
We utilize brokered deposits as an additional funding source and to assist in the management of our interest
rate risk. We have obtained brokered certificates of deposit when the interest rate on these deposits is below the
prevailing interest rate for non-brokered certificates of deposit with similar maturities in our market, or when
obtaining them allowed us to extend the maturities of our deposits at favorable rates compared to borrowing funds
with similar maturities, when we are seeking to extend the maturities of our funding to assist in the management of
our interest rate risk. Brokered certificates of deposit provide a large deposit for us at a lower operating cost as
compared to non-brokered certificates of deposit since we only have one account to maintain versus several
accounts with multiple interest and maturity checks. The Depository Trust Company is used as the clearing house,
maintaining each deposit under the name of CEDE & Co. These deposits are transferable just like a stock or bond
investment and the customer can open the account with only a phone call, just like buying a stock or bond. Unlike
28
non-brokered certificates of deposit, where the deposit amount can be withdrawn with a penalty for any reason,
including increasing interest rates, a brokered certificate of deposit can only be withdrawn in the event of the death,
or court declared mental incompetence, of the depositor. This allows us to better manage the maturity of our
deposits and our interest rate risk. We also utilized brokers to obtain money market account deposits. The rate we
pay on brokered money market accounts is the same or below the rate we pay on non-brokered money market
accounts, and the rate is agreed to in a contract between the Bank and the broker. These accounts are similar to
brokered certificates of deposit accounts in that we only maintain one account for the total deposit per broker, with
the broker maintaining the detailed records of each depositor.
We also offer access to FDIC insurance coverage in excess of $250,000 through a Certificate of Deposit
Account Registry Service (“CDARS®”) and through an Insured Cash Sweep service (“ICS”). CDARS® and ICS
are deposit placement services. These networks arrange for placement of funds into certificate of deposit accounts or
money market accounts issued by other member banks of the network in increments of less than $250,000 to ensure
that both principal and interest are eligible for full FDIC deposit insurance. This allows us to accept deposits in
excess of $250,000 from a depositor, and place the deposits through the network to other member banks to provide
full FDIC deposit insurance coverage. We may receive deposits from other member banks in exchange for the
deposits we place into the network. We may also obtain deposits from other network member banks without placing
deposits into the network. We will obtain deposits in this manner primarily as a short-term funding source. We also
can place deposits with other member banks without receiving deposits from other member banks. Depositors are
allowed to withdraw funds, with a penalty, from these accounts at one or more of the member banks that hold the
deposits. Additionally, we place a portion of our government deposits in an ICS brokered money market product
which does not require us to provide collateral. This allows us to invest our funds in higher yielding assets. At
December 31, 2016 and 2015 the Bank held government ICS deposits totaling $539.0 million and $210.7 million,
respectively.
We also utilize brokers to obtain money market account deposits. These accounts are similar to brokered
certificate of deposit accounts in that we only maintain one account for the total deposit per broker, with the broker
maintaining the detailed records of each depositor.
Traditional brokered deposits and funds obtained through the CDARS® and ICS networks are classified as
brokered deposits for financial reporting purposes. At December 31, 2016, we had $1,114.9 million classified as
brokered deposits, with $458.8 million in brokered certificates of deposit, $655.0 million in brokered money market
accounts and $1.1 million in brokered checking accounts. The brokered certificates of deposit include $28.8 million
obtained through the CDARS® network and the brokered money market accounts include $539.0 million obtained
through the ICS network.
29
The following table sets forth the distribution of our deposit accounts at the dates indicated and the weighted average nominal interest rates on each
category of deposits presented.
2016
Percent
of Total
Deposits
Weighted
Average
Nominal
Rate
Amount
At December 31,
2015
Percent
of Total
Deposits
Weighted
Average
Nominal
Rate
(Dollars in thousands)
Amount
2014
Percent
of Total
Deposits
Weighted
Average
Nominal
Rate
Amount
$
254,283
6.05
%
0.48
%
$
261,748
6.72
%
0.45
%
$
261,942
7.47
%
0.38
%
1,362,484
333,163
40,216
1,990,146
843,370
31,432
53,222
588,751
281,454
369,630
47,626
1,372,115
32.40
7.92
0.96
47.32
20.05
0.75
1.27
14.00
6.69
8.79
1.13
32.63
0.59
-
0.22
0.47
0.67
0.64
0.99
1.18
1.26
1.83
2.86
1.41
1,448,695
269,469
36,844
2,016,756
472,489
19,615
21,962
496,343
316,475
461,843
87,064
1,403,302
37.22
6.92
0.95
51.81
12.14
0.50
0.56
12.75
8.13
11.86
2.24
36.05
0.49
-
0.17
0.42
0.46
0.40
0.41
1.08
1.20
1.73
2.77
1.41
1,359,057
255,834
35,679
1,912,512
290,263
7,059
82,966
275,828
198,290
622,908
118,772
1,305,823
38.74
7.29
1.02
54.51
8.27
0.20
2.36
7.86
5.65
17.75
3.39
37.22
0.45
-
0.09
0.37
0.32
0.10
0.80
0.89
1.08
2.06
2.88
1.65
$
4,205,631
100.00
%
0.82
%
$
3,892,547
100.00
%
0.78
%
$
3,508,598
100.00
%
0.84
%
Savings accounts
NOW accounts (9)
Demand accounts (10)
Mortgagors' escrow deposits
Total
Money market accounts (8)
Certificate of deposit accounts
with original maturities of:
Less than 6 Months (2)
6 to less than 12 Months (3)
(4)
12 to less than 30 Months
30 to less than 48 Months (5)
48 to less than 72 Months (6)
72 Months or more (7)
Total certificate of deposit accounts
Total deposits (1)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Included in the above balances are IRA and Keogh deposits totaling $69.3 million, $71.5 million and $91.0 million at December 31, 2016, 2015 and 2014, respectively.
Includes brokered deposits of $29.1 million, $5.0 million and $3.0 million at December 31, 2016, 2015 and 2014, respectively.
Includes brokered deposits of $0.8 million and $5.7 million at December 31, 2015 and 2014, respectively, and zero at December 31, 2016.
Includes brokered deposits of $84.0 million, $168.2 million and $85.9 million at December 31, 2016, 2015 and 2014, respectively.
Includes brokered deposits of $229.5 million, $244.6 million and $145.2 million at December 31, 2016, 2015 and 2014, respectively.
Includes brokered deposits of $113.0 million, $165.6 million and $271.4 million at December 31, 2016, 2015 and 2014, respectively.
Includes brokered deposits of $3.1 million, $41.0 million and $72.4 million at December 31, 2016, 2015 and 2014, respectively.
Includes brokered deposits of $655.0 million, $339.8 million and $180.2 million at December 31, 2016, 2015 and 2014, respectively.
Includes brokered deposits of $15.0 million at December 31, 2015, and zero at December 31, 2016 and 2014.
Includes brokered deposits of $1.1 million and $2.8 million at December 31, 2016 and 2015, respectively.
30
The following table presents by various rate categories, the amount of time deposit accounts outstanding at the
dates indicated, and the years to maturity of the certificate accounts outstanding at December 31, 2016.
2016
At December 31,
2015
2014
At December 31, 2016
One to
Three Years
Within
One Year
Thereafter
(In thousands)
Interest rate:
1.99% or less
(1)
2.00% to 2.99% (2)
3.00% to 3.99% (3)
Total
$
$
1,107,882
237,122
27,111
1,372,115
$
$
1,074,229
279,688
49,385
1,403,302
$
817,100
301,445
184,172
1,302,717
$
$
$
631,816
12,516
4
644,336
$
$
447,776
200,078
1,940
649,794
$
$
28,290
24,528
25,167
77,985
(1)
(2)
(3)
Includes brokered deposits of $442.4 million, $542.3 million and $435.3 million at December 31, 2016, 2015 and 2014, respectively.
Includes brokered deposits of $16.4 million, $59.9 million and $83.1 million at December 31, 2016, 2015 and 2014, respectively.
Includes brokered deposits of $23.0 million and $65.3 million at December 31, 2015 and 2014, respectively.
The following table presents by remaining maturity categories the amount of certificate of deposit accounts with
balances of $100,000 or more at December 31, 2016 and their annualized weighted average interest rates.
Amount
Weighted
Average Rate
(Dollars in thousands)
Maturity Period:
Three months or less
Over three through six months
Over six through 12 months
Over 12 months
Total
$
$
159,371
66,237
47,632
374,858
648,098
1.16
1.20
1.37
1.59
1.43
%
%
The above table does not include brokered deposits issued in $1,000 amounts under a master certificate of
deposit totaling $393.5 million with a weighted average rate of 1.30%.
The following table presents the deposit activity, including mortgagors’ escrow deposits, for the periods
indicated.
Net deposits
Amortization of premiums, net
Interest on deposits
Net increase in deposits
2016
$
$
278,793
747
33,350
312,890
For the year ended December 31,
2015
(In thousands)
352,602
$
1,012
30,336
383,950
$
2014
$
$
244,830
944
30,044
275,818
31
The following table sets forth the distribution of our average deposit accounts for the years indicated, the
percentage of total deposit portfolio, and the average interest cost of each deposit category presented. Average balances
for all years shown are derived from daily balances.
2016
Percent
of Total
Deposits
Average
Cost
Average
Balance
At December 31,
2015
Percent
of Total
Deposits
(Dollars in thousands)
2014
Percent
of Total
Deposits
Average
Cost
Average
Cost
Average
Balance
%
6.35
36.41
7.42
1.37
51.55
14.15
34.30
100.00
%
0.47
0.53
-
0.20
0.44
0.62
1.46
0.81
%
$
264,891
1,432,609
250,488
52,364
2,000,352
380,595
%
7.10
38.38
6.71
1.40
53.59
10.20
1,351,619
3,732,566
$
%
36.21
100.00
%
0.43
0.46
-
0.19
0.39
0.41
1.55
0.81
%
$
258,243
1,390,899
211,389
47,876
1,908,407
245,752
%
7.70
41.47
6.30
1.43
56.90
7.33
1,199,849
3,354,008
$
%
35.77
100.00
%
0.23
0.45
-
0.28
0.37
0.27
1.87
0.90
%
%
Average
Balance
$
260,948
1,496,712
305,096
56,152
2,118,908
581,390
1,409,772
4,110,070
$
Savings accounts
NOW accounts
Demand accounts
Mortgagors' escrow deposits
Total
Money market accounts
Certificate of deposit accounts
Total deposits
Borrowings. Although deposits are our primary source of funds, we also use borrowings as an alternative and cost
effective source of funds for lending, investing and other general purposes. The Bank is a member of, and is eligible to
obtain advances from, the FHLB-NY. Such advances generally are secured by a blanket lien against the Bank’s
mortgage portfolio and the Bank’s investment in the stock of the FHLB-NY. In addition, the Bank may pledge
mortgage-backed securities to obtain advances from the FHLB-NY. See “— Regulation — Federal Home Loan Bank
System.” The maximum amount that the FHLB-NY will advance for purposes other than for meeting withdrawals
fluctuates from time to time in accordance with the policies of the FHLB-NY. The Bank may also 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 our consolidated financial statements. In addition, we issued junior
subordinated debentures with a total par of $61.9 million in June and July 2007. These junior subordinated debentures
are carried at fair value in the Consolidated Statement of Financial Condition. 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 callable at par quarterly through its maturity date beginning December 15, 2021.
The average cost of borrowings was 1.67%, 1.76% and 2.49% for the years ended December 31, 2016, 2015
and 2014, respectively. The average balances of borrowings were $1,231,0 million, $1,104.4 million and $993.8 million
for the same years, respectively.
32
The following table sets forth certain information regarding our borrowings at or for the periods ended on
the dates indicated.
2016
At or for the years ended December 31,
2015
(Dollars in thousands)
2014
Securities Sold with the Agreement to Repurchase (1)
Average balance outstanding
Maximum amount outstanding at any month
end during the period
Balance outstanding at the end of period
Weighted average interest rate during the period
Weighted average interest rate at end of period
FHLB-NY Advances (1)
Average balance outstanding
Maximum amount outstanding at any month
end during the period
Balance outstanding at the end of period
Weighted average interest rate during the period
Weighted average interest rate at end of period
Other Borrowings
Average balance outstanding
Maximum amount outstanding at any month
end during the period
Balance outstanding at the end of period
Weighted average interest rate during the period
Weighted average interest rate at end of period
Total Borrowings (1)
Average balance outstanding
Maximum amount outstanding at any month
end during the period
Balance outstanding at the end of period
Weighted average interest rate during the period
Weighted average interest rate at end of period
$
64,087
$
116,000
$
137,824
116,000
-
3.26
n/a
%
116,000
116,000
3.22
3.18
%
155,300
116,000
3.40
3.18
%
$
1,123,411
$
947,370
$
826,132
1,337,265
1,159,190
1.46
1.17
%
1,106,658
1,106,658
1.48
1.40
%
936,813
911,721
1.60
1.44
%
$
43,516
$
40,998
$
29,834
107,373
107,373
4.76
5.02
%
89,479
49,018
4.02
2.56
%
30,352
28,771
5.30
5.96
%
$
1,231,014
$
1,104,368
$
993,790
1,560,639
1,266,563
1.67
1.53
%
1,312,137
1,271,676
1.76
1.61
%
1,112,201
1,056,492
1.96
1.75
%
(1) The “weighted average interest rate during the period” for the year ended December 31, 2014, excludes
prepayment penalties on borrowings incurred from the extinguishment of debt to conform to the presentation
for the year ended December 31, 2016. These penalties are reflected in non-interest expense.
Subsidiary Activities
At December 31, 2016, Flushing Financial Corporation had four wholly owned subsidiaries: the Bank and the
Trusts. In addition, the Bank had three wholly owned subsidiaries: FSB Properties Inc. (“Properties”), Flushing Preferred
Funding Corporation (“FPFC”), and Flushing Service Corporation.
(a)Properties, which is incorporated in the State of New York, was formed in 1976 under the Savings Bank’s
New York State leeway investment authority. The original purpose of Properties was to engage in joint venture real
estate equity investments. The Savings Bank discontinued these activities in 1986. The last joint venture in which
Properties was a partner was dissolved in 1989, and the remaining property disposed. Properties is currently used to hold
title to real estate owned that is obtained via foreclosure.
(b)FPFC, which is incorporated in the State of Delaware, was formed in 1997 as a real estate investment trust
for the purpose of acquiring, holding and managing real estate mortgage assets. FPFC also provides an additional vehicle
for access by the Company to the capital markets for future opportunities.
33
(c)Flushing Service Corporation, which is incorporated in the State of New York, was formed in 1998 to market
insurance products and mutual funds.
Personnel
At December 31, 2016, we had 447 full-time employees and 23 part-time employees. None of our employees
are represented by a collective bargaining unit, and we consider our relationship with our employees to be good. At the
present time, Flushing Financial Corporation only employs certain officers of the Bank. These employees do not receive
any extra compensation as officers of Flushing Financial Corporation.
Omnibus Incentive Plan
The 2014 Omnibus Incentive Plan (“2014 Omnibus Plan”) became effective on May 20, 2014 after adoption by
the Board of Directors and approval by the stockholders. The 2014 Omnibus Plan authorizes the Compensation
Committee of the Company’s Board of Directors (the “Compensation Committee”) to grant a variety of equity
compensation awards as well as long-term and annual cash incentive awards, all of which can, but need not, be
structured so as to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal
Revenue Code”). The 2014 Omnibus Plan authorizes the issuance of 1,100,000 shares. To the extent that an award under
the 2014 Omnibus Plan is cancelled, expired, forfeited, settled in cash, settled by issuance of fewer shares than the
number underlying the award, or otherwise terminated without delivery of shares to a participant in payment of the
exercise price or taxes relating to an award, the shares retained by or returned to the Company will be available for future
issuance under the 2014 Omnibus Plan. No further awards may be granted under the Company’s 2005 Omnibus
Incentive Plan, 1996 Stock Option Incentive Plan, and 1996 Restricted Stock Incentive Plan. At December 31, 2016,
there were 489,320 shares available for delivery in connection with awards under the 2014 Omnibus Plan.
For additional information concerning this plan, see “Note 11 of Notes to Consolidated Financial Statements” in
Item 8 of this Annual Report.
FEDERAL, STATE AND LOCAL TAXATION
The following discussion of tax matters is intended only as a summary and does not purport to be a
comprehensive description of the tax rules applicable to the Company.
Federal Taxation
General. We report our income using a calendar year and the accrual method of accounting. We are subject to
the federal tax laws and regulations which apply to corporations generally, and, since the enactment of the Small
Business Job Protection Act of 1996 (the “Act”), those laws and regulations governing the Bank’s deductions for bad
debts, described below.
Bad Debt Reserves. Prior to the enactment of the Act, which was signed into law on August 20, 1996, savings
institutions which met certain definitional tests primarily relating to their assets and the nature of their business
(“qualifying thrifts”), such as the Savings Bank, were allowed deductions for bad debts under methods more favorable
than those granted to other taxpayers. Qualifying thrifts could compute deductions for bad debts using either the specific
charge off method of Section 166 of the Internal Revenue Code (the “Code”) or the reserve method of Section 593 of the
Code. Section 1616(a) of the Act repealed the Section 593 reserve method of accounting for bad debts by qualifying
thrifts, effective for taxable years beginning after 1995. Qualifying thrifts that are treated as large banks, such as the
Savings Bank was, are required to use the specific charge off method, pursuant to which the amount of any debt may be
deducted only as it actually becomes wholly or partially worthless.
Distributions. To the extent that the Bank makes “non-dividend distributions” to stockholders that are
considered to result in distributions from its pre-1988 reserves or the supplemental reserve for losses on loans (“excess
distributions”), then an amount based on the amount distributed will be included in the Bank’s taxable income. Non-
dividend distributions include distributions in excess of the Bank’s current and post-1951 accumulated earnings and
profits, as calculated for federal income tax purposes, distributions in redemption of stock and distributions in partial or
complete liquidation. The amount of additional taxable income resulting from an excess distribution is an amount that
when reduced by the tax attributable to the income is equal to the amount of the excess distribution. Thus, slightly more
than one and one-half times the amount of the excess distribution made would be includable in gross income for federal
income tax purposes, assuming a 35% federal corporate income tax rate. See “Regulation (cid:127) Restrictions on Dividends
and Capital Distributions” for limits on the payment of dividends by the Bank. The Bank does not intend to pay
dividends or make non-dividend distributions described above that would result in a recapture of any portion of its pre-
1988 bad debt reserves.
34
Corporate Alternative Minimum Tax. The Code imposes an alternative minimum tax on corporations equal to
the excess, if any, of 20% of alternative minimum taxable income (“AMTI”) over a corporation’s regular federal income
tax liability. AMTI is equal to taxable income with certain adjustments. Generally, only 90% of AMTI can be offset by
net operating loss carrybacks and carryforwards.
State and Local Taxation
New York State and New York City Taxation. We are subject to the New York State Franchise Tax on Banking
Corporations. New York State recently enacted several reforms (the "Tax Reform Package") to its tax structure,
including changes to the franchise, sales, estate and personal income taxes. These changes generally became effective for
tax years beginning on or after January 1, 2015. The Tax Reform Package simplified the existing corporate tax code for
New York State businesses while remaining relatively neutral in relation to corporate tax receipts. Under the Tax Reform
Package, the New York State corporate income tax rate was reduced, effective January 1, 2016, from 7.10% to
6.50%. The metropolitan commuter transportation district surcharge ("MTA Tax") increased to 28% of the surcharge
base for tax years beginning on or after January 1, 2016. The MTA Tax rate for tax years beginning on or after January
1, 2017 will be adjusted based upon future Metropolitan Transit Authority budget projections.
Some of the most significant elements of the Tax Reform Package include the merger of the bank franchise tax
regime into the general corporate franchise tax regime, expanded application of economic nexus, adoption of unitary
reporting, and apportionment of source income solely by reference to customer location.
New York State formerly had imposed a franchise tax on general business corporations and a separate franchise
tax on banking corporations. Under these statutes, New York State financial service companies and banks were
previously taxed under different regimes. The Tax Reform Package repealed the prior bank franchise taxation regime
and merged it into the corporate franchise tax regime. It also made certain subtraction modifications to the corporate
franchise tax regime, most notably by providing a choice between three potential financial tax subtraction modifications:
(i) a subtraction modification equal to 32% of New York State’s entire net income available to all thrifts and community
banks with assets that do not exceed $8 billion, provided certain residential lending tests are met; (ii) a subtraction
modification, available to both small thrifts and community banks with assets that do not exceed $8 billion, based upon
50% of the net interest income from loans multiplied by the fraction of interest received from loans secured by real estate
located in New York State or small business loans made to New York State borrowers with a principal amount of $5
million or less divided by total interest income from all loans; and (iii) both small thrifts and community banks with
assets that do not exceed $8 billion that owned a captive real estate investment trust as of April 1, 2014, may, for tax
years beginning on or after January 1, 2015, subtract 160% of dividends received from the trust in determining New
York State taxable income.
The Tax Reform Package requires that all firms meeting an ownership test of 50% or more be deemed a unitary
business and required to file a combined tax return. Substantial intercompany transactions are eliminated, and a
domestic corporation without any assets or customers in New York State, but engaged in a unitary business with a
related New York taxpayer, could become part of the New York State unitary group. The Tax Reform Package also
requires business income to be apportioned to and taxed by New York State using a single receipts factor based on the
customer's location. These provisions also contain favorable apportionment rules for asset-backed securities that are
beneficial to the Company.
The Company is subject to New York City franchise tax on a consolidated basis. New York City tax law
generally was conformed to New York State tax law with provisions similar to those described above for York State
purposes, with only a few minor differences. For tax years beginning on or after January 1, 2015, the New York City
income tax rate applied to the Company apportioned New York City taxable income was and is 8.85%.
New Jersey State Taxation. The Bank is required to pay New Jersey State income tax based on the percentage
of receipts from activity in New Jersey.
Delaware State Taxation. As a Delaware holding company not earning income in Delaware, we are exempt
from Delaware corporate income tax but are required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
35
REGULATION
General
The Bank is a New York State-chartered commercial bank and its deposit accounts are insured under the
Deposit Insurance Fund (the “DIF”) of the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable legal
limits. The Bank is subject to extensive regulation and supervision by the New York State Department of Financial
Services (“NYDFS”), as its chartering agency, by the FDIC, as its insurer of deposits, and by the Consumer Financial
Protection Bureau (the “CFPB”), which was created under the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the “Dodd-Frank Act”) in 2011 to implement and enforce consumer protection laws applying to banks. The Bank
must file reports with the NYDFS, the FDIC, and the CFPB concerning its activities and financial condition, in addition
to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other
depository institutions. Furthermore, the Bank is periodically examined by the NYDFS and the FDIC to assess
compliance with various regulatory requirements, including safety and soundness considerations. This regulation and
supervision establishes a comprehensive framework of activities in which a commercial bank can engage, and is
intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with its supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and the establishment of adequate loan loss
allowances for regulatory purposes. Any change in such regulation, whether by the NYDFS, the FDIC, or through
legislation, could have a material adverse impact on the Company, the Bank and its operations, and the Company’s
shareholders.
The Company is required to file certain reports under, and otherwise comply with, the rules and regulations of
the Federal Reserve Board of Governors (the “FRB”), the FDIC, the NYDFS, and the Securities and Exchange
Commission (the “SEC”) under federal securities laws. In addition, the FRB periodically examines the Company.
Certain of the regulatory requirements applicable to the Bank and the Company are referred to below or elsewhere
herein. However, such discussion is not meant to be a complete explanation of all laws and regulations and is qualified in
its entirety by reference to the actual laws and regulations.
The Dodd-Frank Act
The Dodd-Frank Act has significantly impacted the current bank regulatory structure and is expected to
continue to affect, into the immediate future, the lending and investment activities and general operations of depository
institutions and their holding companies. In addition to creating the CFPB, the Dodd-Frank Act requires the FRB to
establish minimum consolidated capital requirements for bank holding companies that are as stringent as those required
for insured depository institutions; the components of Tier 1 capital will be restricted to capital instruments that are
currently considered to be Tier 1 capital for insured depository institutions. In addition, the proceeds of trust preferred
securities will be excluded from Tier 1 capital unless (i) such securities are issued by bank holding companies with assets
of less than $500 million, or (ii) such securities were issued prior to May 19, 2010 by bank or savings and loan holding
companies with assets of less than $15 billion. The Dodd-Frank Act created a new supervisory structure for oversight of
the U.S. financial system, including the establishment of a new council of regulators, the Financial Stability Oversight
Council, to monitor and address systemic risks to the financial system. Non-bank financial companies that are deemed to
be significant to the stability of the U.S. financial system and all bank holding companies with $50 billion or more in
total consolidated assets will be subject to heightened supervision and regulation. The FRB will implement prudential
requirements and prompt corrective action procedures for such companies.
The Dodd-Frank Act made many additional changes in banking regulation, including: authorizing depository
institutions, for the first time, to pay interest on business checking accounts; requiring originators of securitized loans to
retain a percentage of the risk for transferred loans; establishing regulatory rate-setting for certain debit card interchange
fees; and establishing a number of reforms for mortgage lending and consumer protection.
The Dodd-Frank Act also broadened the base for FDIC insurance assessments. The FDIC was required to
promulgate rules revising its assessment system so that it is based not on deposits, but on the average consolidated total
assets less the tangible equity capital of an insured institution. That rule took effect April 1, 2011. The Dodd-Frank Act
also permanently increased the maximum amount of deposit insurance for banks, savings institutions, and credit unions
to $250,000 per depositor, retroactive to January 1, 2008, and provided non-interest-bearing transaction accounts with
unlimited deposit insurance through December 31, 2012.
Some of the provisions of the Dodd-Frank Act are not yet in effect. The Dodd-Frank Act requires various
federal agencies to promulgate numerous and extensive implementing regulations over the next several years.
36
On February 3, 2017, however, President Trump signed an executive order requiring a comprehensive review of
financial system regulations, including the Dodd-Frank Act. President Trump has promised other significant changes to
financial system regulations. Nonetheless, changes to these regulations are expected to be politically controversial and
may be slow and unpredictable in enactment and effect. It is too early to predict when or what, if any, existing
regulations affecting us will be repealed or amended and what if any new regulations affecting us will be adopted,
leaving the bank regulatory environment particularly uncertain at present. Further, there can be no assurance as to the
impact that any laws, regulations or governmental programs that may be introduced or implemented in the future will
have on the financial markets and the economy.
Basel III
In the summer of 2012, our primary federal regulators published two notices of proposed rulemaking (“NPRs”)
that would have substantially revised the risk-based capital requirements applicable to bank holding companies and
depository institutions, including the Company and the Bank, compared to the then current U.S. risk-based capital rules,
which are based on the international capital accords of the Basel Committee on Banking Supervision, which are
generally referred to as “Basel I.”
During July 2013, our primary federal regulators issued revised NPRs that will revise and replace the agencies'
current capital rules. The NPRs included numerous revisions to the existing capital regulations, including, but not limited
to, the following:
(cid:120) Revised the definition of regulatory capital components and related calculations.
(cid:120) Added a new common equity tier 1 capital ratio.
(cid:120)
(cid:120)
(cid:120)
Increased the minimum tier 1 capital ratio requirement from four percent to six percent.
Incorporated the revised regulatory capital requirements into the Prompt Corrective Action framework.
Implemented a new capital conservation buffer that would limit payment of capital distributions and certain
discretionary bonus payments to executive officers and key risk takers if the banking organization does not hold
certain amounts of common equity tier 1 capital in addition to those needed to meet its minimum risk-based
capital requirements.
(cid:120) Provided a transition period for several aspects of the proposed rule: the new minimum capital ratio
requirements, the capital conservation buffer, and the regulatory capital adjustments and deductions.
(cid:120)
Increased capital requirements for past-due loans, high volatility commercial real estate exposures, and certain
short-term loan commitments.
(cid:120) Removed references to credit ratings consistent with Section 939A of the Dodd-Frank Act.
(cid:120) Established due diligence requirements for securitization exposures.
The capital regulations became effective January 1, 2015 for bank holding companies and banks with less than
$15 billion in total assets, such as our Company and Bank. We continue to be considered well-capitalized under Basel
III.
Volcker Rule
On December 10, 2013, our primary federal regulators adopted Section 619 of the Dodd-Frank Act, commonly
referred to as the “Volcker Rule,” which prohibits insured depository institutions from engaging in short-term proprietary
trading of certain securities, derivatives and other financial instruments for the firm’s own account, subject to certain
exemptions, including market making and risk-mitigating hedging. The Volcker Rule also imposes limits on banking
entities’ investments in, and other relationships with, hedge funds and private equity funds. The financial industry has
strongly opposed the Volcker Rule, which remains controversial and the subject of continuing debate. Further, as noted
above, President Trump has indicated an intention to review many financial industry regulations. In this regard, in
37
January 2017, the Treasury Secretary, Steven Mnuchin, publicly stated the intention that the regulatory impact of the
Volcker Rule be loosened. At this time, it is too early to know whether any changes will be proposed or implemented or
what impact any changes may have on the Bank or the Company.
The rule as adopted prohibited banking entities from owning collateralized debt obligations backed primarily by
trust preferred securities (“TruPS CDOs”) after July 21, 2015. At December 31, 2016 and 2015, the Company did not
hold any TruPs CDOs.
New York State Law
The Bank derives its lending, investment, and other authority primarily from the applicable provisions of New
York State Banking Law and the regulations of the NYDFS, as limited by FDIC regulations. Under these laws and
regulations, banks, including the Bank, may invest in real estate mortgages, consumer and commercial loans, certain
types of debt securities (including certain corporate debt securities, and obligations of federal, state, and local
governments and agencies), certain types of corporate equity securities, and certain other assets. The lending powers of
New York State-chartered commercial banks are not subject to percentage-of-assets or capital limitations, although there
are limits applicable to loans to individual borrowers.
The exercise by an FDIC-insured commercial bank of the lending and investment powers under New York State
Banking Law is limited by FDIC regulations and other federal laws and regulations. In particular, the applicable
provisions of New York State Banking Law and regulations governing the investment authority and activities of an
FDIC-insured state-chartered savings bank and commercial bank have been effectively limited by the Federal Deposit
Insurance Corporation Improvement Act of 1991 (“FDICIA”) and the FDIC regulations issued pursuant thereto.
With certain limited exceptions, a New York State-chartered commercial bank may not make loans or extend
credit for commercial, corporate, or business purposes (including lease financing) to a single borrower, the aggregate
amount of which would be in excess of 15% of the bank’s net worth or up to 25% for loans secured by collateral having
an ascertainable market value at least equal to the excess of such loans over the bank’s net worth. The Bank currently
complies with all applicable loans-to-one-borrower limitations. At December 31, 2016, the Bank’s largest aggregate
amount of loans to one borrower was $74.0 million, all of which were performing according to their terms. See “—
General — Lending Activities.”
Under New York State Banking Law, New York State-chartered stock-form commercial banks may declare and
pay dividends out of its net profits, unless there is an impairment of capital, but approval of the NYDFS Superintendent
(the “Superintendent”) is required if the total of all dividends declared by the bank in a calendar year would exceed the
total of its net profits for that year combined with its retained net profits for the preceding two years less prior dividends
paid.
New York State Banking Law gives the Superintendent authority to issue an order to a New York State-
chartered banking institution to appear and explain an apparent violation of law, to discontinue unauthorized or unsafe
practices, and to keep prescribed books and accounts. Upon a finding by the NYDFS that any director, trustee, or officer
of any banking organization has violated any law, or has continued unauthorized or unsafe practices in conducting the
business of the banking organization after having been notified by the Superintendent to discontinue such practices, such
director, trustee, or officer may be removed from office after notice and an opportunity to be heard. The Superintendent
also has authority to appoint a conservator or a receiver for a savings or commercial bank under certain circumstances.
In addition, on February 16, 2017, the NYDFS issued the final version of its cybersecurity regulation, which has
an effective date of March 1, 2017. The regulation, which is detailed and broad in scope, covers five basic areas.
Governance: The regulation requires senior management and boards of directors must adopt a cybersecurity
policy for protecting information systems and most sensitive information. Covered companies must also designate a
Chief Information Security Officer, who must report to the board annually. The cybersecurity policy must be in place,
and the security officer designated, by August 28, 2017.
Testing: The regulation requires the conduct of cybersecurity tests and analyses, including a “risk assessment”
to “evaluate and categorize risks,” evaluate the integrity and confidentiality of information systems and non-public
information, and develop a process to mitigate any identified risks. These tests and assessments must be conducted by
March 1, 2018.
Ongoing Requirements: The regulation imposes substantial day-to-day and technical requirements. Among
others, we must develop access controls for our information systems, ensure the physical security of our computer
38
systems, encrypt or protect personally identifiable information, perform reviews of in-house and externally created
applications, train employees, and build an audit trail system. The timeline to ensure compliance with these rules ranges
from one year to eighteen months.
Vendors: The new regulation also regulates third-party vendors with access to our information technology or
non-public information. We will be required to develop and implement written policies and procedures to ensure the
security of our information technology systems or non-public information that can be accessed by our vendors, including
identifying the risks from third-party access, imposing minimum cybersecurity practices for vendors, and creating a due-
diligence process for evaluating those vendors. We will have two years to satisfy these extensive requirements.
Reports: The new regulation imposes a notification process for any material cybersecurity event. Within 72
hours, a cybersecurity event that has a “reasonable likelihood” of “materially harming” us or that must be reported to
another government or self-regulating agency must be reported to the NYDFS. In addition, an annual compliance
certification to the NYDFS from either the board or a senior officer is required.
FDIC Regulations
Capital Requirements. The FDIC has adopted risk-based capital guidelines to which the Bank is subject. The
guidelines establish a systematic analytical framework that makes regulatory capital requirements sensitive to differences
in risk profiles among banking organizations. The Bank is required to maintain certain levels of regulatory capital in
relation to regulatory risk-weighted assets. The ratio of such regulatory capital to regulatory risk-weighted assets is
referred to as a “risk-based capital ratio.” Risk-based capital ratios are determined by allocating assets and specified off-
balance-sheet items to risk-weighted categories ranging from 0% to 1,250%, with higher levels of capital being required
for the categories perceived as representing greater risk.
These guidelines divide an institution’s capital into two tiers. The first tier (“Tier 1”) includes common equity,
retained earnings, certain non-cumulative perpetual preferred stock (excluding auction rate issues), and minority interests
in equity accounts of consolidated subsidiaries, less goodwill and other intangible assets (except mortgage servicing
rights and purchased credit card relationships subject to certain limitations). Supplementary (“Tier 2”) capital includes,
among other items, cumulative perpetual and long-term limited-life preferred stock, mandatorily convertible securities,
certain hybrid capital instruments, term subordinated debt, and the allowance for loan losses, subject to certain
limitations, and up to 45% of pre-tax net unrealized gains on equity securities with readily determinable fair market
values, less required deductions. Commercial banks are required to maintain a total risk-based capital ratio of at least
8%, of which at least 4% must be Tier 1 capital.
In addition, the FDIC has established regulations prescribing a minimum Tier 1 leverage capital ratio (the ratio
of Tier 1 capital to adjusted average assets as specified in the regulations). These regulations provide for a minimum Tier
1 leverage capital ratio of at least 4%. The FDIC may, however, set higher leverage and risk-based capital requirements
on individual institutions when particular circumstances warrant. Institutions experiencing or anticipating significant
growth are expected to maintain capital ratios, including tangible capital positions, well above the minimum levels.
As of December 31, 2016, the Bank was deemed to be well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, a bank must maintain a minimum Tier 1 leverage capital
ratio of 5%, a minimum common equity Tier 1 capital ratio of 6.5%, a minimum Tier 1 risk-based capital ratio of 8%,
and a minimum total risk-based capital ratio of 10%. For a summary of the regulatory capital ratios of the Bank at
December 31, 2016, see “Note 14 of Notes to Consolidated Financial Statements” in Item 8 of this Annual Report.
The regulatory capital regulations of the FDIC and other federal banking agencies provide that the agencies will
take into account the exposure of an institution’s capital and economic value to changes in interest rate risk in assessing
capital adequacy. According to such agencies, applicable considerations include the quality of the institution’s interest
rate risk management process, overall financial condition, and the level of other risks at the institution for which capital
is needed. Institutions with significant interest rate risk may be required to hold additional capital. The agencies have
issued a joint policy statement providing guidance on interest rate risk management, including a discussion of the critical
factors affecting the agencies’ evaluation of interest rate risk in connection with capital adequacy. Institutions that
engage in specified amounts of trading activity may be subject to adjustments in the calculation of the risk-based capital
requirement to assure sufficient additional capital to support market risk.
Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe, for the
depository institutions under its jurisdiction, standards that relate to, among other things, internal controls; information
and audit systems; loan documentation; credit underwriting; the monitoring of interest rate risk; asset growth;
compensation; fees and benefits; and such other operational and managerial standards as the agency deems appropriate.
39
The federal banking agencies adopted final regulations and Interagency Guidelines Establishing Standards for Safety and
Soundness (the “Guidelines”) to implement these safety and soundness standards. The Guidelines set forth the safety and
soundness standards that the federal banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails
to meet any standard prescribed by the Guidelines, the agency may require the institution to provide it with an acceptable
plan to achieve compliance with the standard, as required by the Federal Deposit Insurance Act, as amended, (the “FDI
Act”). The final regulations establish deadlines for the submission and review of such safety and soundness compliance
plans.
Real Estate Lending Standards. The FDIC and the other federal banking agencies have adopted regulations that
prescribe standards for extensions of credit that are (i) secured by real estate, or (ii) made for the purpose of financing
construction or improvements on real estate. The FDIC regulations require each institution to establish and maintain
written internal real estate lending standards that are consistent with safe and sound banking practices, and appropriate to
the size of the institution and the nature and scope of its real estate lending activities. The standards also must be
consistent with accompanying FDIC guidelines, which include loan-to-value limitations for the different types of real
estate loans. Institutions are also permitted to make a limited amount of loans that do not conform to the proposed loan-
to-value limitations so long as such exceptions are reviewed and justified appropriately. The FDIC guidelines also list a
number of lending situations in which exceptions to the loan-to-value standard are justified.
Dividend Limitations. The FDIC has authority to use its enforcement powers to prohibit a commercial bank
from paying dividends if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice.
Federal law prohibits the payment of dividends that will result in the institution failing to meet applicable capital
requirements on a pro forma basis. The Bank is also subject to dividend declaration restrictions imposed by New York
State law as previously discussed under “New York State Law.”
Investment Activities. Since the enactment of FDICIA, all state-chartered financial institutions, including
commercial banks and their subsidiaries, have generally been limited to such activities as principal and equity
investments of the type, and in the amount, authorized for national banks. State law, FDICIA, and FDIC regulations
permit certain exceptions to these limitations. In addition, the FDIC is authorized to permit institutions to engage in
state-authorized activities or investments not permitted for national banks (other than non-subsidiary equity investments)
for institutions that meet all applicable capital requirements if it is determined that such activities or investments do not
pose a significant risk to the insurance fund. The Gramm-Leach-Bliley Act of 1999 and FDIC regulations impose certain
quantitative and qualitative restrictions on such activities and on a bank’s dealings with a subsidiary that engages in
specified activities.
Prompt Corrective Regulatory Action. Federal law requires, among other things, that federal bank regulatory
authorities take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements.
For such purposes, the law establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
The FDIC has adopted regulations to implement prompt corrective action. Among other things, the regulations
define the relevant capital measures for the five capital categories. An institution is deemed to be “well capitalized” if it
has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 8% or greater, a common equity
Tier 1 risk-based capital ratio of 6.5% and a leverage capital ratio of 5% or greater, and is not subject to a regulatory
order, agreement, or directive to meet and maintain a specific capital level for any capital measure. An institution is
deemed to be “adequately capitalized” if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital
ratio of 6% or greater, a common equity Tier 1 risk-based capital ratio of 4.5% or greater and a leverage capital ratio of
4% or greater. An institution is deemed to be “undercapitalized” if it has a total risk-based capital ratio of less than 8%, a
Tier 1 risk-based capital ratio of less than 6%, a common equity Tier 1 risk-based capital ratio of less than 4.5% or a
leverage capital ratio of less than 4%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-
based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 4% a common equity Tier 1 risk-based
capital ratio of less than 3.0%, or a leverage capital ratio of less than 3%. An institution is deemed to be “critically
undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less
than 2%.
“Undercapitalized” institutions are subject to growth, capital distribution (including dividend), and other
limitations, and are required to submit a capital restoration plan. An institution’s compliance with such plan is required to
be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5% of the
bank’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately
capitalized. If an undercapitalized institution fails to submit an acceptable plan, it is treated as if it is “significantly
undercapitalized.” Significantly undercapitalized institutions are subject to one or more additional restrictions including,
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but not limited to, an order by the FDIC to sell sufficient voting stock to become adequately capitalized; requirements to
reduce total assets, cease receipt of deposits from correspondent banks, or dismiss directors or officers; and restrictions
on interest rates paid on deposits, compensation of executive officers, and capital distributions by the parent holding
company.
Beginning 60 days after becoming “critically undercapitalized,” critically undercapitalized institutions also may
not make any payment of principal or interest on certain subordinated debt, or extend credit for a highly leveraged
transaction, or enter into any material transaction outside the ordinary course of business. In addition, subject to a narrow
exception, the appointment of a receiver is required for a critically undercapitalized institution within 270 days after it
obtains such status.
Insurance of Deposit Accounts. The Dodd-Frank Act made permanent the standard maximum amount of FDIC
deposit insurance at $250,000 per depositor. In addition, the deposits of the Bank are insured up to applicable limits by
the DIF. In this regard, insured depository institutions are required to pay quarterly deposit insurance assessments to the
DIF. Assessments are based on average total assets minus average tangible equity. The assessment rate is determined
through a risk-based system. For depository institutions with less than $10 billion in assets, such as the Bank, under the
FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk categories based upon
supervisory evaluations, regulatory capital level, and certain other factors, with less risky institutions paying lower
assessments. An institution’s assessment rate depends upon the category to which it is assigned and certain other factors.
The initial base assessment rate currently ranges from five to 35 basis points on an annualized basis. The initial base
assessment rate is then decreased depending on the institution's ratio of long-term unsecured debt to its assessment base
(with such decrease not to exceed the lesser of five basis points or 50% of the initial base assessment rate) and, for
institutions not in the highest risk category, increased if the institution's brokered deposits are more than ten percent of its
domestic deposits (with such increase not to exceed ten basis points). The current total base assessment rate is therefore
from 2.5 to 45 basis points on an annualized basis.
The Dodd-Frank Act increased the minimum target DIF ratio from 1.15% of estimated insured deposits to
1.35% of estimated insured deposits. The FDIC must seek to achieve the 1.35% ratio by September 30, 2020. Insured
institutions with assets of $10 billion or more are supposed to fund the increase. The Dodd-Frank Act eliminated the
1.5% maximum fund ratio, leaving it, instead, to the discretion of the FDIC. The FDIC has exercised that discretion by
establishing a long range fund ratio of 2%, which could result in our paying higher deposit insurance premiums in the
future.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC. Management does not know of any practice, condition, or
violation that would lead to termination of the deposit insurance of the Bank.
As part of an omnibus appropriations bill, the Deposit Insurance Funds Act of 1996 (the “Funds Act”) was
enacted. The Funds Act required Bank Insurance Fund (“BIF”) institutions, including the Savings Bank, beginning
January 1, 1997, to pay a portion of the interest due on the Finance Corporation (“FICO”) bonds issued in connection
with the savings and loan association crisis in the late 1980s, and required BIF institutions to pay their full pro rata share
of the FICO payments starting the earlier of January 1, 2000 or the date at which no savings institution continues to exist.
We were required, as of January 1, 2000, to pay our full pro rata share of the FICO payments. The FICO assessment rate
is subject to change. The Bank paid $297,000, $278,000 and $267,000 for their share of the interest due on FICO bonds
in 2016, 2015 and 2014, respectively, which is included in FDIC insurance expense. These payments, which generally
approximate 10% of the Bank's annual FDIC insurance payments, will continue until those bonds mature through 2019.
Brokered Deposits. The FDIC has promulgated regulations implementing the FDICIA limitations on brokered
deposits. Under the regulations, well-capitalized institutions are not subject to brokered deposit limitations, while
adequately capitalized institutions are able to accept, renew or roll over brokered deposits only with a waiver from the
FDIC and subject to restrictions on the interest rate that can be paid on such deposits. Undercapitalized institutions are
not permitted to accept brokered deposits and may not solicit deposits by offering an effective yield that exceeds by more
than 75 basis points the prevailing effective yields on insured deposits of comparable maturity in the institution’s normal
market area or in the market area in which such deposits are being solicited. Pursuant to the regulation, the Bank, as a
well-capitalized institution, may accept brokered deposits. At December 31, 2016, the Bank had $1,114.9 million in
brokered deposit accounts.
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Transactions with Affiliates
Under current federal law, transactions between depository institutions and their affiliates are governed by
Sections 23A and 23B of the Federal Reserve Act and the FRB’s Regulation W promulgated thereunder. An affiliate of a
commercial bank is any company or entity that controls, is controlled by, or is under common control with, the
institution, other than a subsidiary. Generally, an institution’s subsidiaries are not treated as affiliates unless they are
engaged in activities as principal that are not permissible for national banks. In a holding company context, at a
minimum, the parent holding company of an institution, and any companies that are controlled by such parent holding
company, are affiliates of the institution. Generally, Section 23A limits the extent to which the institution or its
subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of the institution’s
capital stock and surplus, and contains an aggregate limit on all such transactions with all affiliates to an amount equal to
20% of such capital stock and surplus. The term “covered transaction” includes the making of loans or other extensions
of credit to an affiliate; the purchase of assets from an affiliate; the purchase of, or an investment in, the securities of an
affiliate; the acceptance of securities of an affiliate as collateral for a loan or extension of credit to any person; or
issuance of a guarantee, acceptance, or letter of credit on behalf of an affiliate. Section 23A also establishes specific
collateral requirements for loans or extensions of credit to, or guarantees or acceptances on letters of credit issued on
behalf of, an affiliate. Section 23B requires that covered transactions and a broad list of other specified transactions be on
terms substantially the same as, or at least as favorable to, the institution or its subsidiary as similar transactions with
non-affiliates.
The Sarbanes-Oxley Act of 2002 generally prohibits loans by the Company to its executive officers and
directors. However, the Sarbanes-Oxley Act contains a specific exemption for loans by an institution to its executive
officers and directors in compliance with federal banking laws. Section 22(h) of the Federal Reserve Act, and FRB
Regulation O adopted thereunder, governs loans by a savings bank or commercial bank to directors, executive officers,
and principal shareholders. Under Section 22(h), loans to directors, executive officers, and shareholders who control,
directly or indirectly, 10% or more of voting securities of an institution, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such persons and affiliated entities, the
institution’s total capital and surplus. Section 22(h) also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers, and shareholders who control 10% or more of the voting
securities of an institution, and its respective related interests, unless such loan is approved in advance by a majority of
the board of the institution’s directors. Any “interested” director may not participate in the voting. The loan amount
(which includes all other outstanding loans to such person) as to which such prior board of director approval is required,
is the greater of $25,000 or 5% of capital and surplus or any loans aggregating over $500,000. Further, pursuant to
Section 22(h), loans to directors, executive officers, and principal shareholders must be made on terms substantially the
same as those offered in comparable transactions to other persons. There is an exception for loans made pursuant to a
benefit or compensation program that is widely available to all employees of the institution and does not give preference
to executive officers over other employees. Section 22(g) of the Federal Reserve Act places additional limitations on
loans to executive officers.
Community Reinvestment Act
Federal Regulation. Under the Community Reinvestment Act (“CRA”), as implemented by FDIC regulations,
an institution has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the
credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions, nor does it limit an institution’s discretion to develop
the types of products and services that it believes are best suited to its particular community, consistent with the CRA.
The CRA requires the FDIC, in connection with its examinations, to assess the institution’s record of meeting the credit
needs of its community and to take such record into account in its evaluation of certain applications by such institution.
The CRA requires public disclosure of an institution’s CRA rating and further requires the FDIC to provide a written
evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system. The Bank received a
CRA rating of “Satisfactory” in its most recent completed CRA examination, which was completed as of April 16, 2015.
Institutions that receive less than a satisfactory rating may face difficulties in securing approval for new activities or
acquisitions. The CRA requires all institutions to make public disclosures of their CRA ratings. As a special purpose
commercial bank, the Commercial Bank was not required to comply with the CRA prior to the Merger. Since the
Merger, the Bank is required to comply with CRA.
New York State Regulation. The Bank is also subject to provisions of the New York State Banking Law that
impose continuing and affirmative obligations upon a banking institution organized in New York State to serve the credit
needs of its local community (the “NYCRA”). Such obligations are substantially similar to those imposed by the CRA.
The NYCRA requires the NYDFS to make a periodic written assessment of an institution’s compliance with the
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NYCRA, utilizing a four-tiered rating system, and to make such assessment available to the public. The NYCRA also
requires the Superintendent to consider the NYCRA rating when reviewing an application to engage in certain
transactions, including mergers, asset purchases, and the establishment of branch offices or ATMs, and provides that
such assessment may serve as a basis for the denial of any such application.
Federal Reserve System
Under FRB regulations, the Bank is required to maintain reserves against its transaction accounts. The FRB
regulations generally require that reserves be maintained against aggregate transaction accounts as follows: for that
portion of transaction accounts aggregating $103.6 million or less (subject to adjustment by the FRB), the reserve
requirement is 3%; for amounts greater than $103.6 million, the reserve requirement is 10% (subject to adjustment by the
FRB between 8% and 14%). The first $14.5 million of otherwise reservable balances (subject to adjustments by the
FRB) are exempted from the reserve requirements. The Bank is in compliance with the foregoing requirements.
Federal Home Loan Bank System
The Bank is a member of the FHLB-NY, one of 11 regional FHLBs comprising the FHLB system. Each
regional FHLB manages its customer relationships, while the 11 FHLBs use its combined size and strength to obtain its
necessary funding at the lowest possible cost. As a member of the FHLB-NY, the Bank is required to acquire and hold
shares of FHLB-NY capital stock. Pursuant to this requirement, at December 31, 2016, the Bank was required to
maintain $59.2 million of FHLB-NY stock.
Holding Company Regulation
Subsequent to the Merger, the Company is subject to examination, regulation, and periodic reporting under the
Bank Holding Company Act of 1956, as amended (the “BHCA”), as administered by the FRB. The Company is required
to obtain the prior approval of the FRB to acquire all, or substantially all, of the assets of any bank or bank holding
company. Prior FRB approval would be required for the Company to acquire direct or indirect ownership or control of
any voting securities of any bank or bank holding company if, after giving effect to such acquisition, it would, directly or
indirectly, own or control more than 5% of any class of voting shares of such bank or bank holding company. In addition
before any bank acquisition can be completed, prior approval thereof may also be required to be obtained from other
agencies having supervisory jurisdiction over the bank to be acquired, including the NYDFS.
FRB regulations generally prohibit a bank holding company from engaging in, or acquiring, direct or indirect
control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal
exceptions to this prohibition is for activities found by the FRB to be so closely related to banking or managing or
controlling Bank as to be a proper incident thereto. Some of the principal activities that the FRB has determined by
regulation to be so closely related to banking are: (i) making or servicing loans; (ii) performing certain data processing
services; (iii) providing discount brokerage services; (iv) acting as fiduciary, investment, or financial advisor; (v) leasing
personal or real property; (vi) making investments in corporations or projects designed primarily to promote community
welfare; and (vii) acquiring a savings and loan association.
The FRB has adopted capital adequacy guidelines for bank holding companies (on a consolidated basis). At
December 31, 2016, the Company’s consolidated capital exceeded these requirements. The Dodd-Frank Act required the
FRB to issue consolidated regulatory capital requirements for bank holding companies that are at least as stringent as
those applicable to insured depository institutions. Such regulations eliminated the use of certain instruments, such as
cumulative preferred stock and trust preferred securities, as Tier 1 holding company capital.
Bank holding companies are generally required to give the FRB prior written notice of any purchase or
redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined
with the net consideration paid for all such purchases or redemptions during the preceding twelve months, is equal to
10% or more of the Company’s consolidated net worth. The FRB may disapprove such a purchase or redemption if it
determines that the proposal would constitute an unsafe or unsound practice, or would violate any law, regulation, FRB
order or directive, or any condition imposed by, or written agreement with, the FRB. The FRB has adopted an exception
to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.
The FRB has issued a policy statement regarding the payment of dividends by bank holding companies. In
general, the FRB’s policies provide that dividends should be paid only out of current earnings and only if the prospective
rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset
43
quality, and overall financial condition. The FRB’s policies also require that a bank holding company serve as a source
of financial strength to its subsidiary banks by standing ready to use available resources to provide adequate capital funds
to those banks during periods of financial stress or adversity, and by maintaining the financial flexibility and capital-
raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. The Dodd-Frank Act
codifies the source of financial strength policy and requires regulations to facilitate its application. Under the prompt
corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank
becomes undercapitalized. These regulatory policies could affect the ability of the Company to pay dividends or
otherwise engage in capital distributions.
Under the FDI Act, a depository institution may be liable to the FDIC for losses caused the DIF if a commonly
controlled depository institution were to fail. The Bank is commonly controlled within the meaning of that law.
The status of the Company as a registered bank holding company under the BHCA does not exempt it from
certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain
provisions of the federal securities laws.
The Company, the Bank, and their respective affiliates will be affected by the monetary and fiscal policies of
various agencies of the United States Government, including the Federal Reserve System. In view of changing
conditions in the national economy and in the money markets, it is difficult for management to accurately predict future
changes in monetary policy or the effect of such changes on the business or financial condition of the Company or the
Bank.
Acquisition of the Holding Company
Under the Federal Change in Bank Control Act (“CIBCA”), a notice must be submitted to the FRB if any
person (including a company), or group acting in concert, seeks to acquire 10% or more of the Company’s shares of
outstanding common stock, unless the FRB has found that the acquisition will not result in a change in control of the
Company. Under the CIBCA, the FRB generally has 60 days within which to act on such notices, taking into
consideration certain factors, including the financial and managerial resources of the acquirer; the convenience and needs
of the communities served by the Company and the Bank; and the anti-trust effects of the acquisition. Under the BHCA,
any company would be required to obtain approval from the FRB before it may obtain “control” of the Company within
the meaning of the BHCA. Control generally is defined to mean the ownership or power to vote 25% or more of any
class of voting securities of the Company or the ability to control in any manner the election of a majority of the
Company’s directors. An existing bank holding company would, under the BHCA, be required to obtain the FRB’s
approval before acquiring more than 5% of the Company’s voting stock. In addition to the CIBCA and the BHCA, New
York State Banking Law generally requires prior approval of the New York State Banking Board before any action is
taken that causes any company to acquire direct or indirect control of a banking institution that is organized in New
York.
Consumer Financial Protection Bureau
Created under the Dodd-Frank Act, and given extensive implementation and enforcement powers, the CFPB has
broad rulemaking authority for a wide range of consumer financial laws that apply to all banks, including, among other
things, the authority to prohibit “unfair, deceptive, or abusive” acts and practices. Abusive acts or practices are defined as
those that (1) materially interfere with a consumer’s ability to understand a term or condition of a consumer financial
product or service, or (2) take unreasonable advantage of a consumer’s (a) lack of financial savvy, (b) inability to protect
himself in the selection or use of consumer financial products or services, or (c) reasonable reliance on a covered entity
to act in the consumer’s interests. The CFPB has the authority to investigate possible violations of federal consumer
financial law, hold hearings and commence civil litigation. The CFPB can issue cease-and-desist orders against banks
and other entities that violate consumer financial laws. The CFPB may also institute a civil action against an entity in
violation of federal consumer financial law in order to impose a civil penalty or an injunction.
Mortgage Banking and Related Consumer Protection Regulations
The retail activities of the Bank, including lending and the acceptance of deposits, are subject to a variety of
statutes and regulations designed to protect consumers. Interest and other charges collected or contracted for by the Bank
are subject to state usury laws and federal laws concerning interest rates. Loan operations are also subject to federal laws
applicable to credit transactions, such as:
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• The federal Truth-In-Lending Act and Regulation Z issued by the FRB, governing disclosures of credit terms
to consumer borrowers;
• The Home Mortgage Disclosure Act and Regulation C issued by the FRB, requiring financial institutions to
provide information to enable the public and public officials to determine whether a financial institution is
fulfilling its obligation to help meet the housing needs of the community it serves;
• The Equal Credit Opportunity Act and Regulation B issued by the FRB, prohibiting discrimination on the basis
of race, creed or other prohibited factors in extending credit;
• The Fair Credit Reporting Act and Regulation V issued by the FRB, governing the use and provision of
information to consumer reporting agencies;
• The Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection
agencies; and
• The guidance of the various federal agencies charged with the responsibility of implementing such federal
laws.
Deposit operations also are subject to:
• The Truth in Savings Act and Regulation DD issued by the FRB, which requires disclosure of deposit terms to
consumers;
• Regulation CC issued by the FRB, which relates to the availability of deposit funds to consumers;
• The Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial
records and prescribes procedures for complying with administrative subpoenas of financial records; and
• The Electronic Funds Transfer Act and Regulation E issued by the FRB, which governs automatic deposits to
and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated
teller machines and other electronic banking services.
In addition, the Bank and its subsidiaries may also be subject to certain state laws and regulations designed to
protect consumers.
Many of the foregoing laws and regulations are subject to change resulting from the provisions in the Dodd-
Frank Act, which in many cases calls for revisions to implementing regulations. In addition, oversight responsibilities of
these and other consumer protection laws and regulations will, in large measure, transfer from the Bank’s primary
regulators to the CFPB. We cannot predict the effect that being regulated by a new, additional regulatory authority
focused on consumer financial protection, or any new implementing regulations or revisions to existing regulations that
may result from the establishment of this new authority, will have on our businesses.
Available Information
We are a reporting company and file annual, quarterly and current reports, proxy statements and other
information with the SEC. We make available free of charge on or through our web site at www.flushingbank.com our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our SEC filings are also
available to the public free of charge over the Internet at the SEC’s web site at http://www.sec.gov.
You may also read and copy any document we file at the SEC’s public reference room located at 100 F. Street,
N.E., Room 1580, Washington, D.C. 20549. You may obtain information about the operation of the public reference
room by calling the SEC at 1-800-SEC-0330. You may request copies of these documents by writing to the SEC and
paying a fee for the copying cost.
Item 1A. Risk Factors.
In addition to the other information contained in this Annual Report, the following factors and other
considerations should be considered carefully in evaluating us and our business.
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Changes in Interest Rates May Significantly Impact Our Financial Condition and Results of Operations
Like most financial institutions, our results of operations depend to a large degree on our net interest income.
When interest-bearing liabilities mature or reprice more quickly than interest-earning assets, a significant increase in
market interest rates could adversely affect net interest income. Conversely, a significant decrease in market interest rates
could result in increased net interest income. As a general matter, we seek to manage our business to limit our overall
exposure to interest rate fluctuations. However, fluctuations in market interest rates are neither predictable nor
controllable and may have a material adverse impact on our operations and financial condition. Additionally, in a rising
interest rate environment, a borrower’s ability to repay adjustable rate mortgages can be negatively affected as payments
increase at repricing dates.
Prevailing interest rates also affect the extent to which borrowers repay and refinance loans. In a declining
interest rate environment, the number of loan prepayments and loan refinancing may increase, as well as prepayments of
mortgage-backed securities. Call provisions associated with our investment in U.S. government agency and corporate
securities may also adversely affect yield in a declining interest rate environment. Such prepayments and calls may
adversely affect the yield of our loan portfolio and mortgage-backed and other securities as we reinvest the prepaid funds
in a lower interest rate environment. However, we typically receive additional loan fees when existing loans are
refinanced, which partially offset the reduced yield on our loan portfolio resulting from prepayments. In periods of low
interest rates, our level of core deposits also may decline if depositors seek higher-yielding instruments or other
investments not offered by us, which in turn may increase our cost of funds and decrease our net interest margin to the
extent alternative funding sources are utilized. An increasing interest rate environment would tend to extend the average
lives of lower yielding fixed rate mortgages and mortgage-backed securities, which could adversely affect net interest
income. In addition, depositors tend to open longer term, higher costing certificate of deposit accounts which could
adversely affect our net interest income if rates were to subsequently decline. Additionally, adjustable rate mortgage
loans and mortgage-backed securities generally contain interim and lifetime caps that limit the amount the interest rate
can increase or decrease at repricing dates. Significant increases in prevailing interest rates may significantly affect
demand for loans and the value of bank collateral. See “— Local Economic Conditions.”
Our Lending Activities Involve Risks that May Be Exacerbated Depending on the Mix of Loan Types
At December 31, 2016, our gross loan portfolio was $4,819.1 million, of which 86.9% was mortgage loans
secured by real estate. The majority of these real estate loans were secured by multi-family residential property ($2,178.5
million), commercial real estate ($1,246.1 million) and one-to-four family mixed-use property ($558.5 million), which
combined represent 82.7% of our loan portfolio. Our loan portfolio is concentrated in the New York City metropolitan
area. Multi-family residential, one-to-four family mixed-use property, commercial real estate mortgage loans, and
construction loans, are generally viewed as exposing the lender to a greater risk of loss than fully underwritten one-to-
four family residential mortgage loans and typically involve higher principal amounts per loan. Multi-family residential,
one-to-four family mixed-use property and commercial real estate mortgage loans are typically dependent upon the
successful operation of the related property, which is usually owned by a legal entity with the property being the entity’s
only asset. If the cash flow from the property is reduced, the borrower’s ability to repay the loan may be impaired. If the
borrower defaults, our only remedy may be to foreclose on the property, for which the market value may be less than the
balance due on the related mortgage loan. We attempt to mitigate this risk by generally requiring a loan-to-value ratio of
no more than 75% at a time the loan is originated, except for one-to-four family residential mortgage loans, where we
require a loan-to value ratio of no more than 80%. Repayment of construction loans is contingent upon the successful
completion and operation of the project. The repayment of commercial business loans (the increased origination of
which is part of management’s strategy), is contingent on the successful operation of the related business. Changes in
local economic conditions and government regulations, which are outside the control of the borrower or lender, also
could affect the value of the security for the loan or the future cash flow of the affected properties. We continually
review the composition of our mortgage loan portfolio to manage the risk in the portfolio.
In addition, prior to 2010, we have originated one-to-four family residential mortgage loans without verifying
the borrower’s level of income. These loans involve a higher degree of risk as compared to our other fully underwritten
one-to-four family residential mortgage loans. These risks are mitigated by our policy to generally limit the amount of
one-to-four family residential mortgage loans to 80% of the appraised value or sale price, whichever is less, as well as
charging a higher interest rate than when the borrower’s income is verified. At December 31, 2016, we had $9.0 million
outstanding of one-to-four family residential properties originated to individuals based on stated income and verifiable
assets, and $36.6 million advanced on home equity lines of credit for which we did not verify the borrower’s income.
The total loans for which we did not verify the borrower’s income at December 31, 2016 was $45.6 million, or 0.9% of
gross loans. These types of loans are generally referred to as “Alt A” loans since the borrower’s income was not verified.
These loans are not as readily saleable in the secondary market as our other fully underwritten loans, either as whole
46
loans or when pooled or securitized. We no longer originate one-to-four family residential mortgage loans or home
equity lines of credit to individuals without verifying their income. We have not originated, nor do we hold in portfolio,
any subprime loans.
Even in stable economic times, higher default rates may be expected for Alt A and similar loans. Although we
attempted to incorporate the higher default rates associated with these loans into our pricing models, there can be no
assurance that the premiums earned and the associated investment income will prove adequate to compensate for future
losses from these loans. Worsening economic conditions, rising unemployment rates and/or other regional real estate
price declines could even more significantly increase the default risks associated with these loans. In addition, these
same negative economic and market conditions could also significantly increase the default risk on loans for which we
did not assume higher default and claim rates.
In assessing our future earnings prospects, investors should consider, among other things, our level of
origination of one-to-four family residential, multi-family residential, commercial real estate and one-to-four family
mixed-use property mortgage loans, and commercial business and construction loans, and the greater risks associated
with such loans. See “Business — Lending Activities” in Item 1 of this Annual Report.
Failure to Effectively Manage Our Liquidity Could Significantly Impact Our Financial Condition and
Results of Operations
Our liquidity is critical to our ability to operate our business. Our primary sources of liquidity are deposits, both
retail deposits from our branch network including iGObanking.com®, brokered deposits, and borrowed funds, primarily
wholesale borrowing from the FHLB-NY. Funds are also provided by the repayment and sale of securities and loans.
Our ability to obtain funds are influenced by many external factors, including but not limited to, local and national
economic conditions, the direction of interest rates and competition for deposits in the markets we serve. Additionally,
changes in the FHLB-NY underwriting guidelines may limit or restrict our ability to borrow. A decline in available
funding caused by any of the above factors or could adversely impact our ability to originate loans, invest in securities,
meet our expenses, or fulfill our obligations such as repaying our borrowings or meeting deposit withdrawal demands.
Our Ability to Obtain Brokered Deposits as an Additional Funding Source Could be Limited
We utilize brokered deposits as an additional funding source and to assist in the management of our interest rate
risk. The Bank had $1,114.9 million, or 26.5% of total deposits, and $982.8 million, or 25.2% of total deposits, in
brokered deposit accounts at December 31, 2016 and 2015, respectively. We have obtained brokered certificates of
deposit when the interest rate on these deposits is below the prevailing interest rate for non-brokered certificates of
deposit with similar maturities in our market, or when obtaining them allowed us to extend the maturities of our deposits
at favorable rates compared to borrowing funds with similar maturities, when we are seeking to extend the maturities of
our funding to assist in the management of our interest rate risk. Brokered certificates of deposit provide a large deposit
for us at a lower operating cost as compared to non-brokered certificates of deposit since we only have one account to
maintain versus several accounts with multiple interest and maturity checks. Unlike non-brokered certificates of deposit
where the deposit amount can be withdrawn with a penalty for any reason, including increasing interest rates, a brokered
certificate of deposit can only be withdrawn in the event of the death or court declared mental incompetence of the
depositor. This allows us to better manage the maturity of our deposits and our interest rate risk. We also utilize brokers
to obtain money market account deposits. The rate we pay on brokered money market accounts is the same or below the
rate we pay on non-brokered money market accounts, and the rate is agreed to in a contract between the Bank and the
broker. These accounts are similar to brokered certificates of deposit accounts in that we only maintain one account for
the total deposit per broker, with the broker maintaining the detailed records of each depositor. Additionally, we place a
portion of our government deposits in an ICS brokered money market product which does not require us to provide
collateral. This allows us to invest our funds in higher yielding assets. The Bank had $655.0 million and $339.8 million
in brokered money market accounts at December 31, 2016 and 2015, respectively. The Bank also had $1.1 million and
$17.8 million in brokered checking accounts at December 31, 2016 and 2015, respectively.
The FDIC has promulgated regulations implementing limitations on brokered deposits. Under the regulations,
well-capitalized institutions, such as the Bank, are not subject to brokered deposit limitations, while adequately
capitalized institutions are able to accept, renew or roll over brokered deposits only with a waiver from the FDIC and
subject to restrictions on the interest rate that can be paid on such deposits. Undercapitalized institutions are not
permitted to accept brokered deposits. Pursuant to the regulation, the Bank, as a well-capitalized institution, may accept
brokered deposits. Should our capital ratios decline, this could limit our ability to replace brokered deposits when they
mature.
47
The maturity of brokered certificates of deposit could result in a significant funding source maturing at one
time. Should this occur, it might be difficult to replace the maturing certificates with new brokered certificates of deposit.
We have used brokers to obtain these deposits which results in depositors with whom we have no other relationships
since these depositors are outside of our market, and there may not be a sufficient source of new brokered certificates of
deposit at the time of maturity. In addition, upon maturity, brokers could require us to offer some of the highest interest
rates in the country to retain these deposits, which would negatively impact our earnings. The Bank mitigates this risk by
obtaining brokered certificates of deposit with various maturities ranging up to six years, and attempts to avoid having a
significant amount maturing in any one year.
The Markets in Which We Operate Are Highly Competitive
We face intense and increasing competition both in making loans and in attracting deposits. Our market area has
a high density of financial institutions, many of which have greater financial resources, name recognition and market
presence than us, and all of which are our competitors to varying degrees. Particularly intense competition exists for
deposits and in all of the lending activities we emphasize. Our competition for loans comes principally from commercial
banks, savings banks, savings and loan associations, mortgage banking companies, insurance companies, finance
companies and credit unions. Management anticipates that competition for mortgage loans will continue to increase in
the future. Our most direct competition for deposits historically has come from savings banks, commercial banks,
savings and loan associations and credit unions. In addition, we face competition for deposits from products offered by
brokerage firms, insurance companies and other financial intermediaries, such as money market and other mutual funds
and annuities. Consolidation in the banking industry and the lifting of interstate banking and branching restrictions have
made it more difficult for smaller, community-oriented banks, such as us, to compete effectively with large, national,
regional and super-regional banking institutions. Our internet branch, “iGObanking.com®”, a division of the Bank,
provides us access to consumers in markets outside our geographic locations. The internet banking arena exposes us to
competition with many larger financial institutions that have greater financial resources, name recognition and market
presence than we do.
Our Results of Operations May Be Adversely Affected by Changes in National and/or Local Economic
Conditions
Our operating results are affected by national and local economic and competitive conditions, including changes
in market interest rates, the strength of the local economy, government policies and actions of regulatory authorities.
During the Great Recession, for example, unemployment increased, the housing market in the United States experienced
a significant slowdown, and foreclosures rose. Adverse economic conditions can result in borrowers defaulting on their
loans, or withdrawing their funds on deposit at the Bank to meet their financial obligations. A decline in the local or
national economy or the New York City metropolitan area real estate market could adversely affect our financial
condition and results of operations, including through decreased demand for loans or increased competition for good
loans, increased non-performing loans and loan losses and resulting additional provisions for loan losses and for losses
on real estate owned. Many factors could require additions to the allowance for loan losses in future periods above those
currently maintained. These factors include: (1) adverse changes in economic conditions and changes in interest rates
that may affect the ability of borrowers to make payments on loans, (2) changes in the financial capacity of individual
borrowers, (3) changes in the local real estate market and the value of our loan collateral, and (4) future review and
evaluation of our loan portfolio, internally or by regulators. The amount of the allowance for loan losses at any time
represents good faith estimates that are susceptible to significant changes due to changes in appraisal values of collateral,
national and local economic conditions, prevailing interest rates and other factors. See “Business — General —
Allowance for Loan Losses” in Item 1 of this Annual Report.
These same factors could cause delinquencies to increase for the mortgages which are the collateral for the
mortgage-backed securities we hold in our investment portfolio. Combining increased delinquencies with liquidity
problems in the market could result in a decline in the market value of our investments in privately issued mortgage-
backed securities. There can be no assurance that a decline in the market value of these investments will not result in
other-than-temporary impairment charges in our financial statements.
Changes in Laws and Regulations Could Adversely Affect Our Business
From time to time, legislation, such as the Dodd-Frank Act, is enacted or regulations are promulgated that have
the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the
competitive balance between banks and other financial institutions. Proposals to change the laws and regulations
governing the operations and taxation of banks and other financial institutions are frequently made in Congress, in the
New York legislature and before various bank regulatory agencies. In particular, on February 3, 2017, President Trump
signed an executive order requiring a comprehensive review of financial system regulations, including the Dodd-Frank
48
Act. President Trump has promised other significant changes to financial system regulations. Nonetheless, changes to
these regulations are expected to be politically controversial and may be slow and unpredictable in enactment and effect.
It is too early to predict when or what, if any, existing regulations affecting us will be repealed or amended and what if
any new regulations affecting us will be adopted, leaving the bank regulatory environment particularly uncertain at
present. Further, there can be no assurance as to the impact that any laws, regulations or governmental programs that
may be introduced or implemented in the future will have on the financial markets and the economy. . For a discussion
of regulations affecting us, see “Business —Regulation” and “Business—Federal, State and Local Taxation” in Item 1 of
this Annual Report.
Current Conditions in, and Regulation of, the Banking Industry May Have a Material Adverse Effect on Our
Results of Operations
Financial institutions have been the subject of significant legislative and regulatory changes and may be the
subject of further significant legislation or regulation in the future, none of which is within our control. Significant new
laws or regulations or changes in, or repeals of, existing laws or regulations, including those with respect to federal and
state taxation, may cause our results of operations to differ materially. In addition, the cost and burden of compliance,
over time, have significantly increased and could adversely affect our ability to operate profitably.
In particular, as noted above the Dodd-Frank Act has been implemented in significant part. The Dodd-Frank
Act imposes a variety of regulations affecting us, including:
(cid:120) New Regulators. The Dodd-Frank Act initiated changes in our regulatory regimes that over time evolved
such that we became subject to regulation, supervision and examination by two federal banking agencies,
the FDIC and the Federal Reserve. The Dodd-Frank Act also provided for the creation of the Consumer
Financial Protection Bureau (the “CFPB”). The CFPB has the authority to implement and enforce a variety
of existing consumer protection statutes and to issue new regulations. The CFPB has focused its attention
on consumers and pursuing enforcement or corrective measures in addition to those imposed by other bank
regulatory agencies. In addition to regulatory changes promised by President Trump, he has indicated his
intention, facilitated by Congressional support, to reduce the powers and impact of the CFPB. It is too early
to predict when or what, if any, powers of the CFPB will be repealed or amended, leaving the CFPB
regulatory environment particularly uncertain at present.
(cid:120) Consolidated Holding Company Capital Requirements. The Dodd-Frank Act required the federal banking
agencies to establish consolidated risk-based and leverage capital requirements for insured depository
institutions, depository institution holding companies and systemically important nonbank financial
companies. The Company is a bank holding company subject to these consolidated capital requirements.
Among other things, the new requirements effectively eliminated the use of newly-issued trust preferred
securities as a component of Tier 1 Capital for depository institution holding companies of our size.
(cid:120) Roll Back of Federal Preemption. The Dodd-Frank Act significantly rolls back the federal preemption of
state consumer protection laws that federal savings associations and national banks currently enjoy by (1)
permitting federal preemption of a state consumer financial law only if such law prevents or significantly
interferes with the exercise of a federal savings association’s or national bank’s powers or such state law is
preempted by another federal law, (2) mandating that any preemption decision be made on a case by case
basis rather than a blanket rule, and (3) ending the applicability of preemption to subsidiaries and affiliates
of national banks and federal savings associations. As a result, we may now be subject to state laws in each
state where we do business, and those laws may be interpreted and enforced differently in different states.
The Dodd-Frank Act also includes provisions, subject to further rulemaking by the federal bank regulatory
agencies, that may affect our future operations, including provisions that create minimum standards for the origination of
mortgages, restrict proprietary trading by banking entities, restrict the sponsorship of and investment in hedge funds and
private equity funds by banking entities that remove certain obstacles to the conversion of savings associations to
national banks. We will not be able to determine the impact of these provisions until final rules are promulgated to
implement these provisions and other regulatory guidance is provided interpreting these provisions.
At the New York State level, the Company and the Bank are subject to extensive supervision, regulation and
examination by the NYDFS and the FDIC. Such regulation limits the manner in which the Company and Bank conduct
business, undertake new investments and activities and obtain financing. This regulation is designed primarily for the
49
protection of the deposit insurance funds and the Bank's depositors, and not to benefit the Bank or its creditors. The
regulatory structure also provides the regulatory authorities extensive discretion in connection with their supervisory and
enforcement activities and examination policies, including policies with respect to capital levels, the classification of
assets and the establishment of adequate loan loss reserves for regulatory purposes. Failure to comply with applicable
laws and regulations could subject the Company and Bank to regulatory enforcement action that could result in the
assessment of significant civil money penalties against the Company and Bank.
The fiscal and monetary policies of the federal government and its agencies could have a material adverse effect
on the Company's results of operations. The Federal Reserve regulates the supply of money and credit in the United
States. Its policies determine in significant part the cost of funds for lending and investing and the return earned on those
loans and investments, both of which affect the Company's net interest margin. Governmental policies can also
adversely affect borrowers, potentially increasing the risk that they may fail to repay their loans. Changes in Federal
Reserve or governmental policies are beyond the Company's control and difficult to predict; consequently, the impact of
these changes on the Company's activities and results of operations is difficult to predict.
As noted above, financial institution regulation has been the subject of significant legislation in recent years,
and may be the subject of further significant legislation in the future, especially in light of the uncertainty of initiatives
suggested by the Trump administration in the context of a Republican-controlled Congress, none of which is within the
control of the Company or the Bank. Significant new laws or changes in, or repeals of, existing laws, may cause the
Company's results of operations to differ materially. Further, federal monetary policy significantly affects credit
conditions for the Company, primarily through open market operations in United States government securities, the
discount rate for bank borrowings and reserve requirements for liquid assets. A material change in any of these
conditions could have a material adverse impact on the Bank, and therefore, on the Company's results of operations.
The FDIC’s Restoration Plan and Related Increased Assessment Rates May Have a Material Effect on Our
Results of Operations
In 2016, the FDIC approved a final rule that imposes a surcharge on the quarterly assessments of institutions
with total consolidated assets of $10 billion or more to increase the reserve ratio of the DIF from 1.15 percent to 1.35
percent, as required by the Dodd-Frank Act. If this surcharge is insufficient to increase the reserve ratio to 1.35 percent
by December 31, 2018, a one-time shortfall assessment will be imposed on institutions with total consolidated assets of
$10 billion (small banks) or more on March 31, 2019. The rule also provides assessment credits to institutions with total
consolidated assets of less than $10 billion to offset the effect of the increase in the reserve ratio on these institutions,
such as us. The final rule also noted that assessment rates for all established small banks will be determined using
financial measures and supervisory ratings derived from a statistical model estimating the probability of failure over
three years. The new pricing system eliminates risk categories, but establishes minimum and maximum assessment rates
for established small banks based on the regulatory safety and soundness rating assigned to the Bank. The final rule is
revenue neutral; that is, it leaves aggregate assessment revenue collected from small banks approximately the same as it
would have been absent the final rule. Therefore, depending on what circumstances will achieve revenue neutrality and
whether new rules applicable to us are adopted, the FDIC’s rulemaking and related new assessment rates may have a
material adverse effect on our results of operations.
There is no guarantee that the rules described above be sufficient for the DIF to meet its funding requirements,
which may necessitate further rulemaking, special assessments or increases in deposit insurance premiums. Any such
future rulemaking, assessments or increases could have a further material impact on our results of operations.
Section 620 of the Dodd-Frank Act required federal banking agencies to conduct a study and report to Congress
on the types of activities and investments permissible for banking entities such as us, the associated risks, and how
banking entities mitigate those risks. The report was finalized and delivered in September 2016. Each regulatory agency
prepared the section of the report relative to the banking entities that it supervises. Each of the three sections of the report
includes a discussion of permissible activities, risk mitigation, legal limitations, and specific recommendations as
required by the Dodd-Frank Act. It is too early to determine what if any regulatory new or changed regulatory measures
may arise from the report, which adds to the currently uncertain regulatory landscape for us.
50
A Failure in or Breach of Our Operational or Security Systems or Infrastructure, or Those of Our Third Party
Vendors and Other Service Providers, Including as a Result of Cyber Attacks, Could Disrupt Our Business,
Result in the Disclosure or Misuse of Confidential or Proprietary Information, Damage Our Reputation, Increase
Our Costs and Cause Losses.
We depend upon our ability to process, record and monitor our client transactions on a continuous basis. As
client, public and regulatory expectations regarding operational and information security have increased, our operational
systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions and
breakdowns. Our business, financial, accounting and data processing systems, or other operating systems and facilities,
may stop operating properly or become disabled or damaged as a result of a number of factors, including events that are
wholly or partially beyond our control. For example, there could be electrical or telecommunications outages; natural
disasters such as earthquakes, tornadoes and hurricanes; disease pandemics; events arising from local or larger scale
political or social matters, including terrorist acts; and, as described below, cyber-attacks. Although we have business
continuity plans and other safeguards in place, our business operations may be adversely affected by significant and
widespread disruption to our physical infrastructure or operating systems that support our business and clients.
Information security risks for financial institutions such as ours have generally increased in recent years in part
because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct
financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, activists and
other external parties. As noted above, our operations rely on the secure processing, transmission and storage of
confidential information in our computer systems and networks. Our business relies on our digital technologies,
computer and email systems, software and networks to conduct its operations. In addition, to access our products and
services, our clients may use personal smartphones, tablet PC’s, personal computers and other mobile devices that are
beyond our control systems. Although we have information security procedures and controls in place, our technologies,
systems, networks and our clients’ devices may become the target of cyber-attacks or information security breaches that
could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our clients’
confidential, proprietary and other information, or otherwise disrupt our or our clients’ or other third parties’ business
operations.
Third parties with whom we do business or that facilitate our business activities, including financial
intermediaries or vendors that provide services or security solutions for our operations, could also be sources of
operational and information security risk to us, including from breakdowns or failures of their own systems or capacity
constraints.
Although to date we have not experienced any material losses relating to cyber-attacks or other information
security breaches, there can be no assurance that we will not suffer such losses in the future. Our risk and exposure to
these matters remains heightened because of the evolving nature of these threats. As a result, cyber security and the
continued development and enhancement of our controls, processes and practices designed to protect our systems,
computers, software, data and networks from attack, damage or unauthorized access remain a focus for us. As threats
continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective
measures or to investigate and remediate information security vulnerabilities.
Disruptions or failures in the physical infrastructure or operating systems that support our business and clients,
or cyber-attacks or security breaches of the networks, systems or devices that our clients use to access our products and
services could result in client attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement or
other compensation costs and/or additional compliance costs, any of which could materially and adversely affect our
financial condition or results of operations.
In addition, on February 16, 2017, the NYDFS issued the final version of its cybersecurity regulation, which has
an effective date of March 1, 2017. The regulation, which is detailed and broad in scope, covers five basic areas.
Governance: The regulation requires senior management and boards of directors must adopt a cybersecurity
policy for protecting information systems and most sensitive information. Covered companies must also designate a
Chief Information Security Officer, who must report to the board annually. The cybersecurity policy must be in place,
and the security officer designated, by August 28, 2017.
Testing: The regulation requires the conduct of cybersecurity tests and analyses, including a “risk assessment”
to “evaluate and categorize risks,” evaluate the integrity and confidentiality of information systems and non-public
information, and develop a process to mitigate any identified risks. These tests and assessments must be conducted by
March 1, 2018.
51
Ongoing Requirements: The regulation imposes substantial day-to-day and technical requirements. Among
others, we must develop access controls for our information systems, ensure the physical security of our computer
systems, encrypt or protect personally identifiable information, perform reviews of in-house and externally created
applications, train employees, and build an audit trail system. The timeline to ensure compliance with these rules ranges
from one year to eighteen months.
Vendors: The new regulation also regulates third-party vendors with access to our information technology or
non-public information. We will be required to develop and implement written policies and procedures to ensure the
security of our information technology systems or non-public information that can be accessed by our vendors, including
identifying the risks from third-party access, imposing minimum cybersecurity practices for vendors, and creating a due-
diligence process for evaluating those vendors. We will have two years to satisfy these extensive requirements.
Reports: The new regulation imposes a notification process for any material cybersecurity event. Within 72
hours, a cybersecurity event that has a “reasonable likelihood” of “materially harming” us or that must be reported to
another government or self-regulating agency must be reported to the NYDFS. In addition, an annual compliance
certification to the NYDFS from either the board or a senior officer is required.
In light of the newness of the cybersecurity regulation, it is impossible to determine the cost and other effects on us of
full and timely compliance. In addition to resources that may be required, in the event that we do not timely and fully
comply, we would be subject to enforcement and other consequences in addition to any other claims that might arise.
There can be no assurance that we will achieve full and timely compliance with the regulation, in which event our
business mat be materially adversely affected.
We May Experience Increased Delays in Foreclosure Proceedings
Foreclosure proceedings face increasing delays. While we cannot predict the ultimate impact of any delay in
foreclosure sales, we may be subject to additional borrower and non-borrower litigation and governmental and regulatory
scrutiny related to our past and current foreclosure activities. Delays in foreclosure sales, including any delays beyond
those currently anticipated could increase the costs associated with our mortgage operations and make it more difficult
for us to prevent losses in our loan portfolio.
We May Need to Recognize Other-Than-Temporary Impairment Charges in the Future
We conduct a periodic review and evaluation of the securities portfolio to determine if the decline in the fair
value of any security below its cost basis is other-than-temporary. Factors which we consider in our analysis include, but
are not limited to, the severity and duration of the decline in fair value of the security, the financial condition and near-
term prospects of the issuer, whether the decline appears to be related to issuer conditions or general market or industry
conditions, our intent and ability to retain the security for a period of time sufficient to allow for any anticipated recovery
in fair value and the likelihood of any near-term fair value recovery. We generally view changes in fair value caused by
changes in interest rates as temporary. However, we have recorded other-than-temporary impairment charges on some
securities in our portfolio. If we deem such decline to be other-than-temporary, the security is written down to a new
cost basis and the resulting loss is charged to earnings as a component of non-interest income.
We continue to monitor the fair value of our securities portfolio as part of our ongoing other-than-temporary
impairment evaluation process. There can be no assurance that we will not need to recognize other-than-temporary
impairment charges related to securities in the future.
Our Inability to Hire or Retain Key Personnel Could Adversely Affect Our Business
Our success depends, in large part, on our ability to retain and attract key personnel. We face intense
competition from commercial banks, savings banks, savings and loan associations, mortgage banking companies,
insurance companies, finance companies and credit unions. As a result, it could prove difficult to retain and attract key
personnel. The inability to hire or retain key personnel may result in the loss of customer relationships and may
adversely affect our financial condition or results of operations.
We Are Not Required to Pay Dividends on Our Common Stock
Holders of shares of our common stock are only entitled to receive such dividends as our Board of Directors
may declare out of funds legally available for such payments. Although we have historically declared cash dividends on
52
our common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future.
This could adversely affect the market price of our common stock.
Goodwill Recorded as a Result of Acquisitions Could Become Impaired, Negatively Impacting Our Earnings and
Capital
Goodwill is presumed to have an indefinite life and is tested annually, or when certain conditions are met, for
impairment. If the fair value of the reporting unit is greater than the goodwill amount, no further evaluation is required
and no impairment is recorded. If the fair value of the reporting unit is less than the goodwill amount, further evaluation
would be required to compare the fair value of the reporting unit to the goodwill amount and determine if a write down is
required. Management views the Company as operating as a single unit - a community bank. At December 31, 2016, we
had goodwill with a carrying amount of $16.1 million. Declines in the fair value of the reporting unit may result in a
future impairment charge. Any such impairment charge could have a material effect on our earnings and capital.
We May Not Fully Realize the Expected Benefit of Our Deferred Tax Assets
At December 31, 2016, we had a deferred tax asset of $34.7 million. This represents the anticipated federal,
state and local tax benefits expected to be realized in future years upon the utilization of the underlying tax attributes
comprising this balance. In order to use the future benefit of these deferred tax assets, we will need to report taxable
income for federal, state and local tax purposes. Although we have reported taxable income for federal, state, and local
tax purposes in each of the past three years, there can be no assurance that this will continue in the future.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
At December 31, 2016, the Bank conducted its business through 19 full-service offices and its internet branch,
“iGObanking.com®”.
Flushing Financial Corporation neither owns nor leases any property but instead uses the premises and
equipment of the Bank.
Item 3. Legal Proceedings.
We are involved in various legal actions arising in the ordinary course of our business which, in the aggregate,
involve amounts which are believed by management to be immaterial to our financial condition, results of operations and
cash flows.
Item 4. Mine Safety Disclosures.
Not applicable.
53
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Flushing Financial Corporation Common Stock is traded on the NASDAQ Global Select Market® under the
symbol “FFIC.” As of December 31, 2016, we had approximately 707 shareholders of record, not including the number
of persons or entities holding stock in nominee or street name through various brokers and banks. Our stock closed at
$29.39 on December 31, 2016. The following table shows the high and low sales price of the Common Stock and the
dividends declared on the Common Stock during the periods indicated. Such prices do not necessarily reflect retail
markups, markdowns, or commissions. (See Note 13 of Notes to Consolidated Financial Statements in Item 8 of this
Annual Report for dividend restrictions.)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
$
22.32
21.72
23.78
29.90
$
2016
Low
19.02
18.95
19.22
20.95
Dividend
0.17
$
0.17
0.17
0.17
High
$
20.75
22.00
22.00
23.07
$
2015
Low
17.99
18.77
19.08
19.01
Dividend
0.16
$
0.16
0.16
0.16
The following table sets forth information regarding the shares of common stock repurchased by us during the
quarter ended December 31, 2016:
Total
Number
of Shares
Purchased
20,303
4,697
-
25,000
Average Price
Paid per Share
21.47
21.76
-
21.52
$
$
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
20,303
4,697
-
25,000
Maximum
Number of
Shares That May
Yet Be Purchased
Under the Plans
or Programs
500,602
495,905
495,905
Period
October 1 to October 31, 2016
November 1 to November 30, 2016
December 1 to December 31, 2016
Total
On June 16, 2015, the Company announced the authorization by the Board of Directors of a new common stock
repurchase program, which authorizes the purchase of up to 1,000,000 shares of its common stock. During the years
ended December 31, 2016 and 2015, the Company repurchased 403,695 shares and 735,599 shares, respectively, of the
Company’s common stock at an average cost of $19.89 per share and $19.51 per share, respectively. At December 31,
2016, 495,905 shares remain to be repurchased under the current stock repurchase program. Stock will be purchased
under the current stock repurchase program from time to time, in the open market or through private transactions subject
to market conditions and at the discretion of the management of the Company. There is no expiration or maximum dollar
amount under this authorization.
.
54
The following table sets forth securities authorized for issuance under all equity compensation plans of the
Company at December 31, 2016:
(a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(b)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a)
5,600
$
9.61
489,320
-
-
5,600
$
9.61
-
489,320
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
55
Stock Performance Graph
The following graph shows a comparison of cumulative total stockholder return on the Company’s common stock since
December 31, 2011 with the cumulative total returns of a broad equity market index as well as comparative published
industry indices. The broad equity market index chosen was the Nasdaq Composite. The comparative published industry
indices chosen were the SNL Bank $5 Billion to $10 Billion in Assets Index and the SNL Mid-Atlantic Bank Index. The
SNL Mid-Atlantic Bank Index was chosen for inclusion in the Company’s Stock Performance Graph because the
Company believes it provides valuable comparative information reflecting the Company’s geographic peer group. The
SNL Bank $5 Billion to $10 Billion in Assets Index was chosen for inclusion in the Company’s Stock Performance
Graph because it uses a broader group of banks and therefore more closely reflects the Company’s size. The Company
believes that both geographic area and size are important factors in analyzing the Company’s performance against its
peers. The graph below reflects historical performance only, which is not indicative of possible future performance of the
common stock.
Flushing Financial Corporation
Flushing Financial Corporation
Total Return Performance
Total Return Performance
Flushing Financial Corporation
Flushing Financial Corporation
NASDAQ Composite
NASDAQ Composite
SNL Bank $5 billion to $10 billion
SNL Bank $5 billion to $10 billion
SNL Mid-Atlantic Bank
SNL Mid-Atlantic Bank
350
350
300
300
250
250
200
200
150
150
e
e
u
u
l
l
a
a
V
V
x
x
e
e
d
d
n
n
I
I
100
100
12/31/11
12/31/11
12/31/12
12/31/12
12/31/13
12/31/13
12/31/14
12/31/14
12/31/15
12/31/15
12/31/16
12/31/16
The total return assumes $100 invested on December 31, 2011 and all dividends reinvested through the end of
the Company’s fiscal year ended December 31, 2016. The performance graph above is based upon closing prices on the
trading date specified.
Index
Flushing Financial Corporation
NASDAQ Composite
SNL Bank $5 Billion to $10 Billion
SNL Mid-Atlantic Bank
12/31/11
100.00
100.00
100.00
100.00
12/31/12
126.07
117.45
117.63
133.96
12/31/13
175.27
164.57
181.48
180.57
12/31/14
176.87
188.84
186.94
196.72
12/31/15
194.93
201.98
212.96
204.10
12/31/16
272.62
219.89
305.09
259.43
Period Ending
56
Item 6.Selected Financial Data.
At or for the years ended December 31,
2016
2015
2013
2014
(Dollars in thousands, except per share data)
2012
Selected Financial Condition Data
Total assets
Loans, net
Securities held to maturity
Securities available for sale
Deposits
Borrowed funds
Total stockholders' equity
Book value per common share (1)
Selected Operating Data
Interest and dividend income
Interest expense
Net interest income
Provision (benefit) for loan losses
Net interest income after provision
for loan losses
Non-interest income:
Net gains on sales of securities
and loans
Net gains on sales of building
Other-than-temporary credit impairment
charge on securities
Net (loss) gain from fair value adjustments
Other income
Total non-interest income
Non-interest expense
Income before income tax provision
Income tax provision
Net income
Basic earnings per common share (2)
Diluted earnings per common share (2)
Dividends declared per common share (2)
Dividend payout ratio
$
$
6,058,487
4,813,464
37,735
861,381
4,205,631
1,266,563
513,853
17.95
5,704,634
4,366,444
6,180
993,397
3,892,547
1,271,676
473,067
16.41
$
5,077,013
3,785,277
$
4,721,501
3,402,402
$
4,451,416
3,203,017
-
973,310
3,508,598
1,056,492
456,247
15.52
$
-
1,017,790
3,232,780
1,012,122
432,532
14.36
$
-
949,566
3,015,193
948,405
442,365
14.39
$
$
$
$
220,997
53,911
167,086
-
$
204,146
49,726
154,420
(956)
$
197,128
49,554
147,574
(6,021)
$
200,526
52,284
148,242
13,935
$
213,714
63,275
150,439
21,000
167,086
155,376
153,595
134,307
129,439
2,108
48,018
589
6,537
2,942
-
3,197
-
69
-
-
(3,434)
10,844
57,536
118,603
106,019
41,103
64,916
$
-
(1,841)
10,434
15,719
97,719
73,376
27,167
46,209
$
-
(2,568)
9,869
10,243
91,026
72,812
28,573
44,239
$
(1,419)
(2,521)
10,299
9,556
83,155
60,708
22,956
37,752
$
(776)
55
9,717
9,065
82,326
56,178
21,847
34,331
$
$
$
$
1.59
1.59
0.64
40.3%
(Footnotes on the following page)
$
$
$
2.24
2.24
0.68
30.4%
$
$
$
1.49
1.48
0.60
40.3%
$
$
$
1.26
1.26
0.52
41.3%
$
$
$
1.13
1.13
0.52
46.0%
57
At or for the years ended December 31,
2016
2015
2014
2013
2012
Selected Financial Ratios and Other Data
Performance ratios:
Return on average assets
Return on average equity
Average equity to average assets
Equity to total assets
Interest rate spread
Net interest margin
Non-interest expense to average assets
Efficiency ratio
Average interest-earning assets to average
interest-bearing liabilities
Regulatory capital ratios: (3)
Tier 1 leverage capital (well capitalized = 5%)
Common equity tier 1 risk-based capital (well capitalized = 6.5%)
Tier 1 risk-based capital (well capitalized =8%)
Total risk-based capital (well capitalized =10%)
Asset quality ratios:
Non-performing loans to gross loans (4)
Non-performing assets to total assets (5)
Net (recoveries) charge-offs to average loans
Allowance for loan losses to gross loans
Allowance for loan losses to total
non-performing assets (5)
Allowance for loan losses to total
non-performing loans (4)
%
1.10
13.07
8.40
8.48
2.86
2.97
2.01
59.64
%
0.86
9.93
8.68
8.29
2.94
3.04
1.82
58.57
%
0.91
9.82
9.31
8.99
3.10
3.22
1.77
54.40
%
0.82
8.73
9.45
9.16
3.32
3.43
1.76
50.64
%
0.79
7.99
9.83
9.94
3.50
3.65
1.88
50.73
1.12
x
1.11
x
1.11
x
1.10
x
1.09
x
%
%
%
10.12
14.12
14.12
14.64
8.89
12.62
12.62
13.17
%
0.44
0.36
(0.02)
0.46
0.60
0.54
0.06
0.49
%
%
9.63
n/a
13.87
14.60
0.90
0.80
0.02
0.66
%
%
9.48
n/a
14.59
15.63
1.43
1.14
0.41
0.93
%
%
9.62
n/a
14.38
15.43
2.79
2.21
0.64
0.97
101.28
69.45
61.94
59.04
31.59
103.80
82.58
73.40
64.89
34.62
Full-service customer facilities
19
19
17
17
17
(1) Calculated by dividing stockholders’ equity of $513.9 million and $473.1 million at December 31, 2016 and 2015, respectively, by 28,632,904 and
28,830,558 shares outstanding at December 31, 2016 and 2015, respectively.
(2) The shares held in the Company’s Employee Benefit Trust are not included in shares outstanding for purposes of calculating earnings per share.
(3) Represents the Bank’s capital ratios, which exceeded all minimum regulatory capital requirements during the periods presented. Common equity
tier 1 risk-based capital was not a required ratio prior to 2015.
(4) Non-performing loans consist of non-accrual loans and loans delinquent 90 days or more that are still accruing.
(5) Non-performing assets consist of non-performing loans, real estate owned and non-performing investment securities.
58
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
As used in this discussion and analysis, the words “we,” “us,” “our” and the “Company” are used to refer to
Flushing Financial Corporation and its direct and indirect wholly owned subsidiaries, Flushing Bank (the “Bank”),
Flushing Preferred Funding Corporation, Flushing Service Corporation, and FSB Properties Inc.
General
We are a Delaware corporation organized in May 1994. The Bank was organized in 1929 as a New York State-
chartered mutual savings bank. In 1994, the Bank converted to a federally chartered mutual savings bank and changed its
name from Flushing Savings Bank to Flushing Savings Bank, FSB. The Bank converted from a federally chartered
mutual savings bank to a federally chartered stock savings bank on November 21, 1995, at which time Flushing
Financial Corporation acquired all of the stock of the Bank. On February 28, 2013, the Bank’s charter was changed to a
full-service New York State chartered commercial bank, and its name was changed to Flushing Bank. As a result of the
Bank’s change in charter to a full-service New York State chartered commercial bank, the Bank’s primary regulator
became the New York State Department of Financial Services, and its primary federal regulator became the Federal
Deposit Insurance Corporation (“FDIC”). The Bank’s deposits are insured to the maximum allowable amount by the
FDIC. The Bank owns three subsidiaries: Flushing Preferred Funding Corporation, Flushing Service Corporation, and
FSB Properties Inc.
Flushing Financial Corporation 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 formed during 2007
to issue a total of $60.0 million of capital securities, and $1.9 million of common securities (which are the only voting
securities). Flushing Financial Corporation owns 100% of the common securities of the Trusts. The Trusts used the
proceeds from the issuance of these securities to purchase junior subordinated debentures from Flushing Financial
Corporation. The Trusts are not included in our consolidated financial statements as we would not absorb the losses of
the Trusts if losses were to occur.
The following discussion of financial condition and results of operations includes the collective results of the
Flushing Financial Corporation and its subsidiaries (collectively, the “Company”), but reflects principally the Bank’s
activities. Management views the Company as operating as a single unit - a community bank. Therefore, segment
information is not provided.
The Bank has a business banking unit which focuses on the development of a full complement of commercial
business deposit, loan and cash management products. As of December 31, 2016 and 2015, the business banking unit
had $613.0 million and $525.3 million, respectively, in gross loans outstanding and $144.4 million and $146.3 million,
respectively, of customer deposits.
The Bank has an internet branch, iGObanking.com®, which provides access to consumers in markets outside
our geographic locations. Accounts can be opened online at www.iGObanking.com or by mail. IGObanking.com® does
not currently accept loan applications. As of December 31, 2016 and 2015, iGObanking.com® had $417.3 million and
$323.7 million, respectively, of customer deposits.
The Bank has a governmental banking unit, which provides banking services to public entities including
counties, cities, towns, villages, school districts, libraries, fire districts and the various courts throughout the New York
City metropolitan area. At December 31, 2016 and 2015, the government banking unit had $1,062.1 million and $975.9
million, respectively, in customer deposits.
Overview
Our principal business is attracting retail deposits from the general public and investing those deposits together
with funds generated from ongoing operations and borrowings, primarily in (1) originations and purchases of multi-
family residential properties, commercial business loans, commercial real estate mortgage loans and, to a lesser extent,
one-to-four family (focusing on mixed-use properties, which are properties that contain both residential dwelling units
and commercial units); (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 including overdraft lines of credit. Our results of operations depend primarily on net interest
income, which is the difference between the income earned on its 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
59
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 Federal Home Bank of New
York (“FHLB-NY”) stock and net gains and losses on sales of securities and loans. Our operating expenses consist
principally of employee compensation and benefits, occupancy and equipment costs, other general and administrative
expenses and income tax expense. Our results of operations also can be significantly affected by our periodic provision
for loan losses and specific provision for losses on real estate owned.
Management Strategy. Our strategy is to continue our focus on being an institution serving consumers,
businesses, and governmental units in our local markets. In furtherance of this objective, we intend to:
(cid:120)
(cid:120)
(cid:120)
Increase core deposits and continue to improve funding mix;
increase net interest income by leveraging loan pricing opportunities;
enhance earnings by managing net interest margin and improving scalability and efficiency;
(cid:120) manage credit risk;
(cid:120) maintain well capitalized levels under all stress test scenarios;
(cid:120)
increase our commitment to the multi-cultural marketplace, with a particular focus on the Asian community in
Queens;
(cid:120) manage enterprise-wide risk.
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.
Increase core deposits and continue to improve funding mix. We have a relatively stable retail deposit base
drawn from our market area through our full-service offices. Although we seek to retain existing deposits and maintain
depositor relationships by offering quality service and competitive interest rates to our customers, we also seek to keep
deposit growth within reasonable limits and our strategic plan. In order to implement our strategic plan, we have built
multi-channel deposit gathering capabilities. The business banking operation was designed specifically to develop full
business relationships thereby bringing in lower-costing checking and money market deposits. At December 31, 2016,
deposits balances in the business sector are $144.4 million. We also have “iGObanking.com®”, as a division of the Bank,
to compete for deposits from sources outside the geographic footprint of our full-service offices. In creating
iGObanking.com®, our strategy is to reduce our reliance on wholesale borrowings and reduce our funding costs. Deposit
balances in iGObanking.com® were $417.3 million at December 31, 2016, at rates lower than our borrowings. We have
a government banking division as an additional source of deposits. At December 31, 2016, deposits in our government
banking division totaled $1,062.1 million at rates below our average cost of funds. We also obtain deposits through
brokers and the CDARS® and ICS network. Management intends to balance its goal to maintain competitive interest
rates on deposits while seeking to manage its overall cost of funds to finance its strategies. We generally rely on our
deposit base as our principal source of funding. During 2016, we realized an increase in due to depositors of $309.7
million, as core deposits increased $340.9 million while certificates of deposit decreased $31.2 million.
A significant portion of our lending and deposit customers do not have both their loans and deposits with us.
We intend to continue to focus on obtaining additional deposits from our lending customers and originating additional
loans to our deposit customers. Product offerings were expanded and are expected to be further expanded to
accommodate perceived customer demands. In addition, specific employees are assigned responsibilities of generating
these additional deposits and loans by coordinating efforts between lending and deposit gathering departments.
Increase net interest income by leveraging loan pricing opportunities. During 2016, we repositioned our
strategy to focus more on loan pricing as opposed to volume. We saw yields on originations increase for the third and
fourth quarters of 2016 as compared to the same period in 2015. The average interest rate obtained for third quarter 2016
originations was 3.74% as compared to 3.56% for the 2015 period. For fourth quarter 2016 originations, the average
interest rate increased 13 basis points to 3.81% as compared to 3.68% for the 2015 period.
We have emphasized the strategic growth of multi-family residential mortgage loans and floating rate
commercial business loans. We have re-entered the higher-yielding non-owner occupied commercial real estate lending
during 2015. We continued to deemphasize one-to-four family – mixed-use property and construction lending and we no
longer provide taxi medallion loans.
60
The following table shows loan originations and purchases during 2016, and loan balances as of
December 31, 2016.
Loan
Originations and
Purchases
Loan Balances
December 31,
2016
(Dollars in thousands)
Percent of
Gross Loans
Multi-family residential
Commercial real estate
One-to-four family (cid:650) mixed-use property
One-to-four family (cid:650) residential
Co-operative apartment
Construction
Small Business Administration
Taxi Medallion
Commercial Business and Other
$
371,197
322,721
62,735
24,820
470
15,772
8,447
-
326,776
$
2,178,504
1,246,132
558,502
185,767
7,418
11,495
15,198
18,996
597,122
%
45.21
25.86
11.59
3.85
0.15
0.24
0.32
0.39
12.39
Total
$
1,132,938
$
4,819,134
100.00
%
At December 31, 2016, multi-family residential, commercial business and other loans and commercial real
estate loans, totaled 83.5% of our gross loans. We have repositioned our loan growth since the Great Recession to
reduce credit risk; however, our concentration in these types of loans could require us to increase our provisions for loan
losses and to maintain an allowance for loan losses as a percentage of total loans in excess of the allowance currently
maintained.
Enhance earnings by managing net interest margin and improving scalability and efficiency. By taking
advantage of loan pricing opportunities and continuing to maintain a lower cost of funds, we actively manage the net
interest margin. During the year ended December 31, 2016, the cost of interest-bearing liabilities decreased one basis
point to 1.07% from 1.08% for the year ended December 31, 2015. During 2017, approximately 47% of our borrowings
and certificates of deposits are scheduled to mature or reprice. During 2016, we renovated two branches to the Universal
Banker model and plan to renovate three branches during 2017. The Universal Banker model will result in savings of
both personnel and occupancy costs while providing our customers with cutting-edge technology.
Manage credit risk. By adherence to our conservative underwriting standards, we have been able to minimize
net losses from impaired loans, recording net recoveries of $0.7 million for the year ended December 31, 2016 compared
to net charge-offs of $2.6 million for the year ended December 31, 2015. The loan to value for the real estate dependent
loan portfolio was 40.5% and the average loan to value for non-performing loans collateralized by real estate was 39.1%
at December 31, 2016. We seek to maintain our loans in performing status through, among other things, disciplined
collection efforts, and consistently monitoring non-performing assets in an effort to return them to performing status. To
this end, we review the quality of our loans and report to the Loan Committee of the Board of Directors of the Bank on a
monthly basis. We sold 26 delinquent loans totaling $8.0 million, 23 delinquent loans totaling $9.0 million, and 34
delinquent loans totaling $15.9 million during the years ended December 31, 2016, 2015 and 2014, respectively. We
recorded net recoveries on delinquent loans that were sold during 2016, 2015 and 2014 of $48,000, $0.1 million and $0.4
million. We realized gross gains of $0.3 million, $0.1 million and $0.1 million on the sale of delinquent loans for the
years ended December 31, 2016, 2015 and 2014, respectively. We realized gross losses of $2,000 for the year ended
December 31, 2015. We did not record any gross losses during the years ended December 31, 2016 and 2014. There can
be no assurances that we will continue this strategy in future periods, or if continued, we will be able to find buyers to
pay adequate consideration. Non-performing loans totaled $21.9 million and $31.0 million at December 31, 2016 and
2015, respectively. Non-performing assets as a percentage of total assets were 0.36% and 0.54% at December 31, 2016
and 2015, respectively.
Maintain well capitalized levels under all stress test scenarios. The Bank faces several minimum capital
requirements imposed by federal regulation. Failure to adhere to these minimums could limit the dividends the Bank is
allowed to pay, including the payment of dividends to Flushing Financial Corporation, and could limit the annual growth
of the Bank. Under the Dodd Frank Act, banks with assets greater than $10.0 billion in total assets are required to
complete stress tests, which predict capital levels under certain stress levels. Although, our total assets are currently $6.1
billion, as a best practice, we completed these tests. As of December 31, 2016, under all stress scenarios, we remain well
capitalized per current regulations.
61
Increase Our Commitment to the Multi-Cultural Marketplace, with a Particular Focus on the Asian
Community in Queens. Our branches are all located in the New York City metropolitan area with particular
concentration in the borough of Queens. Queens is characterized with a high level of ethnic diversity. An important
element of our strategy is to service multi-ethnic consumers and businesses. We have a particular presence and
concentration in Asian communities, including in particular the Chinese and Korean populations. Both groups are
noted for high levels of savings, education and entrepreneurship. In order to service these and other important
ethnic groups in our market, our staff speaks more than 30 languages. We have an Asian advisory board to help
broaden our links to the community by providing guidance and fostering awareness of our active role in the local
community. Through our focus on and commitment to the Asian community in Queens, where we have four
branches, we have obtained approximately $500 million in deposits in these branches. We also have over $450
million of loans and lines of credit outstanding to borrowers in the Asian community.
Manage Enterprise-Wide Risk. We identify, measure and attempt to mitigate risks that affect, or have the
potential to affect, our business. Due to past economic crises and recent increases in government regulation, we devote
significant resources to risk management. We have a seasoned risk officer to provide executive risk leadership, and an
enterprise-wide risk management program. Several enterprise risk management analytical products are in use which
include key risk indicators. We also have had a chief information security officer even before one will be required by
recent NYDFS rulemaking not yet in effect. Our management of enterprise-wide risk enables us to recognize and
monitor risks and establish procedures to disseminate the risk information across our organization and to our Board of
Directors. The objective is to have a robust and focused risk management process capable of identifying and mitigating
emerging threats to the Bank’s safety and soundness.
Trends and Contingencies. Our operating results are significantly affected by national and local economic and
competitive conditions, including changes in market interest rates, the strength of the local economy, government
policies and actions of regulatory authorities. We have remained strategically focused on the origination of multi-family
residential mortgages and to a lesser extent, commercial real estate and one-to-four family mixed-use property mortgage
loans. However, in late 2014 and throughout 2015 and 2016 we have increased our emphasis on the origination and
purchase of business loans with full banking relationships and commercial real estate loans. As a result of this strategy,
we were able to continue to achieve a higher yield on our mortgage portfolio than we would have otherwise experienced.
As we have seen improvements in the local economy, our non-performing loans have decreased. The majority
of our impaired loans are income producing residential properties located in the New York City metropolitan market.
Due to the low vacancy rates for these types of properties, they have retained more of their value, thereby reducing their
loss content. Non-performing loans totaled $21.4 million, $26.1 million and $34.2 million at December 31, 2016, 2015
and 2014, respectively. We have not experienced a significant increase in foreclosed properties despite an extended
foreclosure process in our market. The extended foreclosure process in our market is due to the high number of
foreclosure actions filed in the court system in the counties for which we are seeking foreclosure on delinquent mortgage
loans. We have not encountered significant issues with documentation relating to mortgages for which we are seeking
foreclosure as we maintain custody of all loan documents and review them prior to providing them to our legal counsel
to initiate the foreclosure action. During the year ended December 31, 2016, we recorded net recoveries of $0.7 million
compared to net charge-offs of $2.6 million and $0.7 million for the years ended December 31, 2015 and 2014,
respectively. This improvement in net charge-offs allowed us to not record a provision for loan losses during the year
ended December 31, 2016, compared to benefits of $1.0 million and $6.0 million for the years ended December 31, 2015
and 2014, respectively. We cannot predict the effect of these economic conditions on the Company’s future financial
condition or operating results.
Loan originations and purchases were $1,132.9 million, $1,233.5 million and $958.2 million for the years ended
December 31, 2016, 2015 and 2014, respectively. While we primarily rely on originating our own loans, we purchased
$186.7 million, $278.9 million and $169.9 million during the years ended December 31, 2016, 2015 and 2014,
respectively. We purchase loans when the loans complement our loan portfolio strategy. Loans purchased must meet our
underwriting standards when they were originated.
During the three-year period ended December 31, 2016, the allocation of our loan portfolio has remained fairly
consistent. The majority of our loans are collateralized by real estate, which comprised 86.9% of our portfolio at
December 31, 2016 compared to 87.7% at December 31, 2015 and 87.4% at December 31, 2014. Multi-family
residential mortgage loans comprised 45.2%, 47.0% and 50.6% of our loan portfolio at December 31, 2016, 2015 and
2014, respectively. Commercial real estate mortgage loans comprised 25.9%, 22.9% and 16.4% of our loan portfolio at
December 31, 2016, 2015 and 2014, respectively. One-to-four family mixed-use property mortgage loans comprised
62
11.6%, 13.1% and 15.1% of loan portfolio at December 31, 2016, 2015 and 2014, respectively. One-to-four family
residential mortgage loans comprised 3.9%, 4.3% and 4.9% of loan portfolio at December 31, 2016, 2015 and 2014,
respectively.
Due to depositors increased $309.7 million, $382.8 million and $272.9 million in 2016, 2015 and 2014,
respectively. Lower-costing core deposits increased $340.9 million, $285.3 million and $88.1 million in 2016, 2015 and
2014, respectively. Higher-costing certificates of deposit decreased $31.2 million during 2016 compared to increases
$97.5 million during 2015 and $184.9 million during 2014. Brokered deposits represented 26.5%, 25.2% and 21.8% of
total deposits at December 31, 2016, 2015 and 2014, respectively.
Prevailing interest rates affect the extent to which borrowers repay and refinance loans. In a declining interest
rate environment, the number of loan prepayments and loan refinancing tends to increase, as do prepayments of
mortgage-backed securities. Call provisions associated with our investments in U.S. government agency and corporate
securities may also adversely affect yield in a declining interest rate environment. Such prepayments and calls may
adversely affect the yield of our loan portfolio and mortgage-backed and other securities as we reinvest the prepaid funds
in a lower interest rate environment. However, we typically receive additional loan fees when existing loans are
refinanced, which partially offsets the reduced yield on our loan portfolio resulting from prepayments. In periods of low
interest rates, our level of core deposits also may decline if depositors seek higher-yielding instruments or other
investments not offered by us, which in turn may increase our cost of funds and decrease our net interest margin to the
extent alternative funding sources, are utilized. By contrast, an increasing interest rate environment would tend to extend
the average lives of lower yielding fixed rate mortgages and mortgage-backed securities, which could adversely affect
net interest income. In addition, depositors tend to open longer term, higher costing certificate of deposit accounts which
could adversely affect our net interest income if rates were to subsequently decline. Additionally, adjustable rate
residential mortgage loans and mortgage-backed securities generally contain interim and lifetime caps that limit the
amount the interest rate can increase at re-pricing dates.
We attempt to pursue the guarantor on all loans for which a loss has been incurred and for which a guarantee
was obtained, when, after considering the benefits and costs, we have concluded we will be successful in recovering at
least a portion of the loss we incurred. The success of this pursuit is based on the assets the guarantor holds when we
obtain a judgment.
During 2016, we sought performance under guarantees on three business loans, seeking judgment of
approximately $3.6 million. As of December 31, 2016, we had received $6,000 on these business loans. During the year
ended December 31, 2016, we realized recoveries of approximately $50,000 on business loans for which we sought
judgments prior to 2016. During 2015, we sought performance under guarantees on two business loans, seeking
judgment of approximately $2.5 million. During the year ended December 31, 2015, we realized recoveries of
approximately $0.3 million on business loans and $0.1 million on real estate mortgage loans for which we sought
judgments prior to 2015.
During 2016 our net interest income increased $12.7 million, or 8.20%, to $167.1 million for the twelve months
ended December 31, 2016 from $154.4 million for the comparable prior year period, as a seven basis point decrease in
the net interest margin to 2.97% for the twelve month ended December 31, 2016 was more than offset by balance sheet
growth. The decrease in the net interest margin for 2016 was primarily due to a decline in the yield of our interest-
earning assets, partially offset by a reduction in our funding costs. The decline in the yield of our interest earning assets
was primarily due to rates earned on new loans originated and securities purchased during 2016 being lower than the
yield of the existing portfolio. During 2016, the average balance of total loans, net increased $567.2 million to $4,600.7
million. During 2016, the average balance of borrowed funds increased by $126.6 million to $1,231.0 million compared
to $1,104.4 million for 2015, while the cost of borrowed funds decreased nine basis points to 1.67% for the year ended
December 31, 2016 from 1.76% in the comparable period. The cost of certificates of deposit accounts decreased nine
basis points for the twelve months ended December 31, 2016 from the prior year, while the cost of money market
accounts, NOW and savings accounts increased 21 basis points, seven basis points and four basis points, respectively, for
the twelve months ended December 31, 2016 from the prior year. The cost of money market accounts increased
primarily due to our shifting of Government NOW deposits to an Insured Cash Sweep service (“ICS”) brokered money
market product, which does not require us to provide collateral. This allows us to invest our funds in higher yielding
assets. The cost of savings and NOW accounts increased as we increased the rates we pay on certain accounts to attract
additional deposits. This resulted in an increase in the cost of due to depositors of one basis point to 0.89% for the twelve
months ended December 31, 2016 from 0.88% for the twelve months ended December 31, 2015. Overall, as a result of
these changes to our funding mix we were able to reduce our cost of interest-bearing liabilities one basis point to 1.07%
for the year ended December 31, 2016 from 1.08% for the year ended December 31, 2015.
63
We are unable to predict the direction or timing of future interest rate changes. Approximately 47% of our
certificates of deposit accounts and borrowings reprice or mature during the next year, which could result in a decrease in
the cost of our interest-bearing liabilities. Also, in a decreasing interest rate environment, mortgage loans and mortgage-
backed securities with higher rates tend to prepay, which could result in a reduction in the yield on our interest-earning
assets.
Interest Rate Sensitivity Analysis
A financial institution’s exposure to the risks of changing interest rates may be analyzed, in part, by examining
the extent to which its assets and liabilities are “interest rate sensitive” and by monitoring the institution’s interest rate
sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or
reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities
maturing or repricing within that time period. A gap is considered positive when the amount of interest-earning assets
maturing or repricing exceeds the amount of interest-bearing liabilities maturing or repricing within the same period. A
gap is considered negative when the amount of interest-bearing liabilities maturing or repricing exceeds the amount of
interest-earning assets maturing or repricing within the same period. Accordingly, a positive gap may enhance net
interest income in a rising rate environment and reduce net interest income in a falling rate environment. Conversely, a
negative gap may enhance net interest income in a falling rate environment and reduce net interest income in a rising rate
environment.
The table below sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at
December 31, 2016 which are anticipated by the Company, based upon certain assumptions, to reprice or mature in each
of the future time periods shown. Except as stated below, the amount of assets and liabilities shown that reprice or
mature during a particular period was determined in accordance with the earlier of the term to repricing or the
contractual terms of the asset or liability. Prepayment assumptions for mortgage loans and mortgage-backed securities
are based on our experience and industry averages, which generally range from 6% to 36%, depending on the contractual
rate of interest and the underlying collateral. Money market accounts and savings accounts were assumed to have a
withdrawal or “run-off” rate of 14% and 23%, respectively, based on our experience. While management bases these
assumptions on actual prepayments and withdrawals experienced by us, there is no guarantee that these trends will
continue in the future.
64
Interest Rate Sensitivity Gap Analysis at December 31, 2016
Three
Months
And Less
More Than
Three
Months To
One Year
More Than
One Year
To Three
Years
More Than
Three Years
To Five
Years
More Than
Five Years
To Ten
Years
(Dollars in thousands)
More Than
Ten Years
Total
$
307,930
147,119
25,771
$
683,651
113,512
-
$
1,493,473
182,555
-
$
1,140,190
105,015
-
$
532,657
79,659
-
$
29,917
3,456
-
$
4,187,818
631,316
25,771
1,330
14,540
-
-
-
21,865
22,331
127,849
632,330
71,257
17,103
900,063
129,933
144,144
1,950,105
84,419
51,086
1,380,710
95,006
1,809
709,131
113,530
2,914
171,682
37,735
-
516,476
344,905
5,744,021
9,589
-
37,188
281,713
-
353,713
682,203
$
28,767
-
111,563
362,623
-
231,227
734,180
$
52,320
-
105,206
649,794
-
408,200
1,215,520
$
48,782
-
589,413
76,711
-
273,423
988,329
$
114,825
-
-
1,274
-
-
116,099
$
-
1,362,484
-
-
40,216
-
1,402,700
$
254,283
1,362,484
843,370
1,372,115
40,216
1,266,563
5,139,031
$
$
$
(49,873)
(49,873)
$
$
165,883
116,010
$
$
734,585
850,595
$
$
392,381
1,242,976
$
$
593,032
1,836,008
$
$
(1,231,018)
604,990
$
604,990
-0.82%
1.91%
14.04%
20.52%
30.30%
9.99%
92.69%
108.19%
132.32%
134.33%
149.14%
111.77%
Interest-Earning Assets
Mortgage loans
Other loans
Short-term securities (1)
Securities held-to-maturity:
Other
Securities available for sale:
Mortgage-backed securities
Other
Total interest-earning assets
Interest-Bearing Liabilities
Savings accounts
NOW accounts
Money market accounts
Certificate of deposit accounts
Mortgagors' escrow deposits
Borrowings
Total interest-bearing liabilities (2)
Interest rate sensitivity gap
Cumulative interest-rate sensitivity gap
Cumulative interest-rate sensitivity gap
as a percentage of total assets
Cumulative net interest-earning assets
as a percentage of interest-bearing
liabilities
(1) Consists of interest-earning deposits.
(2) Does not include non-interest bearing demand accounts totaling $333.2 million at December 31, 2016.
Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example,
although certain assets and liabilities may have similar estimated maturities or periods to repricing, they may react in
differing degrees to changes in market interest rates and may bear rates that differ in varying degrees from the rates that
would apply upon maturity and reinvestment or upon repricing. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind
changes in market rates. Additionally, certain assets, such as ARM loans, have features that restrict changes in interest rates
on a short-term basis and over the life of the asset. Further, in the event of a significant change in the level of interest
rates, prepayments on loans and mortgage-backed securities, and deposit withdrawal or “run-off” levels, would likely
deviate materially from those assumed in calculating the above table. In the event of an interest rate increase, some
borrowers may be unable to meet the increased payments on their adjustable-rate debt. The interest rate sensitivity
analysis assumes that the nature of the Company’s assets and liabilities remains static. Interest rates may have an effect
on customer preferences for deposits and loan products. Finally, the maturity and repricing characteristics of many assets
and liabilities as set forth in the above table are not governed by contract but rather by management’s best judgment
based on current market conditions and anticipated business strategies.
Interest Rate Risk
Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally
accepted in the United States of America, which requires the measurement of financial position and operating results in
terms of historical dollars without considering the changes in fair value of certain investments due to changes in interest
rates. Generally, the fair value of financial investments such as loans and securities fluctuates inversely with changes in
interest rates. As a result, increases in interest rates could result in decreases in the fair value of our interest-earning
65
assets which could adversely affect our results of operations if such assets were sold, or, in the case of securities
classified as available for sale, decreases in our stockholders’ equity if such securities were retained.
We manage the mix of interest-earning assets and interest-bearing liabilities on a continuous basis to maximize
return and adjust our exposure to interest rate risk. On a quarterly basis, management prepares the “Earnings and
Economic Exposure to Changes in Interest Rate” report for review by the Board of Directors, as summarized below. This
report quantifies the potential changes in net interest income and net portfolio value should interest rates go up or down
(shocked) 200 basis points, assuming the yield curves of the rate shocks will be parallel to each other. Net portfolio value
is defined as the market value of assets net of the market value of liabilities. The market value of assets and liabilities is
determined using a discounted cash flow calculation. The net portfolio value ratio is the ratio of the net portfolio value to
the market value of assets. All changes in income and value are measured as percentage changes from the projected net
interest income and net portfolio value at the base interest rate scenario. The base interest rate scenario assumes interest
rates at December 31, 2015. Various estimates regarding prepayment assumptions are made at each level of rate shock.
Actual results could differ significantly from these estimates. At December 31, 2016, we were within the guidelines
established by the Board of Directors for each interest rate level.
Change in Interest Rate
-200 basis points
-100 basis points
Base interest rate
+100 basis points
+200 basis points
Projected Percentage Change In
Net Interest Income
2016
2015
Net Portfolio Value
2016
2015
0.74 %
2.11
(cid:650)
-6.38
-13.97
-1.87 %
0.83
(cid:650)
-4.96
-10.45
9.79 %
7.47
(cid:650)
-11.56
-26.43
9.37 %
6.93
(cid:650)
-11.34
-26.30
Net Portfolio
Value Ratio
2016
2015
11.76 % 12.05 %
11.77
11.26
10.26
8.83
12.03
11.57
10.57
9.10
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning assets and expense on interest-
bearing liabilities. Net interest income depends upon the relative amount of interest-earning assets and interest-bearing
liabilities and the interest rate earned or paid on them.
The following table sets forth certain information relating to our Consolidated Statements of Financial
Condition and Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014, and reflects
the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by
dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average
balances are derived from average daily balances. The yields include amortization of fees that are considered
adjustments to yields.
66
Average
Balance
2016
Interest
Yield/
Cost
For the year ended December 31,
2015
Average
Balance
Interest
Yield/
Cost
(Dollars in thousands)
2014
Average
Balance
Interest
Yield/
Cost
$
4,014,734
$
173,419
4.32
%
$
3,524,331
$
161,115
4.57
%
$
3,075,055
$
154,316
5.02
%
585,948
4,600,682
21,706
195,125
581,505
243,567
825,072
142,472
142,472
14,231
8,243
22,474
3,148
3,148
3.70
4.24
2.45
3.38
2.72
2.21
2.21
509,147
4,033,478
17,605
178,720
3.46
4.43
446,852
3,521,907
16,011
170,327
3.58
4.84
693,893
163,604
857,497
134,807
134,807
17,309
4,398
21,707
3,593
3,593
2.49
2.69
2.53
2.67
2.67
740,190
147,883
888,073
131,921
131,921
19,872
3,437
23,309
3,413
3,413
2.68
2.32
2.62
2.59
2.59
58,522
250
0.43
58,397
126
0.22
41,770
79
0.19
5,626,748
286,786
5,913,534
$
220,997
3.93
204,146
4.02
5,084,179
276,965
5,361,144
$
4,583,671
254,741
4,838,412
$
197,128
4.30
$
260,948
1,496,712
581,390
1,409,772
3,748,822
1,219
7,891
3,592
20,536
33,238
0.47
0.53
0.62
1.46
0.89
$
264,891
1,432,609
380,595
1,351,619
3,429,714
1,151
6,593
1,551
20,943
30,238
0.43
0.46
0.41
1.55
0.88
$
258,243
1,390,899
245,752
1,199,849
3,094,743
597
6,227
667
22,420
29,911
0.23
0.45
0.27
1.87
0.97
56,152
112
0.20
52,364
98
0.19
47,876
133
0.28
3,804,974
1,231,015
33,350
20,561
0.88
1.67
3,482,078
1,104,368
30,336
19,390
0.87
1.76
3,142,619
993,790
30,044
19,510
0.96
1.96
5,035,989
53,911
1.07
4,586,446
49,726
1.08
4,136,409
49,554
1.20
305,096
75,629
5,416,714
496,820
250,488
59,016
4,895,950
465,194
211,389
40,217
4,388,015
450,397
$
5,913,534
$
5,361,144
$
4,838,412
$
167,086
2.86
%
$
154,420
2.94
%
$
147,574
3.10
%
$
590,759
2.97
%
$
497,733
3.04
%
$
447,262
3.22
%
1.12
X
1.11
X
1.11
X
Interest-earning assets:
Mortgage loans, net (1)(2)
Other loans, net (1)(2)
Total loans, net
Taxable securities:
Mortgage-backed
securities
Other securities
Total taxable securities
Tax-exempt securities: (3)
Other securities
Total tax-exempt securities
Interest-earning deposits
and federal funds sold
Total interest-earning
assets
Other assets
Total assets
Interest-bearing liabilities:
Deposits:
Savings accounts
NOW accounts
Money market accounts
Certificate of deposit
accounts
Total due to depositors
Mortgagors' escrow
accounts
Total interest-bearing
deposits
Borrowings (6)
Total interest-bearing
liabilities
Non interest-bearing
demand deposits
Other liabilities
Total liabilities
Equity
Total liabilities and
equity
Net interest income /
net interest rate spread (4), (6)
Net interest-earning assets /
net interest margin (5),(6)
Ratio of interest-earning
assets to interest-bearing
liabilities
(1) Average balances include non-accrual loans.
(2) Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of
approximately $4.2 million, $4.2 million and $5.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Interest income on tax-exempt securities does not include the tax benefit of the tax-exempt securities.
Interest rate spread represents the difference between the average rate on interest-earning assets and the average cost of interest-bearing liabilities.
(3)
(4)
(5) Net interest margin represents net interest income before the provision for loan losses divided by average interest-earning assets.
(6) Borrowings expense for the year ended December 31, 2014, excludes prepayment penalties incurred from the extinguishment of debt to conform to the
presentation for the year ended December 31, 2016. These penalties are reflected in non-interest expense.
67
Rate/Volume Analysis
The following table presents the impact of changes in interest rates and in the volume of interest-earning assets
and interest-bearing liabilities on the Company’s interest income and interest expense during the periods indicated.
Information is provided in each category with respect to (1) changes attributable to changes in volume (changes in
volume multiplied by the prior rate), (2) changes attributable to changes in rate (changes in rate multiplied by the prior
volume) and (3) the net change. The changes attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
Increase (Decrease) in Net Interest Income
Year Ended December 31, 2016
Compared to
Year Ended December 31, 2015
Due to
Volume
Rate
Year Ended December 31, 2015
Compared to
Year Ended December 31, 2014
Due to
Net
(Dollars in thousands)
Volume
Rate
Net
Interest-Earning Assets:
Mortgage loans, net
Other loans, net
Mortgage-backed securities
Other securities
Interest-earning deposits and
federal funds sold
Total interest-earning assets
Interest-Bearing Liabilities:
Deposits:
Savings accounts
NOW accounts
Money market accounts
Certificate of deposit accounts
Mortgagors' escrow accounts
Borrowings
Total interest-bearing liabilities
$
21,481
2,809
(2,800)
2,531
$
(9,177)
1,292
(278)
869
$
12,304
4,101
(3,078)
3,400
$
21,366
2,149
(1,202)
473
$
(14,567)
(555)
(1,361)
668
$
6,799
1,594
(2,563)
1,141
-
24,021
124
(7,170)
124
16,851
33
22,819
14
(15,801)
47
7,018
(20)
295
1,036
862
8
2,185
4,366
88
1,003
1,005
(1,269)
6
(1,014)
(181)
68
1,298
2,041
(407)
14
1,171
4,185
16
210
454
2,636
12
2,532
5,860
538
156
430
(4,113)
(47)
(7,839)
(10,875)
554
366
884
(1,477)
(35)
(5,307)
(5,015)
Net change in net interest income
$
19,655
$
(6,989)
$
12,666
$
16,959
$
(4,926)
$
12,033
Comparison of Operating Results for the Years Ended December 31, 2016 and 2015
General. Net income for the twelve months ended December 31, 2016 was $64.9 million, an increase of $18.7
million, or 40.48%, compared to $46.2 million for the twelve months ended December 31, 2015. Diluted earnings per
common share were $2.24 for the twelve months ended December 31, 2016, an increase of $0.65, or 40.88%, from $1.59
for the twelve months ended December 31, 2015.
Return on average equity increased to 13.07% for the twelve months ended December 31, 2016, from 9.93% for
the prior year. Return on average assets increased to 1.10% for the twelve months ended December 31, 2016, from
0.86% for the prior year.
Interest Income. Interest income increased $16.9 million, or 8.25%, to $221.0 million for the year ended
December 31, 2016 from $204.1 million for the year ended December 31, 2015. The increase in interest income was
primarily due to an increase of $542.6 million in the average balance of interest-earning assets to $5,626.7 million for the
year ended December 31, 2016 from $5,084.2 million for the year ended December 31, 2015, which was partially offset
by a nine basis point reduction in the yield of interest-earning assets to 3.93% for the year ended December 31, 2016
from 4.02% for the year ended December 31, 2015. The nine basis point decline in the yield of interest-earning assets
was primarily due to a 19 basis point reduction in the yield on the loan portfolio to 4.24% for the twelve months ended
December 31, 2016 from 4.43% for the twelve months ended December 31, 2015, partially offset by a 10 basis point
increase in the yield on total securities to 2.65% for the twelve months ended December 31, 2016 from 2.55% for the
prior year. The 19 basis point decrease in the yield on the loan portfolio was primarily due to a decline in the rates earned
on new loan originations and existing loans modified to lower rates. The 10 basis point increase in the yield on the
68
securities portfolio was primarily due to the purchase of new securities at higher yields than the existing portfolio. The
yield on the loan portfolio, excluding prepayment penalty income on loans, decreased 17 basis points to 4.10% for the
twelve months ended December 31, 2016 from 4.27 % for the twelve months ended December 31, 2015.
Interest Expense. Interest expense increased $4.2 million, or 8.42%, to $53.9 million for the year ended
December 31, 2016 from $49.7 million for the year ended December 31, 2015. The increase in the cost of interest-
bearing liabilities was primarily attributable to an increase of $449.5 million in the average balance of interest-bearing
liabilities to $5,036.0 million for the year ended December 31, 2016 from $4,586.4 million for the year ended December
31, 2015, which was partially offset by a decrease of one basis point in the cost of interest-bearing liabilities to 1.07% for
the year ended December 31, 2016 from 1.08% for the year ended December 31, 2015. The one basis point decrease in
the cost of interest-bearing liabilities was primarily attributable to decreases of nine basis points in each of the cost of
certificates of deposit and borrowed funds. The decrease in the cost of certificates of deposit and borrowed funds was
primarily due to maturing issuances being replaced at lower rates. Additionally, the cost of borrowed funds benefited
from the early extinguishment of $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% during 2016. These decreases were partially
offset by increases of 21 basis points, seven basis points and four basis points in the cost of money market, NOW and
savings accounts, respectively, for the twelve months ended December 31, 2016 from the comparable prior year period.
The cost of money market accounts increased primarily due to our shifting of Government NOW deposits to a money
market product which does not require us to provide collateral, allowing us to invest these funds in higher yielding
assets. The cost of NOW and savings accounts increased as we increased the rate we pay on some of our products to
attract additional deposits. Additionally, the cost of interest-bearing liabilities was negatively affected by increases of
$126.6 million and $58.2 million in the average balance of higher costing borrowed funds and certificates of deposit,
during the twelve months ended December 31, 2016, which was partially offset by an increase of $261.0 million in the
average balance of lower-costing core deposits during the twelve months ended December 31, 2016 to $2,339.1 million
from $2,078.1 million for the comparable prior year period.
Net Interest Income. Net interest income for the year ended December 31, 2016 totaled $167.1 million, an
increase of $12.7 million, or 8.20%, from $154.4 million for 2015. The increase in net interest income was primarily due
to the growth of net interest-earning assets. These improvements to net interest income were partially offset by a
decrease in the net interest spread of eight basis points to 2.86% for the twelve months ended December 31, 2016 from
2.94% for the prior year. The yield on interest-earning assets decreased nine basis points to 3.93% for the year ended
December 31, 2016 from 4.02% for the year ended December 31, 2015, while the cost of interest-bearing liabilities
decreased one basis point to 1.07% for the year ended December 31, 2016 from 1.08% for the prior year period. The net
interest margin decreased seven basis points to 2.97% for the year ended December 31, 2016 from 3.04% for the year
ended December 31, 2015. Excluding prepayment penalty income, the net interest margin would have been 2.85% and
2.91% for the years ended December 31, 2016 and 2015, respectively.
Provision (Benefit) for Loan Losses. There was no provision or benefit for loan losses recorded for the twelve
months ended December 31, 2016, compared to a benefit of $1.0 million recorded during the comparable prior year
period. No provision was recorded during the twelve months ended December 31, 2016 due to the Company’s analysis
of the adequacy of the allowance for loan losses indicating that the reserve was at an appropriate level. During the twelve
months ended December 31, 2016, non-accrual loans decreased $1.8 million to $21.0 million from $22.8 million at
December 31, 2015. During the twelve months ended December 31, 2016, the Bank recorded net recoveries totaling $0.7
million, or two basis points of average loans. The current average loan-to-value ratio for our non-performing loans
collateralized by real estate was 39.1% at December 31, 2016. When we have obtained properties through foreclosure,
we have been able to quickly sell the properties at amounts that approximate book value. The Bank continues to maintain
conservative underwriting standards. We anticipate that we will continue to see low loss content in our loan portfolio.
Non-Interest Income. Non-interest income for the twelve months ended December 31, 2016 was $57.5 million,
an increase of $41.8 million, or 266.03%, from $15.7 million for the twelve months ended December 31, 2015. The
increase in non-interest income was primarily due to an increase of $41.5 million in net gains on the sale of buildings, as
we sold three of our branch buildings during each of the years ending December 31, 2016 and 2015 in sale-leaseback
transactions. Additionally, non-interest income increased due to an increase in net gains from the sale of securities of
$1.4 million and a gain from life insurance proceeds of $0.5 million. These increases were partially offset by a $1.6
million increase in net losses from fair value adjustments.
Non-Interest Expense. Non-interest expense was $118.6 million for the twelve months ended December 31,
2016, an increase of $20.9 million, or 21.37%, from $97.7 million for the twelve months ended December 31, 2015. The
increase in non-interest expense was primarily due to increases of $10.4 million in prepayment penalties from the early
69
extinguishment of debt during 2016, $7.7 million in salaries and benefits expense, $1.6 million in other operating
expenses, $0.9 million in depreciation and amortization expense and $0.6 million in professional services expense from
increases in legal and consulting expenses. The increase in salaries and benefits was primarily due to annual salary
increases and additions in staffing in retail, audit and compliance departments, as well as increases in production
incentives and the cost of split dollar life insurance benefits. The increase in other operating expenses was due to a $1.4
million increase in net losses on the sale of OREO recorded during the twelve months ended December 31, 2016,
primarily due to the write-down and subsequent sale of one OREO. The growth in depreciation and amortization expense
was primarily due to the opening of two new branches along with the move to our new corporate headquarters both
occurring during 2015. The efficiency ratio was 59.6% for the twelve months ended December 31, 2016 compared to
58.6% for the twelve months ended December 31, 2015.
Income Tax Provisions. Income tax expense for the year ended December 31, 2016 increased $13.9 million, or
51.30%, to $41.1 million, compared to $27.2 million for the year ended December 31, 2015. The increase was primarily
due to a $32.6 million increase in income before income taxes and an increase in the effective tax rate to 38.8% for the
twelve months ended December 31, 2016 from 37.0% in the comparable prior year period. The increase in the effective
tax rate reflects the reduced impact that preferential tax items had on the Company’s tax liability during the twelve
months ended December 31, 2016 compared to the twelve months ended December 31, 2015.
Comparison of Operating Results for the Years Ended December 31, 2015 and 2014
General. Net income for the twelve months ended December 31, 2015 was $46.2 million, an increase of $2.0
million, or 4.45%, compared to $44.2 million for the twelve months ended December 31, 2014. Diluted earnings per
common share were $1.59 for the twelve months ended December 31, 2015, an increase of $0.11, or 7.43%, from $1.48
for the twelve months ended December 31, 2014.
Return on average equity increased to 9.93% for the twelve months ended December 31, 2015, from 9.82% for
the prior year. Return on average assets decreased to 0.86% for the twelve months ended December 31, 2015, from
0.91% for the prior year.
The prepayment penalty for the extinguishment of debt totaling $5.2 million, recorded during the year ended
December 31, 2014, has been reclassified from interest expense to non-interest expense to conform to the presentation
for the year ended December 31, 2016.
Interest Income. Interest income increased $7.0 million, or 3.56%, to $204.1 million for the year ended
December 31, 2015 from $197.1 million for the year ended December 31, 2014. The increase in interest income was
primarily due to an increase of $500.5 million in the average balance of interest-earning assets to $5,084.2 million for the
year ended December 31, 2015 from $4,583.7 million for the year ended December 31, 2014, which was partially offset
by a 28 basis point reduction in the yield of interest-earning assets to 4.02% for the year ended December 31, 2015 from
4.30% for the year ended December 31, 2014. The 28 basis point decline in the yield of interest-earning assets was
primarily due to a 41 basis point reduction in the yield on the loan portfolio to 4.43% for the twelve months ended
December 31, 2015 from 4.84% for the twelve months ended December 31, 2014, combined with a seven basis point
decline in the yield on total securities to 2.55% for the twelve months ended December 31, 2015 from 2.62% for the
prior year. The 41 basis point decrease in the yield on the loan portfolio was primarily due to a decline in the rates earned
on new loan originations and existing loans modified to lower rates. The seven basis point decrease in the yield on the
securities portfolio was primarily due to the purchase of new securities at lower yields than the existing portfolio. The
yield on the loan portfolio, excluding prepayment penalty income on loans, decreased 40 basis points to 4.27% for the
twelve months ended December 31, 2015 from 4.67 % for the twelve months ended December 31, 2014.
Interest Expense. Interest expense increased $0.2 million, or 0.35%, to $49.7 million for the year ended
December 31, 2015 from $49.6 million for the year ended December 31, 2014. The increase in the cost of interest-
bearing liabilities was primarily attributable to an increase of $450.0 million in the average balance of interest-bearing
liabilities to $4,586.4 million for the year ended December 31, 2015 from $4,136.4 million for the year ended December
31, 2014, which was partially offset by a decrease of 12 basis points in the cost of interest-bearing liabilities to 1.08% for
the year ended December 31, 2015 from 1.20% for the year ended December 31, 2014. The 12 basis point decrease in
the cost of interest-bearing liabilities was primarily attributable to decreases of 32 basis points and 20 basis points in the
cost of certificates of deposit and borrowed funds, respectively. The decrease in the cost of certificates of deposit and
borrowed funds was primarily due to maturing issuances being replaced at lower rates. These decreases were partially
offset by increases of 20 basis points and 14 basis points in the cost of savings and money market accounts, respectively,
for the twelve months ended December 31, 2015 from the comparable prior year period. The cost of savings accounts
increased as we increased the rate we pay on some of our savings products to attract additional deposits. The cost of
money market accounts increased primarily due to our shifting of Government NOW deposits to a money market
70
product which does not require us to provide collateral, allowing us to invest these funds in higher yielding assets.
Additionally, the cost of interest-bearing liabilities was negatively affected by increases of $151.8 million and $110.6
million in the average balance of higher costing certificates of deposit and borrowed funds, respectively, during the
twelve months ended December 31, 2015, which was partially offset by an increase of $183.2 million in the average
balance of lower-costing core deposits during the twelve months ended December 31, 2015 to $2,078.1 million from
$1,894.9 million for the comparable prior year period.
Net Interest Income. Net interest income for the year ended December 31, 2015 totaled $154.4 million, an
increase of $6.8 million, or 4.64%, from $147.6 million for 2014. The increase in net interest income was due to the
growth of net interest-earning assets and an increase in prepayment penalty income. These improvements to net interest
income were partially offset by a decrease in the net interest spread of 16 basis points to 2.94% for the twelve months
ended December 31, 2015 from 3.10% for the prior year. The yield on interest-earning assets decreased 28 basis points
to 4.02% for the year ended December 31, 2015 from 4.30% for the year ended December 31, 2014, while the cost of
interest-bearing liabilities decreased 12 basis points to 1.08% for the year ended December 31, 2015 from 1.20% for the
prior year period. The net interest margin decreased 18 basis points to 3.04% for the year ended December 31, 2015 from
3.22% for the year ended December 31, 2014. Excluding prepayment penalty income, the net interest margin would have
been 2.91% and 3.09% for the years ended December 31, 2015 and 2014, respectively.
Provision (Benefit) for Loan Losses. The benefit for loan losses for the twelve months ended December 31,
2015 was $1.0 million, a decrease of $5.1 million, or 84.12%, from a benefit of $6.0 million during the comparable prior
year period. The benefit recorded during the twelve months ended December 31, 2015 was primarily due to the
continued improvement in both credit conditions and, the qualitative factors used in the calculation of the allowance for
loan losses. During the twelve months ended December 31, 2015, non-accrual loans decreased $9.1 million to $22.8
million from $31.9 million at December 31, 2014. During the twelve months ended December 31, 2015, net charge-offs
totaled $2.6 million, or six basis points of average loans, primarily as a result of two business loans which the Bank
deemed unrecoverable. The current average loan-to-value ratio for our non-performing loans collateralized by real estate
was 41.4% at December 31, 2015. When we have obtained properties through foreclosure, we have been able to quickly
sell the properties at amounts that approximate book value. The Bank continues to maintain conservative underwriting
standards. We anticipate that we will continue to see low loss content in our loan portfolio. As a result of the quarterly
analysis of the allowance for loans losses, a reduction in the allowance was warranted and, as such, the Company
recorded a benefit of $1.0 million for the twelve months ended December 31, 2015.
Non-Interest Income. Non-interest income for the twelve months ended December 31, 2015 was $15.7 million,
an increase of $5.5 million, or 53.46%, from $10.2 million for the twelve months ended December 31, 2014. The
increase in non-interest income was primarily due to an increase of $6.5 million in net gains on the sale of buildings, as
we sold and leased back our Brooklyn branch buildings, and increases of $0.4 million in net gains on the sale of loans
and $0.3 million in other income. Additionally, non-interest income increased due to a decrease of $0.7 million in net
losses from fair value adjustments. These improvements to non-interest income were partially offset by a decrease of
$2.7 million in net gains on the sale of securities, primarily due to the comparable prior year period including a net gain
on the sale of securities totaling $2.9 million which was comprised of net gains on the sale of securities, as part of a
balance sheet deleveraging and net losses on the sale of securities from the sale of substandard trust preferred securities.
Non-Interest Expense. Non-interest expense was $97.7 million for the twelve months ended December 31,
2015, an increase of $6.7 million, or 7.35%, from $91.0 million for the twelve months ended December 31, 2014. The
increase in non-interest expense was primarily due to increases of $4.1 million in salaries and benefits, $3.3 million in
other operating expenses and $2.2 million in occupancy and equipment expense. The increase in salaries and benefits
was primarily due to annual salary increases, increases in staffing in the technology, risk/compliance and retail
departments, as well as an increase in restricted stock expense. The increase in other operating expenses was primarily
due to $1.0 million in expenses related to the move of our corporate headquarters, $0.9 million in expenses related to the
growth of the Company, $0.7 million in net losses on the sale of OREO and $0.5 million in additional temporary staffing
and hiring fees. Other operating expenses also included $0.3 million in ATM fraud losses recorded in 2015. The growth
in occupancy and equipment expense was primarily due to increases in rent expense of $1.4 million for our new
corporate headquarters and new branch at the same location and $0.6 million from additional space in Manhattan for
Business Bankers and a new branch location, which opened in September 2015. Occupancy and equipment expense also
included $0.2 million recorded in 2015 for temporary staff for additional security to guard against further ATM fraud
losses. Additionally, during the twelve months ended December 31, 2015, the Company also experienced increases of
$1.1 million in professional services, primarily due to increased legal and compliance costs and $0.8 million, $0.5
million and $0.3 million in depreciation and amortization expense, FDIC insurance expense and data processing expense,
71
respectively, primarily due to the growth of the Bank. OREO/foreclosure expenses decreased $0.4 million during the
twelve months ended December 31, 2015 due to such period including recoveries of legal fees and a reduction in the
level of non-performing loans. These increases were partially offset by the prior year including a $5.2 million
prepayment penalty recorded on borrowings as a result of the Bank prepaying $66.9 million in long-term FHLB-NY
advances and $30.0 million in repurchase agreements. The efficiency ratio increased to 58.6% for the twelve months
ended December 31, 2015 from 54.4% for the twelve months ended December 31, 2014, primarily due to the increased
expenses discussed above.
Income Tax Provisions. Income tax expense for the year ended December 31, 2015 decreased $1.4 million, or
4.92%, to $27.2 million, compared to $28.6 million for the year ended December 31, 2014. The decrease was primarily
due to a reduction in the effective tax rate to 37.0% for the twelve months ended December 31, 2015 from 39.2% in the
comparable prior year period, partially offset by an increase of $0.6 million in income before income taxes. The decrease
in the effective tax rate reflects the impact of a change in New York City tax law enacted in 2015, which based on the
Company’s lending mix and certain other factors, reduced our New York City tax liability. Additionally, the decrease in
the effective tax rate reflects the greater impact that preferential tax items had on the Company’s tax liability during the
twelve months ended December 31, 2015 compared to the twelve months ended December 31, 2014.
Liquidity, Regulatory Capital and Capital Resources
Our primary sources of funds are deposits, borrowings, principal and interest payments on loans, mortgage-
backed and other securities, and proceeds from sales of securities and loans. Deposit flows and mortgage prepayments,
however, are greatly influenced by general interest rates, economic conditions and competition. At 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, 2015, the Bank also has unsecured lines of credit with other
commercial banks totaling $100.0 million. In addition, Flushing Financial Corporation has subordinated debentures
totaling $73.4 million and junior subordinated debentures with a face amount of $61.9 million and a carrying amount of
$34.0 million (which are both included in Borrowed Funds). (See Note 9 of Notes to the Consolidated Financial
Statements in Item 8 of this Annual Report.) Management believes its available sources of funds are sufficient to fund
current operations.
Our most liquid assets are cash and cash equivalents, which include cash and due from banks, overnight
interest-earning deposits and federal funds sold with original maturities of 90 days or less. The level of these assets is
dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2016,
cash and cash equivalents totaled $35.9 million, a decrease of $6.5 million from December 31, 2015. We also held
marketable securities available for sale with a market value of $861.4 million at December 31, 2016.
At December 31, 2016, we had commitments to extend credit (principally real estate mortgage loans) of $78.1
million and open lines of credit for borrowers (principally business lines of credit and home equity loan lines of credit) of
$244.6 million. Since generally all of the loan commitments are expected to be drawn upon, the total loan commitments
approximate future cash requirements, whereas the amounts of lines of credit may not be indicative of our future cash
requirements. The loan commitments generally expire in 90 days, while construction loan lines of credit mature within
18 months and home equity loan lines of credit mature within 10 years. We use the same credit policies in making
commitments and conditional obligations as we do for on-balance-sheet instruments.
Our total interest expense and operating expense in 2016 were $53.9 million and $118.6 million, respectively.
We maintain three postretirement defined benefit plans for our employees: a noncontributory defined benefit
pension plan which was frozen as of September 30, 2006, a contributory medical plan, and a noncontributory life
insurance plan. The life insurance plan was amended to discontinue providing life insurance benefits to future retirees
after January 1, 2010 and the medical plan was frozen as of January 1, 2011. We also maintain a noncontributory defined
benefit plan for certain of our non-employee directors, which was frozen as of January 1, 2004. The employee pension
plan is the only plan that we have funded. During 2016, we incurred cash expenditures of $0.1 million for the medical
and life insurance plans and $0.1 million for the non-employee director plan; we did not make a contribution to the
employee pension plan in 2016. We expect to pay similar amounts for these plans in 2016. (See Note 12 of Notes to
Consolidated Financial Statements in Item 8 of this Annual Report.)
The amounts reported in our financial statements are obtained from reports prepared by independent actuaries,
and are based on significant assumptions. The most significant assumption is the discount rate used to determine the
accumulated postretirement benefit obligation (“APBO”) for these plans. The APBO is the present value of projected
benefits that employees and retirees have earned to date. The discount rate is a single rate at which the liabilities of the
plans are discounted into today’s dollars and could be effectively settled or eliminated. The discount rate used is based
72
on the Citigroup Pension Liability Index, and reflects a rate that could be earned on bonds over a similar period that we
anticipate the plans’ liabilities will be paid. An increase in the discount rate would reduce the APBO, while a reduction
in the discount rate would increase the APBO. During the past several years, when interest rates have been at historically
low levels, the discount rate used for our plans has declined from 7.25% for 2001 to 3.88% for 2016. This decline in the
discount rate has resulted in an increase in our APBO.
The Company’s actuaries use several other assumptions that could have a significant impact on our APBO and
periodic expense for these plans. These assumptions include, but are not limited to, expected rate of return on plan assets,
future increases in medical and life insurance premiums, turnover rates of employees, and life expectancy. The
accounting standards for postretirement plans involve mechanisms that serve to limit the volatility of earnings by
allowing changes in the value of plan assets and benefit obligations to be amortized over time when actual results differ
from the assumptions used, there are changes in the assumptions used, or there are plan amendments. At December 31,
2016, our employee pension plan and medical and life insurance plan have unrecognized losses of $8.1 million and $0.6
million, respectively. The non-employee director plan has a $0.5 million unrecognized gain, due to experience different
from what had been estimated and changes in actuarial assumptions. The employee pension plan’s unrecognized loss is
primarily attributed to the reduction in the discount rate and change in the Plan’s mortality table. The medical and life
insurance plans’ unrecognized loss is attributed to the reduction in the discount rate over the past several years. In
addition, the non-employee director pension plan has an unrecognized past service liability of $0.1 million due to plan
amendments in prior years and the medical and life insurance plan have a $0.5 million past service credit due to plan
amendments. The net after tax effect of the unrecognized gains and losses associated with these plans has been recorded
in accumulated other comprehensive loss in stockholders’ equity, resulting in a reduction of stockholders’ equity of $4.5
million as of December 31, 2016.
The change in the discount rate, the Pension Plan’s mortality table and the reduction in medical premiums are
the only significant changes made to the assumptions used for these plans for each of three years ended December 31,
2015. During the years ended December 31, 2016, 2015 and 2014, the actual return on the employee pension plan assets
was approximately 90%, 31% and 74%, respectively, of the assumed return used to determine the periodic pension
expense for that respective year.
The market value of the assets of our employee pension plan is $20.5 million at December 31, 2016, which is
$2.3 million less than the projected benefit obligation. We do not anticipate a change in the market value of these assets
which would have a significant effect on liquidity, capital resources, or results of operations.
During 2016, funds provided by the Company's operating activities amounted to $42.4 million. These funds
combined with $273.3 million provided from financing activities and $42.4 million available at the beginning of the
period were utilized to fund net investing activities of $322.2 million. The Company's primary business objective is the
origination and purchase of multi-family residential loans, commercial business loans and commercial real estate
mortgage loans and to a lesser extent one-to-four family (including mixed-use properties) and SBA loans. During the
year ended December 31, 2016, the net total of loan originations and purchases less loan repayments and sales was
$442.7 million. During the year ended December 31, 2016, the Company also purchased $179.4 million in securities.
During 2016, funds were provided by net increases of $312.3 million and $178.5 million in total deposits and short-term
borrowed funds and $300.0 million in long-term borrowings. Additionally, funds were provided by $270.8 million in
proceeds from maturities, sales, calls and prepayments of securities, $73.4 million from the issuance of subordinated
debentures and $49.3 million in proceeds from the sale of buildings. The Company also used funds of $562.4 million,
$19.7 million and $9.9 million for the repayment of long-term borrowed funds, dividend payments and purchases of
treasury stock, respectively, during the year ended December 31, 2015.
At the time of the Bank’s conversion from a federally chartered mutual savings bank to a federally chartered
stock savings bank, the Bank was required by its primary regulator to establish a liquidation account which is reduced as
and to the extent that eligible account holders reduce their qualifying deposits. Upon completion of the Merger, the
liquidation account was assumed by the Bank. The balance of the liquidation account at December 31, 2016 was $0.7
million. In the unlikely event of a complete liquidation of the Bank, each eligible account holder will be entitled to
receive a distribution from the liquidation account. The Bank is not permitted to declare or pay a dividend or to
repurchase any of its capital stock if the effect would be to cause the Bank’s regulatory capital to be reduced below the
amount required for the liquidation account but approval of the NYDFS Superintendent is required if the total of all
dividends declared by the Bank in a calendar year would exceed the total of its net profits for that year combined with its
retained net profits for the preceding two years less prior dividends paid. Flushing Financial Corporation is subject to the
same regulatory restrictions on the declaration of dividends as the Bank.
Regulatory Capital Position. Under applicable regulatory capital regulations, the Bank and the Company are
required to comply with each of four separate capital adequacy standards: leverage capital, common equity Tier I risk-
73
based capital, Tier I risk-based capital and total risk-based capital. Such classifications are used by the FDIC and other
bank regulatory agencies to determine matters ranging from each institution’s quarterly FDIC deposit insurance premium
assessments, to approvals of applications authorizing institutions to grow their asset size or otherwise expand business
activities. At December 31, 2016 and 2015, the Bank and the Company exceeded each of their four regulatory capital
requirements. (See Note 14 of Notes to Consolidated Financial Statements included in Item 8 of this Annual Report.)
Critical Accounting Policies
The Company’s accounting policies are integral to understanding the results of operations and statement of
financial condition. These policies are described in the Notes to Consolidated Financial Statements. Several of these
policies require management’s judgment to determine the value of the Company’s assets and liabilities. The Company
has established detailed written policies and control procedures to ensure consistent application of these policies. The
Company has identified four accounting policies that require significant management valuation judgment: the allowance
for loan losses, fair value of financial instruments, including other-than-temporary impairment assessment, goodwill
impairment and income taxes.
Allowance for Loan Losses. An allowance for loan losses is provided to absorb probable estimated losses
inherent in the loan portfolio. Management reviews the adequacy of the allowance for loan losses by reviewing all
impaired loans on an individual basis. The remaining portfolio is evaluated based on the Company's historical loss
experience, recent trends in losses, collection policies and collection experience, trends in the volume of non-performing
loans, changes in the composition and volume of the gross loan portfolio, and local and national economic conditions.
Judgment is required to determine how many years of historical loss experience are to be included when reviewing
historical loss experience. A full credit cycle must be used, or loss estimates may be inaccurate. This evaluation is
inherently subjective, as it requires estimates that are susceptible to significant revisions as more information becomes
available.
Notwithstanding the judgment required in assessing the components of the allowance for loan losses, the
Company believes that the allowance for loan losses is adequate to cover losses inherent in the loan portfolio. The policy
has been applied on a consistent basis for all periods presented in the Consolidated Financial Statements.
Fair Value of Financial Instruments. The Company carries certain financial assets and financial liabilities at fair
value under the fair value option. Fair value is considered the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. Management selected
the fair value option for certain investment securities, primarily mortgage-backed securities, and certain borrowings.
Changes in the fair value of financial instruments for which the fair value election is made are recorded in the
Consolidated Statements of Income. At December 31, 2016, financial assets and financial liabilities with fair values of
$30.4 million and $34.0 million, respectively, are carried at fair value under the fair value option.
The securities portfolio also consists of mortgage-backed and other securities for which the fair value election
was not selected. These securities are classified as available for sale or held-to-maturity. Securities classified as available
for sale are carried at fair value in the Consolidated Statements of Financial Condition, with changes in fair value
recorded in Accumulated other comprehensive loss. Securities held-to-maturity are carried at their amortized cost in the
Consolidated Statements of Financial Condition. If any decline in fair value for securities classified available for sale or
held-to-maturity is deemed other-than-temporary, the security is written down to a new cost basis with the resulting loss
recorded in the Consolidated Statements of Income. During 2016 and 2015, no other-than-temporary impairment charges
were recorded.
Financial assets and financial liabilities reported at fair value are required to be measured based on the
following alternatives: (1) quoted prices in active markets for identical financial instruments (Level 1), (2) significant
other observable inputs (Level 2), or (3) significant unobservable inputs (Level 3). Judgment is required in selecting the
appropriate level to be used to determine fair value. The majority of financial assets and financial liabilities for which the
fair value election was made, and the majority of investments classified as available for sale and held-to-maturity, were
measured using Level 2 inputs, which require judgment to determine the fair value. The trust preferred securities held in
the investment portfolio, and the Company’s junior subordinated debentures, were measured using Level 3 inputs due to
the inactive market for these securities.
Goodwill Impairment. Goodwill is presumed to have an indefinite life and is tested for impairment, rather than
amortized, on at least an annual basis. For the purpose of goodwill impairment testing, management has concluded that
the Company has one reporting unit. If the fair value of the reporting unit exceeds its carrying amount, there is no
74
impairment of goodwill. However, if the fair value of the reporting unit is less than its carrying amount, further
evaluation is required to determine if a write down of goodwill is required.
Quoted market prices in active markets are the best evidence of fair value and are to be used as the basis for
measurement, when available. Other acceptable valuation methods include an asset approach, which determines a fair
value based upon the value of assets net of liabilities, an income approach, which determines fair value using one or
more methods that convert anticipated economic benefits into a present single amount, and a market approach, which
determines a fair value based on the similar businesses that have been sold.
The Company conducts its annual qualitative impairment testing of goodwill as of December 31. The
impairment testing as of December 31, 2016, 2015 and 2014 did not show an impairment of goodwill based on the fair
value of the Company.
Income Taxes. The Company estimates its income taxes payable based on the amounts it expects to owe to the
various taxing authorizes (i.e. federal, state and local). In estimating income taxes, management assesses the relative
merits and risks of the tax treatment of transactions, taking into account statutory, judicial and regulatory guidance in the
context of the Company’s tax position. Management also relies on tax opinions, recent audits, and historical experience.
The Company also recognizes deferred tax assets and liabilities for the future tax consequences of differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A
valuation allowance is required for deferred tax assets that the Company estimates are more likely than not to be
unrealizable, based on evidence available at the time the estimate is made. These estimates can be affected by changes to
tax laws, statutory tax rates, and future income levels.
Contractual Obligations
Payments Due By Period
Total
$
1,266,563
4,205,631
322,724
58,002
7,390
Less Than
1 Year
$
550,980
3,477,852
322,724
6,068
5,738
1 - 3
Years
(In thousands)
408,201
$
649,794
-
12,477
1,652
3 - 5
Years
More
Than
5 Years
$
273,423
76,711
-
12,746
-
$
33,959
1,274
-
26,711
-
13,063
18,811
503
1,355
1,076
2,711
1,114
2,711
10,370
12,034
Borrowings
Deposits
Loan commitments
Operating lease obligations
Purchase obligations
Pension and other postretirement
benefits
Deferred compensation plans
Total
$
5,892,184
$
4,365,220
$
1,075,911
$
366,705
$
84,348
We have significant obligations that arise in the normal course of business. We finance our assets with deposits
and borrowings. We also use borrowings to manage our interest-rate risk. Borrowings with call provisions are included
in the period of the next call date. We have the means to refinance these borrowings as they mature or are called through
financing arrangements with the FHLB-NY and our ability to arrange repurchase agreements with broker-dealers and the
FHLB-NY. (See Notes 8 and 9 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report.)
We focus our balance sheet growth on the origination of mortgage loans. At December 31, 2016, we had
commitments to extend credit and lines of credit of $322.7 million for mortgage and other loans. These loans will be
funded through principal and interest payments received on existing mortgage loans and mortgage-backed securities,
growth in customer deposits, and, when necessary, additional borrowings. (See Note 15 of Notes to Consolidated
Financial Statements in Item 8 of this Annual Report.)
At December 31, 2016, the Bank had 19 branches, which were all leased. The Bank leases its branch locations
primarily when it is not the sole tenant. Whether the Bank will purchase its future branch locations will depend in part on
the availability of suitable locations and the availability of properties. In addition, we lease our executive offices. We
currently outsource our data processing, loan servicing and check processing functions. We believe that this is the most
cost effective method for obtaining these services. These arrangements are usually volume dependent and have varying
75
terms. The contracts for these services usually include annual increases based on the increase in the consumer price
index. The amounts shown above for purchase obligations represent the current term and volume of activity of these
contracts. We expect to renew these contracts as they expire.
The amounts shown for pension and other postretirement benefits reflect our directors’ pension plan and the
supplemental retirement benefits of our president, and amounts due under our plan for medical and life insurance
benefits for retired employees. The amount shown in the “Less Than 1 Year” column represents our current estimate for
these benefits, some of which are based on information supplied by actuaries. The amounts shown in columns reflecting
periods over one year represent our current estimate based on the past year’s actual disbursements and information
supplied by actuaries. The amounts do not include an increase for possible future retirees or increases in health plan
costs. The amount shown in the “More Than 5 Years” column represents the amount required to increase the total
amount to the projected benefit obligation of the directors’ plan and the medical and life insurance benefit plans, since
these are unfunded plans and the underfunded portion of the employee pension plan. (See Note 12 of Notes to
Consolidated Financial Statements in Item 8 of this Annual Report.)
We currently provide a non-qualified deferred compensation plan for officers who have achieved the designated
level and completed one year of service. However, certain officers who have not reached the designated level but were
already participants remain eligible to participate in the Plan. In addition to the amounts deferred by the officers, we
match 50% of their contributions, generally up to a maximum of 5% of the officer’s salary. These plans generally require
the deferred balance to be credited with earnings at a rate earned by certain mutual funds. Through December 31, 2011,
employees could not receive a distribution from these plans until their employment was terminated. The amounts shown
in the columns for less than five years represent the estimate of the amounts we will contribute to a rabbi trust with
respect to matching contributions under these plans. The amount shown in the “More Than 5 Years” column represents
the current accrued liability for these plans, adjusted for the activity in the columns for less than five years. This expense
is provided in the Consolidated Statements of Income, and the liability has been provided in the Consolidated Statements
of Financial Condition.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
This information is contained in the section captioned “Interest Rate Risk” on page 65 and in Notes 15 and 16
of the Notes to Consolidated Financial Statements in Item 8 of this Annual Report.
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Item 8.
Financial Statements and Supplementary Data.
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
Assets
Cash and due from banks
Securities held-to-maturity:
Other securities (none pledged; fair value of $35,408 and $6,180
at December 31, 2016 and 2015, respectively)
Securities available for sale, at fair value:
Mortgage-backed securities (including assets pledged of $145,860 and
$496,121 at December 31, 2016 and 2015, respectively; $2,016 and
$2,527 at fair value pursuant to the fair value option at
December 31, 2016 and 2015, respectively)
Other securities (including assets pledged of $82,064 and none at
December 31, 2016 and 2015, respectively ; $28,429 and $28,205 at fair value
pursuant to the fair value option at December 31, 2016 and 2015, respectively)
Loans, net of fees and costs
Less: Allowance for loan losses
Net loans
Interest and dividends receivable
Bank premises and equipment, net
Federal Home Loan Bank of New York stock, at cost
Bank owned life insurance
Goodwill
Other assets
Total assets
Liabilities
Due to depositors:
Non-interest bearing
Interest-bearing
Mortgagors' escrow deposits
Borrowed funds:
Federal Home Loan Bank advances
Securities sold under agreements to repurchase
Federal funds purchased
Subordinated debentures
Junior subordinated debentures, at fair value
Total borrowed funds
Other liabilities
Total liabilities
Commitments and contingencies (Note 15)
December 31,
2016
December 31,
2015
(Dollars in thousands, except per share data)
$
35,857
$
42,363
37,735
6,180
516,476
668,740
344,905
4,835,693
(22,229)
4,813,464
20,228
26,561
59,173
132,508
16,127
55,453
6,058,487
$
324,657
4,387,979
(21,535)
4,366,444
18,937
25,622
56,066
115,536
16,127
63,962
5,704,634
$
$
333,163
3,832,252
40,216
$
269,469
3,586,234
36,844
1,159,190
-
-
73,414
33,959
1,266,563
72,440
5,544,634
1,106,658
116,000
20,000
-
29,018
1,271,676
67,344
5,231,567
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 December 31, 2016 and 2015; 28,632,904 shares and 28,830,558 shares
outstanding at December 31, 2016 and 2015, respectively)
Additional paid-in capital
Treasury stock, at average cost (2,897,691 shares and 2,700,037 at December 31, 2016
and 2015, respectively)
Retained earnings
Accumulated other comprehensive loss, net of taxes
Total stockholders' equity
-
-
315
214,462
(53,754)
361,192
(8,362)
513,853
315
210,652
(48,868)
316,530
(5,562)
473,067
Total liabilities and stockholders' equity
$
6,058,487
$
5,704,634
The accompanying notes are an integral part of these consolidated financial statements.
77
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
2016
For the years ended December 31,
2015
(In thousands, except per share data)
2014
Interest and dividend income
Interest and fees on loans
Interest and dividends on securities:
Interest
Dividends
Other interest income
Total interest and dividend income
Interest expense
Deposits
Other interest expense
Total interest expense
Net interest income
Benefit for loan losses
Net interest income after benefit for loan losses
Non-interest income
Banking services fee income
Net gain on sale of loans
Net gain on sale of securities
Net gain on sale of buildings
Net loss from fair value adjustments
Federal Home Loan Bank of New York stock dividends
Gains from life insurance proceeds
Bank owned life insurance
Other income
Total non-interest income
Non-interest expense
Salaries and employee benefits
Occupancy and equipment
Professional services
FDIC deposit insurance
Data processing
Depreciation and amortization of bank premises and equipment
Other real estate owned / foreclosure expense
Prepayment penalty on borrowings
Other operating expenses
Total non-interest expense
Income before income taxes
Provision for income taxes
Federal
State and local
Total provision for income taxes
Net income
Basic earnings per common share
Diluted earnings per common share
$
195,125
$
178,720
$
170,327
25,141
481
250
220,997
33,350
20,561
53,911
167,086
-
167,086
3,758
584
1,524
48,018
(3,434)
2,664
460
2,797
1,165
57,536
60,825
9,848
7,720
2,993
4,364
4,450
1,307
10,356
16,740
118,603
106,019
33,580
7,523
41,103
24,827
473
126
204,146
30,336
19,390
49,726
154,420
(956)
155,376
3,805
422
167
6,537
(1,841)
1,969
-
2,880
1,780
15,719
53,093
10,206
7,074
3,236
4,471
3,579
942
-
15,118
97,719
73,376
21,843
5,324
27,167
25,969
753
79
197,128
30,044
19,510
49,554
147,574
(6,021)
153,595
3,394
67
2,875
-
(2,568)
1,898
-
3,050
1,527
10,243
48,998
7,998
5,982
2,707
4,194
2,813
1,338
5,187
11,809
91,026
72,812
20,912
7,661
28,573
$
64,916
$
46,209
$
44,239
$
$
2.24
2.24
$
$
1.59
1.59
$
$
1.49
1.48
The accompanying notes are an integral part of these consolidated financial statements.
78
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the years ended December 31,
2015
2014
2016
Net income
$
64,916
$
46,209
$
44,239
(in thousands)
Other comprehensive income (loss), net of tax:
Amortization of prior service credits, net of taxes of $18, $20 and $20 for
the years ended December 31, 2016, 2015 and 2014, respectively
Amortization of net actuarial losses, net of taxes of ($238), ($509) and ($330)
for the years ended December 31, 2016, 2015 and 2014, respectively
Unrecognized actuarial gains (losses), net of taxes of ($367), ($465) and $2,880
for the years ended December 31, 2016, 2015 and 2014, respectively
Change in net unrealized (losses) gains on securities available for sale, net of
taxes of $1,737, $2,911 and ($10,441) for the years ended
December 31, 2016, 2015 and 2014, respectively
Reclassification adjustment for net gains included in net
income, net of taxes of $638, $72 and $1,241 for the
years ended December 31, 2016, 2015 and 2014, respectively
Total other comprehensive income (loss), net of tax
Comprehensive income
(27)
330
235
(26)
669
615
(26)
370
(3,790)
(2,452)
(3,818)
13,548
(886)
(95)
(1,634)
(2,800)
(2,655)
8,468
$
62,116
$
43,554
$
52,707
The accompanying notes are an integral part of these consolidated financial statements.
79
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
Balance at December 31, 2013
Net Income
Award of common shares released from Employee
Benefit Trust (136,559 shares)
Vesting of restricted stock unit awards (202,466 shares)
Exercise of stock options (150,115 shares)
Stock-based compensation expense
Stock-based income tax benefit
Purchase of treasury shares (914,671 shares)
Repurchase of shares to satisfy tax
obligation (59,821 shares)
Dividends on common stock ($0.60 per share)
Other comprehensive income
Balance at December 31, 2014
Net Income
Award of common shares released from Employee
Benefit Trust (147,616 shares)
Vesting of restricted stock unit awards (204,310 shares)
Exercise of stock options (45,785 shares)
Stock-based compensation expense
Stock-based income tax benefit
Purchase of treasury shares (735,599 shares)
Repurchase of shares to satisfy tax
obligation (65,666 shares)
Dividends on common stock ($0.64 per share)
Other comprehensive loss
Balance at December 31, 2015
Net Income
Award of common shares released from Employee
Benefit Trust (142,065 shares)
Vesting of restricted stock unit awards (245,311 shares)
Exercise of stock options (103,530 shares)
Stock-based compensation expense
Stock-based income tax benefit
Purchase of treasury shares (403,695 shares)
Repurchase of shares to satisfy tax
obligation (85,982 shares)
Dividends on common stock ($0.68 per share)
Other comprehensive loss
Balance at December 31, 2016
Total
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated Other
Comprehensive Loss
(Dollars in thousands, except per share data)
$
432,532
44,239
$
315
-
$
201,902
-
$
(22,053)
-
$
263,743
44,239
$
(11,375)
-
2,075
-
565
4,246
846
(17,644)
(1,228)
(17,852)
8,468
456,247
46,209
2,092
-
145
4,676
574
(14,351)
(1,254)
(18,616)
(2,655)
473,067
64,916
2,057
-
328
5,120
712
(8,031)
-
-
-
-
-
-
-
-
-
315
-
-
-
-
-
-
-
-
-
-
315
-
-
-
-
-
-
-
2,075
(2,775)
143
4,246
846
-
-
-
-
206,437
-
3,205
499
-
-
(17,644)
(1,228)
-
-
(37,221)
-
(430)
(77)
-
-
-
-
(17,852)
-
289,623
-
-
46,209
2,092
(3,076)
(51)
4,676
574
-
-
-
-
210,652
-
3,580
378
-
-
(14,351)
(1,254)
-
-
(48,868)
-
(504)
(182)
-
-
-
-
(18,616)
-
316,530
-
-
64,916
2,057
(4,049)
(30)
5,120
712
-
-
4,446
526
-
-
(8,031)
-
(397)
(168)
-
-
-
-
-
-
-
-
-
-
-
8,468
(2,907)
-
-
-
-
-
-
-
-
-
(2,655)
(5,562)
-
-
-
-
-
-
-
(1,827)
(19,689)
(2,800)
513,853
$
-
-
-
315
$
-
-
-
214,462
$
(1,827)
-
-
(53,754)
$
-
(19,689)
-
361,192
$
-
-
(2,800)
(8,362)
$
The accompanying notes are an integral part of these consolidated financial statements.
80
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Benefit for loan losses
Depreciation and amortization of premises and equipment
Net gain on sales of loans (including delinquent loans)
Net gain on sales of securities
Net gain on sales of buildings
Amortization of premium, net of accretion of discount
Fair value adjustment for financial assets and financial liabilities
Income from bank owned life insurance
Gain from life insurance proceeds
Stock-based compensation expense
Deferred compensation
Excess tax benefits from stock-based payment arrangements
Deferred income tax provision (benefit)
(Increase) decrease in other assets
Increase (decrease) in other liabilities
Net cash provided by operating activities
Investing Activities
Purchases of premises and equipment
Net purchases of Federal Home Loan Bank-NY shares
Purchases of securities held-to-maturity
Proceeds from maturities of securities held-to-maturity
Purchases of securities available for sale
Proceeds from sales and calls of securities available for sale
Proceeds from maturities and prepayments of
securities available for sale
Proceeds from sale of buildings
Purchase of Bank Owned Life Insurance
Proceeds from Life Insurance
Net originations of loans
Purchases of loans
Proceeds from sale of loans
Proceeds from sale of Other Real Estate Owned, net
Net cash used in investing activities
2016
For the years ended December 31,
2015
(In thousands)
2014
$
64,916
$
46,209
$
44,239
-
4,450
(584)
(1,524)
(48,018)
8,453
3,434
(2,797)
(460)
5,884
(4,033)
(712)
(1,540)
5,170
9,756
42,395
(6,655)
(3,107)
(40,205)
8,515
(139,186)
143,819
118,498
49,284
(16,000)
2,432
(267,446)
(186,717)
11,499
3,037
(322,232)
(956)
3,579
(422)
(167)
(6,537)
8,986
1,841
(2,880)
-
4,845
(3,561)
(574)
(5,210)
(5,284)
4,861
(6,021)
2,813
(67)
(2,875)
-
7,292
2,568
(3,050)
-
4,263
(2,514)
(846)
4,154
8,110
(690)
44,730
57,376
(11,089)
(9,142)
(5,100)
3,430
(313,822)
163,158
114,097
20,209
-
-
(301,766)
(278,928)
16,252
2,185
(600,516)
(4,325)
(899)
-
-
(162,830)
115,294
112,137
-
-
-
(248,073)
(169,860)
15,857
3,123
(339,576)
Continued
The accompanying notes are an integral part of these consolidated financial statements.
81
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
2016
For the years ended December 31,
2015
(In thousands)
2014
Financing Activities
Net increase in non interest-bearing deposits
Net increase in interest-bearing deposits
Net increase in mortgagors' escrow deposits
Net proceeds from short-term borrowed funds
Proceeds from long-term borrowings
Repayment of long-term borrowings
Issuance of subordinated debentures, net of issuance costs of $1,598
Purchases of treasury stock
Excess tax benefits from stock-based payment arrangements
Proceeds from issuance of common stock upon exercise
of stock options
Cash dividends paid
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
63,694
245,271
3,372
178,500
300,000
(562,401)
73,402
(9,858)
712
328
(19,689)
273,331
(6,506)
42,363
13,635
368,137
1,165
30,000
310,000
(125,551)
-
(15,605)
574
145
(18,616)
563,884
8,098
34,265
58,491
213,502
2,881
30,500
180,000
(167,081)
-
(18,872)
846
565
(17,852)
282,980
780
33,485
Cash and cash equivalents, end of year
$
35,857
$
42,363
$
34,265
Supplemental Cash Flow Disclosure
Interest paid
Income taxes paid
Taxes paid if excess tax benefits on stock-based compensation
were not tax deductible
Non-cash activities:
Securities transferred from available for sale to held-to-maturity
Loans transferred to Other Real Estate Owned
Loans provided for the sale of Other Real Estate Owned
Loans held for investment transferred to loans held for sale
$
53,755
36,813
$
48,467
32,574
$
53,965
24,943
37,525
33,148
25,789
-
639
-
-
4,510
1,667
280
300
-
7,112
712
1,150
The accompanying notes are an integral part of these consolidated financial statements.
82
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the years ended December 31, 2016, 2015 and 2014
1. Nature of Operations
Flushing Financial Corporation (the “Holding Company”), a Delaware business corporation, is the bank holding
company of its wholly-owned subsidiary Flushing Bank (the “Bank”). The Holding Company and its direct and indirect
wholly-owned subsidiaries, including the Bank, Flushing Preferred Funding Corporation (“FPFC”), Flushing Service
Corporation (“FSC”), and FSB Properties Inc. (“Properties”), are collectively herein referred to as the “Company.”
The Company’s principal business is attracting retail deposits from the general public and investing those deposits
together with funds generated from ongoing operations and borrowings, primarily in (1) originations and purchases of
multi-family residential properties, commercial business loans, commercial real estate mortgage loans and, to a lesser
extent, one-to-four family (focusing on mixed-use properties, which are properties that contain both residential dwelling
units and commercial units); (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. The
Bank also originates certain other consumer loans including overdraft lines of credit. The Bank primarily conducts its
business through nineteen full-service banking offices, nine of which are located in Queens County, three in Nassau
County, five in Kings County (Brooklyn), and two in New York County (Manhattan), New York. The Bank also
operates “iGObanking.com®”, an internet branch, offering checking, savings, money market and certificates of deposit
accounts.
2. Summary of Significant Accounting Policies
The accounting and reporting policies of the Company follow accounting principles generally accepted in the United
States of America (“GAAP”) and general practices within the banking industry. The policies which materially affect the
determination of the Company’s financial position, results of operations and cash flows are summarized below.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of the Holding Company and the following
direct and indirect wholly-owned subsidiaries of the Holding Company: the Bank, FPFC, FSC, and Properties. FPFC is a
real estate investment trust formed to hold a portion of the Bank’s mortgage loans to facilitate access to capital markets.
FSC was formed to market insurance products and mutual funds. Properties is currently used to hold title to real estate
owned acquired via foreclosure. Amounts held in a rabbi trust for certain non-qualified deferred compensation plans are
included in the consolidated financial statements. All intercompany transactions and accounts are eliminated in
consolidation. The Holding Company currently has three unconsolidated subsidiaries in the form of wholly-owned
statutory business trusts, which were formed to issue guaranteed capital debentures (“capital securities”). See Note 9,
“Borrowed Funds,” for additional information regarding these trusts.
When necessary, certain reclassifications were made to prior-year amounts to conform to the current-year presentation.
The presentation of other interest expense in the Consolidated Statements of Income for the year ended December 31,
2014, excludes prepayment penalties on borrowings incurred from the extinguishment of debt to conform to the
presentation for the year ended December 31, 2016. These penalties are reflected in non-interest expense.
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, the evaluation of goodwill for impairment, the review of the need for a valuation allowance of the
Company’s deferred tax assets, the fair value of financial instruments including the evaluation of other-than-temporary
impairment (“OTTI”) on securities. Actual results could differ from these estimates.
Cash and Cash Equivalents:
For the purpose of reporting cash flows, the Company defines cash and due from banks, overnight interest-earning
deposits and federal funds sold with original maturities of 90 days or less as cash and cash equivalents. At December 31,
2016 and 2015, the Company’s cash and cash equivalents totaled $35.9 million and $42.4 million, respectively. Included
in cash and cash equivalents at those dates were $27.2 million and $23.0 million in interest-earning deposits in other
financial institutions, primarily due from the Federal Reserve Bank of New York and the Federal Home Loan Bank of
83
New York (“FHLB-NY”). The Bank is required to maintain cash reserves equal to a percentage of certain deposits. The
reserve requirement is included in cash and cash equivalents and totaled $10.1 million and $9.9 million at December 31,
2016 and 2015, respectively.
Debt and Equity Securities:
Securities are classified as held-to-maturity when management intends to hold the securities until maturity. Securities are
classified as available for sale when management intends to hold the securities for an indefinite period of time or when
the securities may be utilized for tactical asset/liability purposes and may be sold from time to time to effectively manage
interest rate exposure and resultant prepayment risk and liquidity needs. Premiums and discounts are amortized or
accreted, respectively, using the level-yield method. Realized gains and losses on the sales of securities are determined
using the specific identification method. Unrealized gains and losses (other than unrealized losses considered other-than-
temporary which are recognized in the Consolidated Statements of Income) on securities available for sale are excluded
from earnings and reported as part of accumulated other comprehensive loss, net of taxes. In estimating other-than-
temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has
been less than amortized cost, (2) the current interest rate environment, (3) the financial condition and near-term
prospects of the issuer, if applicable, and (4) the intent and ability of the Company to retain its investment in the issuer
for a period of time sufficient to allow for any anticipated recovery in fair value. Other-than-temporary impairment
losses for debt securities are measured using a discounted cash flow model. Other-than-temporary impairment losses for
equity securities are measured using quoted market prices, when available, or, when market quotes are not available due
to an illiquid market, we use an impairment model from a third party or quotes from investment brokers. See Note 6,
“Debt and Equity Securities,” for additional information regarding other-than-temporary impairment for debt and equity
securities.
Goodwill:
Goodwill is presumed to have an indefinite life and is tested annually, or when certain conditions are met, for
impairment. If the fair value of the reporting unit is greater than the goodwill amount, no further evaluation is required. If
the fair value of the reporting unit is less than the goodwill amount, further evaluation would be required to compare the
fair value of the reporting unit to the goodwill amount and determine if impairment is required.
In performing the goodwill impairment testing, the Company has identified a single reporting unit. The Company
performed the qualitative assessment in reviewing the carrying value of goodwill as of December 31, 2016, 2015 and
2014, concluding that there was no goodwill impairment. At December 31, 2016 and 2015, the carrying amount of
goodwill totaled $16.1 million. The identification of additional reporting units, the use of other valuation techniques
and/or changes to input assumptions used in the analysis could result in materially different evaluations of goodwill
impairment.
Loans:
Loans are reported at their principal outstanding 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. Loan fees and certain loan origination costs are deferred and 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.
The Bank may purchase loans to supplement originations. Loan purchases are evaluated at the time of purchase to
determine the appropriate accounting treatment. Performing loans purchased at a premium/discount are recorded at the
purchase price with the premium/discount being amortized/accreted into interest income over the life of the loan. All
loans purchased during the years ended December 31, 2016 and 2015 were performing loans at the time of purchase and
therefore were not considered impaired when purchased.
Allowance for Loan Losses:
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 for loan losses is based on evaluation 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. An
84
unallocated component is maintained to cover uncertainties that could affect management's estimate of probable
losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying
assumptions used in the methodologies for estimating specific and general losses in the portfolio.
The allowance for loan losses is established through a provision for loan losses based on management’s evaluation of the
risk inherent in the various components of the loan portfolio and other factors, including historical loan loss experience
(which is updated quarterly), current economic conditions, delinquency and non-accrual trends, classified loan levels,
risk in the portfolio and volumes and trends in loan types, recent trends in charge-offs, changes in underwriting
standards, experience, ability and depth of the Company’s lenders, collection policies and experience, internal loan
review function and other external factors. The Company segregated the loans into two portfolios based on the loans year
of origination. One portfolio was reviewed for loans originated after December 31, 2009 and a second portfolio for loans
originated prior to January 1, 2010. Our decision to segregate the portfolio based upon origination dates was based on
changes made in our underwriting standards during 2009. By the end of 2009, all loans were being underwritten based
on revised and tightened underwriting standards. Loans originated prior to 2010 have a higher delinquency rate and loss
history. Each of the years in the portfolio for loans originated prior to 2010 has a similar delinquency rate. The
determination of the amount of the allowance for loan losses includes estimates that are susceptible to significant
changes due to changes in appraisal values of collateral, national and local economic conditions and other factors. We
review our loan portfolio by separate categories with similar risk and collateral characteristics. Impaired loans are
segregated and reviewed separately. The Company’s Board of Directors reviews and approves management’s evaluation
of the adequacy of the allowance for loan losses on a quarterly basis.
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 for loan losses, and subsequent recoveries, if any, are credited to the
allowance for loan losses.
The Company recognizes a loan as non-performing when the borrower has demonstrated the inability to bring the loan
current, or due to other circumstances which, in management’s 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 are obtained and/or updated internal evaluations are prepared as soon as
practical, but before the loan becomes 90 days delinquent. The loan balances of collateral dependent impaired loans are
compared to the property’s updated fair value. The Company considers fair value of collateral dependent loans to be
85% of the appraised or internally estimated value of the property, except for taxi medallion loans. The fair value of the
underlying collateral of taxi medallion loans is the most recent reported transaction. 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 or benefit for the amount deemed appropriate, after considering items such as, 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 current information, the Company believes it is probable that it will be
unable to collect all amounts due, both principal and interest, in accordance with the original 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, as a practical expedient, the fair value of the collateral if the loan
is collateral dependent. Interest income on impaired loans is recorded on the cash basis. The Company’s management
considers all non-accrual loans impaired.
The Company reviews each impaired loan on an individual basis to determine if either a charge-off or a valuation
allowance needs to be allocated to the loan. The Company does not charge-off or allocate a valuation allowance to loans
for which management has 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 prepared 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.
85
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 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 December 31, 2016, we utilized recent third party appraisals of the collateral to measure impairment for $43.3
million, or 87.5%, of collateral dependent impaired loans, and used internal evaluations of the property’s value for $6.2
million, or 12.5%, of collateral dependent impaired loans.
The Company may restructure a loan to enable a borrower experiencing financial difficulties 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”).
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 December 31, 2016, 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.
Loans Held for Sale:
Loans held for sale are carried at the lower of cost or estimated fair value. At December 31, 2016 and 2015, there were
no loans classified as held for sale.
Bank Owned Life Insurance:
Bank owned life insurance (“BOLI”) represents life insurance on the lives of certain current and past employees who
have provided positive consent allowing the Bank to be the beneficiary of such policies. BOLI is carried in the
Consolidated Statements of Financial Condition at its cash surrender value. Increases in the cash value of the policies, as
well as proceeds received, are recorded in other non-interest income, and are not subject to income taxes.
Other Real Estate Owned:
Other real estate owned (“OREO”) consists of property acquired through foreclosure. These properties are carried at fair
value, less estimated selling costs. The fair value is based on appraised value through a current appraisal, or at times
through an internal review, additionally adjusted by the estimated costs to sell the property. This determination is made
on an individual asset basis. If the fair value of a property is less than the carrying amount, the difference is recognized
as a valuation allowance. Further decreases to the estimated value will be charged directly to expense.
Bank Premises and Equipment:
Bank premises and equipment are stated at cost, less depreciation accumulated on a straight-line basis over the estimated
useful lives of the related assets (3 to 40 years). Leasehold improvements are amortized on a straight-line basis over the
term of the related leases or the lives of the assets, whichever is shorter. Maintenance, repairs and minor improvements
are charged to non-interest expense in the period incurred.
Federal Home Loan Bank Stock:
The FHLB-NY has assigned to the Bank a mandated membership stock ownership requirement, based on its asset size.
In addition, for all borrowing activity, the Bank is required to purchase shares of FHLB-NY non-marketable capital stock
at par. Such shares are redeemed by FHLB-NY at par with reductions in the Bank’s borrowing levels. The Bank carries
its investment in FHLB-NY stock at historical cost. The Company periodically reviews its FHLB-NY stock to determine
if impairment exists. At December 31, 2016, the Company considered among other things the earnings performance,
credit rating and asset quality of the FHLB-NY. Based on this review, the Company did not consider the value of our
investment in FHLB-NY stock to be impaired at December 31, 2016.
86
Securities Sold Under Agreements to Repurchase:
Securities sold under agreements to repurchase are accounted for as collateralized financing and are carried at amounts at
which the securities will be subsequently reacquired as specified in the respective agreements. Interest incurred under
these agreements is included in other interest expense. During 2016, the Company repaid all outstanding securities sold
under agreements to repurchase.
Income Taxes:
Deferred income tax assets and liabilities are determined using the asset and liability (or balance sheet) method. Under
this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences
between book and tax bases of the various balance sheet assets and liabilities. A deferred tax liability is recognized on all
taxable temporary differences and a deferred tax asset is recognized on all deductible temporary differences and
operating losses and tax credit carry-forwards. A valuation allowance is recognized to reduce the potential deferred tax
asset if it is “more likely than not” that all or some portion of that potential deferred tax asset will not be realized. The
Company must also take into account changes in tax laws or rates when valuing the deferred income tax amounts it
carries on its Consolidated Statements of Financial Condition.
Stock Compensation Plans:
The Company accounts for its stock-based compensation using a fair-value-based measurement method for share-based
payment transactions with employees and directors. The Company measures the cost of employee and directors services
received in exchange for an award of an equity instrument based on the grant date fair value of the award. That cost is
recognized over the period during which the employee and directors are required to provide services in exchange for the
award. The requisite service period is usually the vesting period.
Benefit Plans:
The Company sponsors a qualified pension, 401(k), and profit sharing plan for its employees. The Company also
sponsors postretirement health care and life insurance benefits plans for its employees, a non-qualified deferred
compensation plan for officers who have achieved the level of at least senior vice president, and a non-qualified pension
plan for its outside directors.
The Company recognizes the funded status of a benefit plan – measured as the difference between plan assets at fair
value and the benefit obligation – in the Consolidated Statements of Financial Condition, with the unrecognized credits
and charges recognized, net of taxes, as a component of accumulated other comprehensive loss. These credits or charges
arose as a result of gains or losses and prior service costs or credits that arose during prior periods but were not
recognized as components of net periodic benefit cost.
Treasury Stock:
The Company records treasury stock at cost. Treasury stock is reissued at average cost.
Derivatives:
Derivatives are recorded on the Consolidated Statements of Financial Condition at fair value. The Company records
derivatives on a gross basis in “Other assets” and “Other liabilities” in the Consolidated Statements of Financial
Condition. The accounting for changes in value of a derivative depends on whether or not the transaction has been
designated and qualifies for hedge accounting. Derivatives that are not designated as hedges are reported and measured
at fair value through earnings.
To qualify for hedge accounting, a derivative must be highly effective at reducing the risk associated with the exposure
being hedged. In addition, for a derivative to be designated as a hedge, the risk management objective and strategy must
be documented. Hedge documentation must identify the derivative hedging instrument, the asset or liability or forecasted
transaction and type of risk to be hedged, and how the effectiveness of the derivative is assessed prospectively and
retrospectively. The extent to which a derivative has been, and is expected to continue to be, effective at offsetting
changes in the fair value of the hedged item must be assessed and documented at least quarterly. Any hedge
ineffectiveness must be reported in current-period earnings. If it is determined that a derivative is not highly effective at
hedging the designated exposure, hedge accounting is discontinued.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income
(loss) includes changes in unrealized gains and losses on securities available for sale arising during the period,
adjustments to net periodic pension costs and reclassification adjustments for realized gains and losses on securities
available for sale and OTTI charges included in net income.
87
Segment Reporting:
Management views the Company as operating as a single unit, a community bank. Therefore, segment information is not
provided.
Advertising Expense:
Costs associated with advertising are expensed as incurred. The Company recorded advertising expenses of $2.4 million,
$2.1 million and $1.8 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Earnings per Common 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. Unvested
share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and as such are included in the calculation of earnings per share. The Company’s
unvested 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 unit awards. The computation of diluted earnings per share includes the additional dilutive
effect of stock options outstanding and other common stock equivalents 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. The shares
held in the Company’s Employee Benefit Trust are not included in shares outstanding for purposes of calculating
earnings per common share.
Earnings per common share have been computed based on the following, for the years ended December 31:
2016
2015
(In thousands, except per share data)
2014
Net income, as reported
Divided by:
$
64,916
$
46,209
$
44,239
Weighted average common shares outstanding
Weighted average common stock equivalents
Total weighted average common shares outstanding and
common stock equivalents
28,957
13
28,970
29,106
20
29,126
29,788
29
29,817
Basic earnings per common share
Diluted earnings per common share
Dividend Payout ratio
$
$
2.24
2.24
30.4%
$
$
1.59
1.59
40.3%
$
$
1.49
1.48
40.3%
There were no options that were anti-dilutive for the years ended December 31, 2016, 2015 and 2014.
88
3. Loans and Allowance for Loan Losses
The composition of loans is as follows at December 31:
Multi-family residential
Commercial real estate
One-to-four family (cid:650) mixed-use property
One-to-four family (cid:650) residential
Co-operative apartments
Construction
Small Business Administration
Taxi medallion
Commercial business and other
Gross loans
Net unamortized premiums and unearned loan fees
Total loans
2016
2015
(In thousands)
$
2,178,504
1,246,132
558,502
185,767
7,418
11,495
15,198
18,996
597,122
$
2,055,228
1,001,236
573,043
187,838
8,285
7,284
12,194
20,881
506,622
4,819,134
16,559
4,372,611
15,368
$
4,835,693
$
4,387,979
The majority of our loan portfolio is invested in multi-family residential, commercial real estate and commercial
business and other loans, which totaled 83.5% of our gross loans at December 31, 2016. Our concentration in these types
of loans increases the overall level of credit risk inherent in our loan portfolio. The greater risk associated with these
types of loans could require us to increase our provisions for loan losses and to maintain an allowance for loan losses as a
percentage of total loans in excess of the allowance currently maintained.
Loans secured by multi-family residential property and commercial real estate generally involve a greater degree of risk
than residential mortgage loans and generally carry larger loan balances. The increased credit risk is the result of several
factors, including the concentration of principal in a smaller number of loans and borrowers, the effects of general
economic conditions on income producing properties and the increased difficulty in evaluating and monitoring these
types of loans. Furthermore, the repayments of loans secured by these types of properties are typically dependent upon
the successful operation of the related property, which is usually owned by a legal entity with the property being the
entity’s only asset. If the cash flow from the property is reduced, the borrower’s ability to repay the loan may be
impaired. If the borrower defaults, our only remedy may be to foreclose on the property, for which the market value may
be less than the balance due on the related mortgage loan.
Loans secured by commercial business and other loans involve a greater degree of risk for the same reasons as for multi-
family residential and commercial real estate loans with the added risk that many of the loans are not secured by
improved properties.
To minimize the risks involved in the origination of multi-family residential, commercial real estate and commercial
business and other loans, the Bank adheres to strict underwriting standards, which include reviewing the expected net
operating income generated by the real estate collateral securing the loan, the age and condition of the collateral, the
financial resources and income level of the borrower and the borrower’s experience in owning or managing similar
properties. We typically require debt service coverage of at least 125% of the monthly loan payment. We generally
originate these loans up to a maximum of 75% of the appraised value or the purchase price of the property, whichever is
less. Any loan with a final loan-to-value ratio in excess of 75% must be approved by the Bank’s Board of Directors or
the Loan Committee as an exception to policy. We generally rely on the income generated by the property as the primary
means by which the loan is repaid. However, personal guarantees may be obtained for additional security from these
borrowers. Additionally, for commercial business and other loans which are not secured by improved properties, the
Bank will secure these loans with business assets, including accounts receivables, inventory and real estate and generally
require personal guarantees.
89
The following tables show loans modified and classified as TDR during the periods indicated:
(Dollars in thousands)
Number
Balance
Modification description
For the year ended
December 31, 2016
One-to-four family - residential
2
$
263
Taxi medallion
12
9,764
Commercial business and other
1
324
Total
15
$
10,351
Received a below market
interest rate and the loans
amortization were extended
Nine loans received a below
market interest rate and three
had their loan amortization
extended
Received a below market
interest rate and the loan
amortization was extended
(Dollars in thousands)
Number
Balance
Modification description
For the year ended
December 31, 2015
Small Business Administration
1
$
41
Received a below market
interest rate and the loan
amortization was extended
Total
1
$
41
The recorded investment of the loans modified and classified to a TDR, presented in the tables above, were unchanged as
there was no principal forgiven in these modifications. Additionally, during the year ended December 31, 2015, one
commercial existing TDR was re-modified by extending the term and advancing an additional $28,000.
There were no loans modified and classified as TDR during the year ended December 31, 2014.
The following table shows our recorded investment for loans classified as TDR that are performing according to their
restructured terms at the periods indicated:
(Dollars in thousands)
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Small Business Administration
Taxi medallion
Commercial business and other
Total performing troubled debt restructured
December 31, 2016
December 31, 2015
Number
of contracts
Recorded
investment
Number
of contracts
Recorded
investment
9
2
5
3
-
12
2
33
$
2,572
2,062
1,800
591
-
9,735
675
9
3
6
1
1
4
$
2,626
2,371
2,052
343
34
2,083
$
17,435
24
$
9,509
90
During the year ended December 31, 2016, there were no TDR loans transferred to non-performing status. During the
year ended December 31, 2016, three loans paid-in-full and three loans were transferred from the TDR classification.
During the year ended December 31, 2015, one TDR loan for $0.4 million was transferred to non-performing status,
resulting in this loan being included in non-performing loans. During the year ended December 31, 2014, three TDR
loans totaling $2.7 million were transferred to non-performing status, resulting in these loans being included in non-
performing loans. Subsequent to being transferred to non-performing loans, two of these loans were paid in full during
the year ended December 31, 2014.
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:
(Dollars in thousands)
Multi-family residential
Total troubled debt restructurings
that subsequently defaulted
December 31, 2016
December 31, 2015
Number
of contracts
Recorded
investment
Number
of contracts
Recorded
investment
1
1
$
396
$
396
1
1
$
391
$
391
The following table shows our non-performing loans at the periods indicated:
(In thousands)
Loans ninety days or more past due
and still accruing:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Construction
Commercial business and other
Total
Non-accrual mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Total
Non-accrual non-mortgage loans:
Small Business Administration
Taxi medallion
Commercial business and other
Total
Total non-accrual loans
At December 31,
2016
2015
$
-
-
386
-
-
-
386
$
233
1,183
611
13
1,000
220
3,260
1,837
1,148
4,025
8,241
15,251
1,886
3,825
68
5,779
21,030
3,561
2,398
5,952
10,120
22,031
218
-
568
786
22,817
Total non-performing loans
$
21,416
$
26,077
91
The following is a summary of interest foregone on non-accrual loans and loans classified as TDR for the years ended
December 31:
Interest income that would have been recognized had the loans performed
in accordance with their original terms
Less: Interest income included in the results of operations
Total foregone interest
2016
2015
(In thousands)
2014
$
1,963
455
$
1,508
$
2,387
702
$
1,685
$
2,919
796
$
2,123
The following table shows an age analysis of our recorded investment in loans at December 31, 2016:
(in thousands)
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Co-operative apartments
Construction loans
Small Business Administration
Taxi medallion
Commercial business and other
Total
30 - 59 Days
Past Due
60 - 89 Days
Past Due
Greater
than
90 Days
Total Past
Due
Current
Total Loans
$
$
$
$
$
$
2,575
3,363
4,671
3,831
-
-
13
-
22
14,475
287
22
762
194
-
-
-
-
1
1,266
1,837
1,148
4,411
8,047
-
-
1,814
3,825
-
21,082
4,699
4,533
9,844
12,072
-
-
1,827
3,825
23
36,823
2,173,805
1,241,599
548,658
173,695
7,418
11,495
13,371
15,171
597,099
4,782,311
2,178,504
1,246,132
558,502
185,767
7,418
11,495
15,198
18,996
597,122
4,819,134
$
$
$
$
$
$
The following table shows an age analysis of our recorded investment in loans at December 31, 2015:
(in thousands)
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Co-operative apartments
Construction loans
Small Business Administration
Taxi medallion
Commercial business and other
Total
30 - 59 Days
Past Due
60 - 89 Days
Past Due
Greater
than
90 Days
Total Past
Due
Current
Total Loans
$
$
$
$
$
$
9,421
2,820
8,630
4,261
-
-
42
-
-
25,174
804
153
1,258
154
-
-
-
-
2
2,371
3,794
3,580
6,563
10,134
-
1,000
218
-
228
25,517
14,019
6,553
16,451
14,549
-
1,000
260
-
230
53,062
2,041,209
994,683
556,592
173,289
8,285
6,284
11,934
20,881
506,392
4,319,549
2,055,228
1,001,236
573,043
187,838
8,285
7,284
12,194
20,881
506,622
4,372,611
$
$
$
$
$
$
92
The following tables show the activity in the allowance for loan losses for the periods indicated:
(in thousands)
Allowance for credit losses:
Beginning balance
Charge-off's
Recoveries
Provision (benefit)
Ending balance
(in thousands)
Allowance for credit losses:
Beginning balance
Charge-off's
Recoveries
Provision (benefit)
Ending balance
(in thousands)
Allowance for credit losses:
Beginning balance
Charge-off's
Recoveries
Provision (benefit)
Ending balance
Multi-family
residential
Commercial
real estate
One-to-four
family -
mixed-use
property
One-to-four
family -
residential
Co-operative
apartments
Construction
loans
Small Business
Administration
Taxi
medallion
Commercial
business and
other
Unallocated
Total
For the year ended December 31, 2016
$
$
$
$
$
$
$
$
$
6,718
(161)
339
(973)
5,923
4,239
-
11
237
4,487
4,227
(144)
777
(1,957)
2,903
1,227
(114)
366
(464)
1,015
$
-
-
-
-
$
-
50
-
-
42
92
262
(529)
99
649
481
343
(142)
-
2,042
2,243
4,469
(69)
261
(169)
4,492
$
-
-
-
593
593
$
21,535
(1,159)
1,853
-
22,229
$
$
$
$
$
$
$
$
$
Multi-family
residential
Commercial
real estate
One-to-four
family -
mixed-use
property
One-to-four
family -
residential
Co-operative
apartments
Construction
loans
Small Business
Administration
Taxi
medallion
Commercial
business and
other
Total
For the year ended December 31, 2015
$
$
$
$
$
$
$
$
$
8,827
(474)
269
(1,904)
6,718
4,202
(32)
168
(99)
4,239
5,840
(592)
76
(1,097)
4,227
1,690
(342)
375
(496)
1,227
$
-
-
-
-
$
-
42
-
-
8
50
279
(34)
40
(23)
262
11
-
-
332
343
4,205
(2,371)
312
2,323
4,469
25,096
(3,845)
1,240
(956)
21,535
$
$
$
$
$
$
$
$
$
Multi-family
residential
Commercial
real estate
One-to-four
family -
mixed-use
property
One-to-four
family -
residential
Co-operative
apartments
Construction
loans
Small Business
Administration
Taxi
medallion
Commercial
business and
other
Total
For the year ended December 31, 2014
$
$
$
$
$
$
$
$
12,084
(1,161)
150
(2,246)
8,827
4,959
(325)
481
(913)
4,202
6,328
(423)
608
(673)
5,840
2,079
(103)
269
(555)
1,690
$
104
-
7
(111)
$
-
444
-
-
(402)
42
458
(49)
92
(222)
279
$
-
-
-
11
11
$
5,320
(381)
176
(910)
4,205
31,776
(2,442)
1,783
(6,021)
25,096
$
$
$
$
$
$
$
$
93
The following tables show the manner in which loans were evaluated for impairment at the periods indicated:
At December 31, 2016
(in thousands)
Financing Receivables:
Ending Balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Allowance for credit losses:
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
(in thousands)
Financing Receivables:
Ending Balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Allowance for credit losses:
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Multi-family
residential
Commercial
real estate
One-to-four
family - mixed-
use property
One-to-four
family-
residential
Co-operative
apartments
Construction
loans
Small Business
Administration
Taxi
Medallion
Commercial
business and other Unallocated
Total
$
2,178,504
$
1,246,132
$
558,502
$
185,767
$
7,418
$
11,495
$
15,198
$
18,996
$
597,122
$
-
$
4,819,134
$
5,923
$
6,551
$
8,809
$
9,989
$
-
$
-
$
1,937
$
16,282
$
2,492
$
-
$
51,983
$
2,172,581
$
1,239,581
$
549,693
$
175,778
$
7,418
$
11,495
$
13,261
$
2,714
$
594,630
$
-
$
4,767,151
$
232
$
179
$
417
$
60
$
-
$
-
$
90
$
2,236
$
12
$
-
$
3,226
$
5,691
$
4,308
$
2,486
$
955
$
-
$
92
$
391
$
7
$
4,480
$
593
$
19,003
Multi-family
residential
Commercial
real estate
One-to-four
family - mixed-
use property
One-to-four
family-
residential
Co-operative
apartments
Construction
loans
Small Business
Administration
Taxi
Medallion
Commercial
business and other Unallocated
Total
At December 31, 2015
$
2,055,228
$
1,001,236
$
573,043
$
187,838
$
8,285
$
7,284
$
12,194
$
20,881
$
506,622
$
-
$
4,372,611
$
8,047
$
6,183
$
12,828
$
12,598
$
-
$
1,000
$
310
$
2,118
$
4,716
$
-
$
47,800
$
2,047,181
$
995,053
$
560,215
$
175,240
$
8,285
$
6,284
$
11,884
$
18,763
$
501,906
$
-
$
4,324,811
$
252
$
180
$
502
$
51
$
-
$
-
$
-
$
333
$
112
$
-
$
1,430
$
6,466
$
4,059
$
3,725
$
1,176
$
-
$
50
$
262
$
10
$
4,357
$
-
$
20,105
94
The following table shows our recorded investment, unpaid principal balance and allocated allowance for loan losses for
loans that were considered impaired at December 31, 2016 and 2015:
December 31, 2016
December 31, 2015
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Recorded
Investment
(In thousands)
Unpaid
Principal
Related
Balance Allowance
$
3,660
4,489
6,435
9,560
-
-
$
3,796
4,516
6,872
11,117
-
-
$
-
-
-
-
-
-
$
5,742
3,812
10,082
12,255
-
1,000
$
6,410
3,869
11,335
14,345
-
1,000
$
-
-
-
-
-
-
416
2,334
2,072
509
2,476
2,443
2,263
2,062
2,374
429
-
-
1,521
13,948
420
23,017
2,263
2,062
2,376
429
-
-
1,909
13,948
420
23,407
-
-
-
-
232
179
417
60
-
-
90
2,236
12
3,226
276
-
2,682
276
-
5,347
35,849
42,582
2,305
2,371
2,746
343
-
-
34
2,118
2,034
2,305
2,371
2,746
343
-
-
34
2,118
2,034
-
-
-
-
252
180
502
51
-
-
-
333
112
11,951
11,951
1,430
With no related allowance recorded:
Mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartments
Construction
Non-mortgage loans:
Small Business Administration
Taxi Medallion
Commercial Business and other
With an allowance recorded:
Mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartments
Construction
Non-mortgage loans:
Small Business Administration
Taxi Medallion
Commercial Business and other
Total loans with an allowance recorded
Total Impaired Loans:
Total mortgage loans
Total loans with no related allowance recorded
28,966
31,729
$
31,272
$
33,431
$
888
$
40,656
$
44,724
$
985
Total non-mortgage loans
$
20,711
$
21,705
$
2,338
$
7,144
$
9,809
$
445
95
The following table shows our average recorded investment and interest income recognized for loans that were
considered impaired for the three years ended December 31, 2016:
December 31, 2016
December 31, 2015
December 31, 2014
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
(In thousands)
$
4,762
4,753
7,914
10,233
-
285
$
96
169
141
82
-
7
$
8,285
4,926
10,295
12,985
153
250
$
92
7
244
138
-
-
$
14,168
11,329
12,852
13,015
-
285
$
194
51
321
103
-
-
369
3,110
2,217
33,643
2,279
2,145
2,560
410
-
-
616
7,244
827
16,081
20
67
181
763
116
100
138
15
-
-
42
147
45
603
299
-
3,912
41,105
2,343
997
2,983
347
-
-
38
1,062
2,692
10,462
1
-
253
735
117
167
151
14
-
-
2
66
102
619
-
-
3,428
55,077
2,936
3,242
3,249
358
-
187
-
-
3,149
13,121
-
-
137
806
149
167
170
14
-
-
-
-
115
615
$
35,341
$
864
$
43,564
$
930
$
61,621
$
1,169
With no related allowance recorded:
Mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartments
Construction
Non-mortgage loans:
Small Business Administration
Taxi Medallion
Commercial Business and other
Total loans with no related allowance recorded
With an allowance recorded:
Mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Co-operative apartments
Construction
Non-mortgage loans:
Small Business Administration
Taxi Medallion
Commercial Business and other
Total loans with an allowance recorded
Total Impaired Loans:
Total mortgage loans
Total non-mortgage loans
$
14,383
$
502
$
8,003
$
424
$
6,577
$
252
96
In accordance with our policy and the current regulatory guidelines, we designate loans as “Special Mention,” which are
considered “Criticized Loans,” and “Substandard,” “Doubtful,” or “Loss,” which are considered “Classified Loans”. If a
loan does not fall within one of the previous mentioned categories then the loan would be considered “Pass.” These loan
designations are updated quarterly. We designate a loan as Substandard when a well-defined weakness is identified that
jeopardizes the orderly liquidation of the debt. We designate a loan Doubtful when it displays the inherent weakness of a
Substandard loan with the added provision that collection of the debt in full, on the basis of existing facts, is highly
improbable. We designate a loan as Loss if it is deemed the debtor is incapable of repayment. The Company does not
hold any loans designated as loss, as loans that are designated as Loss are charged to the Allowance for Loan Losses.
Loans that are non-accrual are designated as Substandard, Doubtful or Loss. We designate a loan as Special Mention if
the asset does not warrant classification within one of the other classifications, but does contain a potential weakness that
deserves closer attention.
The following table sets forth the recorded investment in loans designated as Criticized or Classified at December 31, 2016:
(In thousands)
Special Mention Substandard
Doubtful
Loss
Total
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Co-operative apartments
Construction loans
Small Business Administration (1)
Taxi Medallion
Commercial business and other
Total loans
$
7,133
2,941
4,197
1,205
-
-
$
3,351
4,489
7,009
9,399
-
-
540
2,715
9,924
28,655
$
436
16,228
2,493
43,405
$
-
$
-
-
-
-
-
-
54
-
54
$
-
$
-
-
-
-
-
-
-
-
$
-
$
10,484
7,430
11,206
10,604
-
-
976
18,997
12,417
72,114
$
The following table sets forth the recorded investment in loans designated as Criticized or Classified at December 31, 2015:
(In thousands)
Special Mention Substandard
Doubtful
Loss
Total
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Co-operative apartments
Construction loans
Small Business Administration (1)
Taxi Medallion
Commercial business and other
Total loans
$
4,361
1,821
3,087
1,437
-
-
$
5,421
3,812
10,990
12,255
-
1,000
229
-
-
10,935
$
224
2,118
3,123
38,943
$
-
$
-
-
-
-
-
-
-
-
$
-
-
$
-
-
-
-
-
-
-
-
$
-
$
9,782
5,633
14,077
13,692
-
1,000
453
2,118
3,123
49,878
$
(1) Balances shown are net of the portion guaranteed by the Small Business Administration totaling $1.5 million and
$0.1 million at December 31, 2016 and 2015, respectively.
97
4. Loans held for sale
The Company has implemented a strategy of selling certain delinquent and non-performing loans. Once the Company
has decided to sell a loan, the sale usually will close in a short period of time, generally within the same quarter. Loans
designated held for sale are reclassified from loans held for investment to loans held for sale. Terms of sale generally
include cash due upon the closing of the sale, no contingencies or recourse to the Company and servicing is released to
the buyer.
The following tables show delinquent and non-performing loans sold during the period indicated:
For the year ended December 31, 2016
(Dollars in thousands)
Loans sold
Proceeds
Net recoveries
Net gain
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
Total
9
2
15
26
$
2,680
192
5,093
1
$
-
47
3
$
-
262
$
7,965
$
48
$
265
The above table does not include the sale of six performing Small Business Administration loans for proceeds totaling
$3.5 million, recording a net gain of $0.3 million during the year ended December 31, 2016.
For the year ended December 31, 2015
(Dollars in thousands)
Loans sold
Proceeds
Net recoveries
Net gain (loss)
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
Total
9
4
10
23
$
3,540
2,615
2,831
$
134
-
-
$
(1)
13
57
$
8,986
$
134
$
69
The above table does not include the sale of one performing commercial real estate loan for proceeds of $3.1 million and
the sale of five performing small business administration loans for proceeds totaling $4.2 million during the year ended
December 31, 2015. These loans were sold for a combined net gain on sale of $0.3 million.
(Dollars in thousands)
Loans sold
Proceeds
Net (charge-offs)
recoveries
Net gain
For the year ended December 31, 2014
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
Commercial business and other
Total
$
5,759
4,635
5,399
64
$
(80)
295
122
20
9
$
8
50
-
$
15,857
$
357
$
67
12
6
14
2
34
98
5. Other Real Estate Owned
The following table shows the activity in OREO during the periods indicated:
For the years ended December 31,
2016
2015
2014
(In thousands)
Balance at beginning of year
Acquisitions
Reductions to carrying value
Sales
$
4,932
639
(1,763)
(3,275)
$
6,326
1,667
(896)
(2,165)
$
2,985
7,112
(5)
(3,766)
Balance at end of year
$
533
$
4,932
$
6,326
OREO is included in “Other assets” within our Consolidated Statements of Financial Condition.
The following table shows the gross gains, gross losses and write-downs of OREO reported in the Consolidated
Statements of Income in “Other operating expenses” during the periods presented:
For the years ended December 31,
2016
2015
2014
(In thousands)
Gross gains
Gross losses
Write-down of carrying value
Total
$
37
(275)
(1,763)
$
306
(6)
(896)
$
178
(109)
(5)
$
(2,001)
$
(596)
$
64
We may obtain physical possession of residential real estate collateralizing a consumer mortgage loan via foreclosure on
an in-substance repossession. During the year ended December 31, 2016, we did not foreclose on any consumer
mortgages through in-substance repossession. We held foreclosed residential real estate totaling $0.5 million and $0.1
million at December 31, 2016 and 2015, respectively. Included within net loans as of December 31, 2016, was a
recorded investment of $11.4 million of consumer mortgage loans secured by residential real estate properties for which
formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction.
.
6. 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 at December 31, 2016 and 2015. Securities available for sale are
recorded at fair value. Securities held-to-maturity are recorded at amortized cost.
99
The following table summarizes the Company’s portfolio of securities held-to-maturity at December 31, 2016:
Securites held-to-maturity:
Municipals
Amortized
Cost
Fair Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In thousands)
$
37,735
$
35,408
$
-
$
2,327
Total
$
37,735
$
35,408
$
-
$
2,327
The following table summarizes the Company’s portfolio of securities held-to-maturity at December 31, 2015:
Securites held-to-maturity:
Municipals
Amortized
Cost
Fair Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In thousands)
$
6,180
$
6,180
$
-
$
-
Total
$
6,180
$
6,180
$
-
$
-
The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2016:
Amortized
Cost
Fair Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In thousands)
$
$
$
Corporate
Municipals
Mutual funds
Collateralized loan obligations
Other
Total other securities
REMIC and CMO
GNMA
FNMA
FHLMC
Total mortgage-backed securities
Total securities available for sale
110,000
124,984
21,366
85,470
7,363
349,183
402,636
1,319
109,493
5,378
518,826
868,009
102,910
126,903
21,366
86,365
7,361
344,905
401,370
1,427
108,351
5,328
516,476
861,381
$
-
1,983
-
895
-
2,878
1,607
108
463
35
2,213
5,091
$
7,090
64
-
-
2
7,156
2,873
-
1,605
85
4,563
11,719
$
$
$
Mortgage-backed securities shown in the table above includes one private issue collateralized mortgage obligations
(“CMO”) that is collateralized by commercial real estate mortgages with an amortized cost and market value of $0.2
million at December 31, 2016.
100
The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2015:
Gross
Unrealized
Losses
Gross
Unrealized
Gains
Amortized
Cost
Fair Value
(In thousands)
$
$
$
$
Corporate
Municipals
Mutual funds
Collateralized loan obligations
Other
Total other securities
REMIC and CMO
GNMA
FNMA
FHLMC
Total mortgage-backed securities
Total securities available for sale
115,976
127,696
21,290
53,225
7,214
325,401
469,987
11,635
170,327
16,961
668,910
994,311
111,674
131,583
21,290
52,898
7,212
324,657
469,936
11,798
170,057
16,949
668,740
993,397
134
3,887
-
-
-
4,021
3,096
302
1,492
87
4,977
8,998
4,436
-
-
327
2
4,765
3,147
139
1,762
99
5,147
9,912
$
$
$
$
Mortgage-backed securities shown in the table above includes one private issue collateralized mortgage obligations
(“CMO”) that is collateralized by commercial real estate mortgages with an amortized cost and market value of $7.7
million at December 31, 2015.
The corporate securities held by the Company at December 31, 2016 and 2015 are issued by U.S. banking institutions.
The following table details the amortized cost and fair value of the Company’s securities classified as held-to-maturity at
December 31, 2016, by contractual maturity.
Amortized
Cost
Fair Value
(In thousands)
Due in one year or less
Due after ten years
$
15,870
21,865
$
15,870
19,538
Total securities held-to-maturity
$
37,735
$
35,408
The amortized cost and fair value of the Company’s securities, classified as available for sale at December 31, 2016, by
contractual maturity, are shown below. 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
Due after one year through five years
Due after five years through ten years
Due after ten years
-
$
1,781
111,348
214,688
-
$
1,784
108,604
213,151
Total other securities
Mutual funds
Mortgage-backed securities
327,817
21,366
518,826
323,539
21,366
516,476
Total securities available for sale
$
868,009
$
861,381
101
The following table shows the Company’s 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,
2016.
Count
Fair Value
Total
Less than 12 months
12 months or more
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
(Dollars in thousands)
Held-to-maturity securities
Municipals
Total securities held-to-maturity
Available for sale securities
Corporate
Municipals
Other
Total other securities
REMIC and CMO
FNMA
FHLMC
Total mortgage-backed securities
Total securities available for sale
1
1
14
4
1
19
35
18
1
54
73
$
19,538
$
2,327
$
19,538
$
2,327
$
-
$
19,538
$
2,327
$
19,538
$
2,327
$
-
$
-
$
-
$
102,910
16,047
298
$
7,090
64
2
$
28,476
16,047
-
$
1,524
64
-
$
74,434
-
298
$
5,566
-
2
119,255
222,807
80,924
3,993
7,156
2,873
1,605
85
44,523
208,827
74,972
3,993
1,588
2,268
1,250
85
74,732
13,980
5,952
-
5,568
605
355
-
307,724
426,979
$
4,563
11,719
$
287,792
332,315
$
3,603
5,191
$
19,932
94,664
$
960
6,528
$
The Company did not hold any securities classified as held-to-maturity which had an unrealized loss at December 31,
2015.
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, 2015.
Count
Fair Value
Total
Less than 12 months
12 months or more
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Corporate
Municipals
Other
Total other securities
REMIC and CMO
GNMA
FNMA
FHLMC
Total mortgage-backed securities
Total securities available for sale
12
7
1
20
33
1
20
3
57
77
$
85,563
52,898
298
$
4,436
327
2
(Dollars in thousands)
$
76,218
52,898
-
$
3,782
327
-
$
9,345
-
298
$
654
-
2
138,759
238,132
6,977
102,225
14,715
4,765
3,147
139
1,762
99
129,116
182,010
6,977
75,769
14,715
4,109
1,642
139
1,043
99
9,643
56,122
-
26,456
-
656
1,505
-
719
-
362,049
500,808
$
5,147
9,912
$
279,471
408,587
$
2,923
7,032
$
82,578
92,221
$
2,224
2,880
$
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 loss (“AOCL”) within Stockholders’ Equity.
102
The Company reviewed each investment that had an unrealized loss at December 31, 2016 and 2015. An unrealized loss
exists when the current fair value of an investment is less than its amortized cost basis. The unrealized loss in securities
held-to-maturity at December 31, 2016 was caused by illiquidity in the market and movements in interest rates. The
unrealized losses in total securities available for sale at December 31, 2016 and 2015 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 December 31, 2016
and 2015.
The following table represents the activity related to the credit loss component recognized in earnings on debt securities
held by the Company for which a portion of OTTI was recognized in AOCL for the periods indicated:
Beginning balance
Recognition of actual losses
OTTI charges due to credit loss recorded in earnings
Securities sold during the period
For the years ended December 31,
2016
2015
2014
$
-
(In thousands)
$
-
$
3,738
-
-
-
-
-
-
-
-
(3,738)
Ending balance
$
-
$
-
$
-
The Company sold available for sale securities with book values at the time of sale totaling $126.0 million, $163.0
million and $112.4 million during the years ended December 31, 2016, 2015 and 2014, respectively.
The following table represents the gross gains and gross losses realized from the sale of securities available for sale for
the periods indicated:
Gross gains from the sale of securities
Gross losses from the sale of securities
For the years ended
December 31,
2016
2015
2014
$
2,370
(846)
(In thousands)
2,899
$
(2,732)
$
5,247
(2,372)
Net gains from the sale of securities
$
1,524
$
167
$
2,875
Included in “Other assets” within our Consolidated Statements of Financial Condition are amounts held in a rabbi trust
for certain non-qualified deferred compensation plans totaling $15.7 million and $14.8 million at December 31, 2016 and
2015, respectively.
103
7. Bank Premises and Equipment, Net
Bank premises and equipment are as follows at December 31:
Land
Building and leasehold improvements
Equipment and furniture
Total
Less: Accumulated depreciation and amortization
Bank premises and equipment, net
2016
2015
(In thousands)
$
-
29,795
21,924
51,719
25,158
$
745
29,610
19,770
50,125
24,503
$
26,561
$
25,622
During the year ended December 31, 2016, we sold three branch buildings, realizing a pre-tax gain of $48.0 million.
Simultaneous with the sale, leasebacks were entered into for terms of one year or less. During the year ended December
31, 2015, we sold three branch buildings in sale-leaseback transactions, realizing a pre-tax gain of $12.7 million, of
which $6.5 million was recognized in earnings during the year ended December 31, 2015 and $6.2 million was deferred
and is being amortized over the 10-year term of the branch leases. We have no continuing involvement in any of the sold
branch buildings other than as an ordinary lessee.
8. Deposits
Total deposits at December 31, 2016 and 2015, and the weighted average rate on deposits at December 31, 2016, are as
follows:
Interest-bearing deposits:
Certificate of deposit accounts
Savings accounts
Money market accounts
NOW accounts
Total interest-bearing deposits
Non-interest bearing demand deposits
Total due to depositors
Mortgagors' escrow deposits
Total deposits
2016
2015
(Dollars in thousands)
$
$
1,372,115
254,283
843,370
1,362,484
3,832,252
333,163
4,165,415
40,216
4,205,631
1,403,302
261,748
472,489
1,448,695
3,586,234
269,469
3,855,703
36,844
3,892,547
$
$
Weighted
Average
Rate
2016
%
1.41
0.48
0.67
0.59
0.22
The aggregate amount of time deposits with denominations of $250,000 or more (excluding brokered deposits issued in
$1,000 amounts under a master certificate of deposit) was $214.0 million and $169.2 million at December 31, 2016 and
2015, respectively. The aggregate amount of brokered deposits was $1,114.9 million and $982.8 million at December 31,
2016 and 2015, respectively.
Deposits obtained by the government banking division are collateralized by either securities, letters of credit issued by
FHLB-NY or are placed in an Insured Cash Sweep service (“ICS”). ICS deposits are considered brokered deposits. The
letters of credit are collateralized by mortgage loans pledged by the Bank.
At December 31, 2016, government banking division deposits totaled $1,062.1 million, of which $539.0 million were
ICS deposits and $523.1 million were collateralized by $218.8 million in securities and $382.5 million of letters of
credit. At December 31, 2015, government banking division deposits totaled $975.9 million, of which $210.7 million
were ICS deposits and $765.2 million were collateralized by $364.7 million in securities and $494.0 million of letters of
credit.
104
Interest expense on deposits is summarized as follows for the years ended December 31:
2016
2015
(In thousands)
2014
$
$
$
Certificate of deposit accounts
Savings accounts
Money market accounts
NOW accounts
Total due to depositors
Mortgagors' escrow deposits
Total interest expense on deposits
20,536
1,219
3,592
7,891
33,238
112
33,350
20,943
1,151
1,551
6,593
30,238
98
30,336
22,420
597
667
6,227
29,911
133
30,044
$
$
$
Scheduled remaining maturities of certificate of deposit accounts are summarized as follows for the years ended
December 31:
2016
2015
(In thousands)
$
$
644,336
475,858
173,936
34,038
42,673
1,274
1,372,115
448,229
478,361
247,349
167,529
35,558
26,276
1,403,302
$
$
Within 12 months
More than 12 months to 24 months
More than 24 months to 36 months
More than 36 months to 48 months
More than 48 months to 60 months
More than 60 months
Total certificate of deposit accounts
105
9. Borrowed Funds
Borrowed funds are summarized as follows at December 31:
2016
2015
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Amount
(Dollars in thousands)
FHLB-NY advances - fixed rate:
Due in 2016
Due in 2017
Due in 2018
Due in 2019
Due in 2020
Due in 2021
$
-
550,981
259,088
149,112
105,206
94,803
%
-
1.02
1.27
1.48
1.42
1.47
$
386,152
250,708
265,088
94,710
110,000
-
Total FHLB-NY advances
1,159,190
1.21
1,106,658
Repurchase agreements- fixed rate:
Due in 2016
Due in 2017
Due in 2020
Total repurchase agreements
Federal funds purchased
Due in 2016
Subordinated debentures - fixed rate through 2021
Due in 2026
Junior subordinated debentures - adjustable rate
Due in 2037
Total borrowings
-
-
-
-
-
-
-
-
-
-
38,000
38,000
40,000
116,000
20,000
73,414
5.36
-
33,959
4.28
29,018
5.67
$
1,266,563
1.53
%
$
1,271,676
1.65
%
%
1.04
1.29
1.30
1.64
2.98
-
1.40
1.92
4.16
3.45
3.18
0.56
-
The FHLB-NY advances are fixed rate borrowings with no call provisions. The borrowings terms range 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.
At 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
106
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 31 is as follows:
Book value of collateral
Estimated fair value of collateral
Average balance of outstanding agreements during the year
Maximum balance of outstanding agreements at a month end
during the year
Average interest rate of outstanding agreements during the year
2016
2015
(Dollars in thousands)
2014
$
-
-
64,087
$
131,421
131,421
116,000
$
142,925
142,925
137,824
116,000
3.26%
116,000
3.22%
155,300
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 2 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:
Issue Date
Initial Rate
First Reset Date
First Call Date
Spread over 3-month LIBOR
Maturity Date
Subordinated
Debentures
December 12, 2016
5.25%
December 15, 2021
December 15, 2021
3.44%
December 15, 2026
We 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 2 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 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 3-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.
107
The table below shows the terms of the securities issued by the trusts.
Issue Date
Initial Rate
First Reset Date
Spread over 3-month LIBOR
Maturity Date
Flushing Financial
Capital Trust II
Flushing Financial
Capital Trust III
Flushing Financial
Capital Trust IV
June 20, 2007
7.14%
September 1, 2012
1.41%
September 1, 2037
June 21, 2007
6.89%
June 15, 2012
1.44%
September 15, 2037
July 3, 2007
6.85%
July 30, 2012
1.42%
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.
10. Income Taxes
Flushing Financial Corporation files consolidated Federal and combined New York State and New York City income tax
returns with its subsidiaries, with the exception of the trusts, which file separate Federal income tax returns as trusts, and
FPFC, which files a separate Federal income tax return as a real estate investment trust. Additionally, the Bank files New
Jersey State tax returns. The Company remains subject to examination for its Federal, New York State and New Jersey
income tax returns for the years ending on or after December 31, 2013. The Company is undergoing an examination of
its New York City income tax returns for 2011, 2012 and 2013.
Income tax provisions are summarized as follows for the years ended December 31:
Federal:
Current
Deferred
Total federal tax provision
State and Local:
Current
Deferred
Total state and local tax provision
Total income tax provision
2016
2015
(In thousands)
2014
$
34,996
(1,416)
33,580
$
25,319
(3,476)
21,843
$
18,052
2,860
20,912
7,647
(124)
7,523
41,103
$
7,059
(1,735)
5,324
27,167
$
6,369
1,292
7,661
28,573
$
The income tax provision in the Consolidated Statements of Income has been provided at effective rates of 38.8%,
37.0% and 39.2% for the years ended December 31, 2016, 2015 and 2014, respectively. The effective rates differ from
the statutory federal income tax rate as follows for the years ended December 31:
Taxes at federal statutory rate
Increase (reduction) in taxes resulting from:
State and local income tax, net of Federal
2016
2015
(Dollars in thousands)
2014
$
37,106
35.0
%
$
25,681
35.0
%
$
25,484
35.0
%
income tax benefit
Other
Taxes at effective rate
4,890
(893)
41,103
$
4.6
(0.8)
38.8
%
3,461
(1,975)
27,167
$
4.7
(2.7)
37.0
%
4,980
(1,891)
28,573
$
6.8
(2.6)
39.2
%
108
The components of the net deferred tax assets are as follows at December 31:
Deferred tax asset:
Postretirement benefits
Allowance for loan losses
Stock based compensation
Depreciation
Unrealized loss on securities available for sale
Derivative financial instruments
Adjustment required to recognize funded status of
postretirement pension plans
Gain on sale of buildings
Other
Deferred tax asset
Deferred tax liability:
Fair value adjustment on financial assets carried
at fair value
Fair value adjustment on financial liabilities carried
at fair value
Other
Deferred tax liability
2016
2015
(In thousands)
$
7,800
9,518
3,525
2,135
2,770
1,027
$
6,798
9,437
3,404
1,941
395
1,724
3,246
2,211
2,434
34,666
150
11,943
4,684
16,777
3,833
2,531
2,460
32,523
187
14,364
3,411
17,962
Net deferred tax asset included in other assets
$
17,889
$
14,561
The Company has recorded a deferred tax asset of $34.7 million. This represents the anticipated net federal, state and
local tax benefits expected to be realized in future years upon the utilization of the underlying tax attributes comprising
this balance. The Company has reported taxable income for federal, state, and local tax purposes in each of the past three
years. In management’s opinion, in view of the Company’s previous, current and projected future earnings trend, the
probability that some of the Company’s $16.8 million deferred tax liability can be used to offset a portion of the deferred
tax asset, as well as certain tax planning strategies, it is more likely than not that the deferred tax asset will be fully
realized. Accordingly, no valuation allowance was deemed necessary for the deferred tax asset at December 31, 2016
and 2015.
The Company does not have uncertain tax positions that are deemed material. The Company’s policy is to recognize
interest and penalties on income taxes in operating expenses. During the three years ended December 31, 2016, the
Company did not recognize any material amounts of interest or penalties on income taxes.
11. Stock-Based Compensation
For the years ended December 31, 2016, 2015 and 2014 the Company’s net income, as reported, includes $5.9 million,
$4.8 million and $4.3 million, respectively, of stock-based compensation costs and $2.3 million, $1.7 million and $1.3
million, respectively, of income tax benefits related to the stock-based compensation plans.
The Company estimates the fair value of stock options using the Black-Scholes valuation model at the date of grant. The
Company uses the fair value of the common stock on the date of award to measure compensation cost for restricted stock
unit awards. Compensation cost is recognized over the vesting period of the award using the straight line method. The
Company has not granted stock options since 2009. There were 337,175, 318,120 and 266,895 restricted stock units
granted for the years ended December 31, 2016, 2015 and 2014, respectively.
The 2014 Omnibus Incentive Plan (“2014 Omnibus Plan”) became effective on May 20, 2014 after adoption by the
Board of Directors and approval by the stockholders. The 2014 Omnibus Plan authorizes the Compensation Committee
of the Company’s Board of Directors (the “Compensation Committee”) to grant a variety of equity compensation awards
as well as long-term and annual cash incentive awards, all of which can, but need not, be structured so as to comply with
109
Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The 2014 Omnibus
Plan authorizes the issuance of 1,100,000 shares. To the extent that an award under the 2014 Omnibus Plan is cancelled,
expired, forfeited, settled in cash, settled by issuance of fewer shares than the number underlying the award, or otherwise
terminated without delivery of shares to a participant in payment of the exercise price or taxes relating to an award, the
shares retained by or returned to the Company will be available for future issuance under the 2014 Omnibus Plan. No
further awards may be granted under the Company’s 2005 Omnibus Incentive Plan, 1996 Stock Option Incentive Plan,
and 1996 Restricted Stock Incentive Plan (“Prior Plans”). At December 31, 2016, there were 489,320 shares available for
delivery in connection with awards under the 2014 Omnibus Plan. To satisfy stock option exercises or fund restricted
stock and restricted stock unit awards, shares are issued from treasury stock, if available; otherwise new shares are
issued. The exercise price per share of a stock option grant may not be less than the fair market value of the common
stock of the Company, as defined in the 2014 Omnibus Plan, on the date of grant and may not be re-priced without the
approval of the Company’s stockholders. Options, stock appreciation rights, restricted stock, restricted stock units and
other stock-based awards granted under the 2014 Omnibus Plan are generally subject to a minimum vesting period of
three years with stock options having a 10-year maximum contractual term. Other awards do not have a contractual term
of expiration. The Compensation Committee is authorized to grant awards that vest upon a participant’s retirement.
These amounts are included in stock-based compensation expense at the time of the participant’s retirement eligibility.
The following table summarizes the Company’s restricted stock unit (“RSU”) awards under the 2014 Omnibus Plan and
the Prior Plans in the aggregate for the year ended December 31, 2016:
Non-vested at December 31, 2015
Granted
Vested
Forfeited
Non-vested at December 31, 2016
Shares
415,909
337,175
(238,995)
(25,310)
488,779
Weighted-Average
Grant-Date
Fair Value
$
18.10
19.85
18.70
18.71
18.99
$
Vested but unissued at December 31, 2016
283,910
$
19.27
As of December 31, 2016, there was $6.5 million of total unrecognized compensation cost related to RSU awards
granted under the 2014 Omnibus Plan and the Prior Plans. That cost is expected to be recognized over a weighted-
average period of 3.1 years. The total fair value of awards vested for the years ended December 31, 2016, 2015 and 2014
were $4.9 million, $4.9 million and $4.4 million, respectively. The vested but unissued RSU awards consist of awards
made to employees and directors who are eligible for retirement. According to the terms of these awards, which provide
for vesting upon retirement, these employees and directors have no risk of forfeiture. These shares will be issued at the
original contractual vesting and settlement dates. As of December 31, 2016, there is no remaining unrecognized
compensation cost related to stock options granted.
110
The following table summarizes certain information regarding the stock option awards under the 2014 Omnibus Plan and
the Prior Plans in the aggregate for the year ended December 31, 2016:
Weighted-
Average
Exercise
Price
Weighted-Average
Remaining
Contractual
(years)
Aggregate
Intrinsic
Value
($000) *
Outstanding at December 31, 2015
Granted
Exercised
Forfeited
Outstanding at December 31, 2016
Shares
109,130
-
(103,530)
-
5,600
$
$
16.14
-
16.49
-
9.61
Exercisable shares at December 31, 2016
5,600
$
9.61
2.0
2.0
$
111
$
111
* The intrinsic value of a stock option is the difference between the market value of the underlying stock and the exercise
price of the option.
Cash proceeds, fair value received, tax benefits, and intrinsic value related to stock options exercised, and the weighted
average grant date fair value for options granted, during the years ended December 31, 2016, 2015 and 2014 are
provided in the following table:
(In thousands)
Proceeds from stock options exercised
Fair value of shares received upon exercise of stock options
Tax benefit related to stock options exercised
Intrinsic value of stock options exercised
Weighted average fair value on grant date
2016
2015
2014
$
$
328
1,380
185
841
n/a
$
145
447
99
330
n/a
565
1,962
88
488
n/a
Phantom Stock Plan: The Company maintains a non-qualified phantom stock plan as a supplement to its profit sharing
plan for officers who have achieved the designated level and completed one year of service. However, certain officers
who have not reached the designated level but were already participants remain eligible to participate in the Plan.
Awards are made under this plan on certain compensation not eligible for contributions made under the profit sharing
plan, due to the terms of the profit sharing plan and the Internal Revenue Code. Employees receive awards under this
plan proportionate to the amount they would have received under the profit sharing plan, but for limits imposed by the
profit sharing plan and the Internal Revenue Code. The awards are made as cash awards, and then converted to common
stock equivalents (phantom shares) at the then current fair value of the Company’s common stock. Dividends are
credited to each employee’s account in the form of additional phantom shares each time the Company pays a dividend on
its common stock. In the event of a change of control (as defined in this plan), an employee’s interest is converted to a
fixed dollar amount and deemed to be invested in the same manner as his interest in the Bank’s non-qualified deferred
compensation plan. Employees vest under this plan 20% per year for the first 5 years of employment and are 100%
vested thereafter. Employees also become 100% vested upon a change of control. Employees receive their vested interest
in this plan in the form of a cash lump sum payment or installments, as elected by the employee, after termination of
employment. The Company adjusts its liability under this plan to the fair value of the shares at the end of each period.
111
The following table summarizes the Company’s Phantom Stock Plan at or for the year ended December 31, 2016:
Phantom Stock Plan
Shares
Fair Value
Outstanding at December 31, 2015
Granted
Forfeited
Distributions
Outstanding at December 31, 2016
79,440
12,056
-
(2,157)
89,339
$
$
21.64
20.49
-
20.76
29.39
Vested at December 31, 2016
89,164
$
29.39
The Company recorded stock-based compensation expense for the phantom stock plan of $0.7 million, $0.2 million and
$17,000 for the years ended December 31, 2016, 2015 and 2014, respectively. The total fair value of distributions from
the phantom stock plan were $45,000, $12,000 and $35,000 for the years ended December 31, 2016, 2015 and 2014,
respectively.
12. Pension and Other Postretirement Benefit Plans
The amounts recognized in accumulated other comprehensive loss, on a pre-tax basis, consist of the following, as of
December 31:
Employee Retirement Plan
Other Postretirement Benefit Plans
Outside Directors Plan
Total
$
$
8,055
636
(540)
8,151
8,589
1,296
(562)
9,323
$
9,938
2,130
(488)
11,580
$
-
$
(453)
52
(401)
$
$
$
Net Actuarial
loss (gain)
2015
2016
2014
2016
Prior Service
cost (credit)
2015
(In thousands)
$
-
(538)
91
(447)
$
2014
2016
Total
2015
2014
-
$
(623)
131
(492)
$
$
$
8,055
183
(488)
7,750
8,589
758
(471)
8,876
$
9,938
1,507
(357)
11,088
$
$
$
Amounts in accumulated other comprehensive loss to be recognized as components of net periodic expense for these
plans in 2017 are as follows:
Employee Retirement Plan
Other Postretirement Benefit Plans
Outside Directors Plan
Total
Net Actuarial
loss (gain)
$
697
-
(92)
605
Prior Service
cost (credit)
(In thousands)
$
-
(85)
40
(45)
$
Total
$
697
(85)
(52)
560
$
$
Employee Retirement Plan:
The Bank has a funded noncontributory defined benefit retirement plan covering substantially all of its salaried
employees who were hired before September 1, 2005 (the “Retirement Plan”). The benefits are based on years of service
and the employee’s compensation during the three consecutive years out of the final ten years of service, which was
completed prior to September 30, 2006, the date the Retirement Plan was frozen, that produces the highest average. The
Bank’s funding policy is to contribute annually the amount recommended by the Retirement Plan’s actuary. The Bank’s
Retirement Plan invests in diversified equity and fixed-income funds, which are independently managed by a third party.
112
The Company did not make a contribution to the Retirement Plan during the years ended December 31, 2016, 2015 and
2014. The Company uses a December 31 measurement date for the Retirement Plan.
The following table sets forth, for the Retirement Plan, the change in benefit obligation and assets, and for the Company,
the amounts recognized in the Consolidated Statements of Financial Condition at December 31:
Change in benefit obligation:
Projected benefit obligation at beginning of year
Interest cost
Actuarial (gain) loss
Benefits paid
Projected benefit obligation at end of year
Change in plan assets:
Market value of assets at beginning of year
Actual return on plan assets
Benefits paid
Market value of plan assets at end of year
2016
2015
(In thousands)
$
22,764
902
130
(1,027)
22,769
$
24,097
889
(1,208)
(1,014)
22,764
19,924
1,249
(1,027)
20,146
20,509
429
(1,014)
19,924
Accrued pension liability included in other liabilities
$
(2,623)
$
(2,840)
The accumulated benefit obligation for the Retirement Plan was $22.8 million at December 31, 2016 and 2015.
Assumptions used to determine the Retirement Plan’s benefit obligations are as follows at December 31:
Weighted average discount rate
Rate of increase in future compensation levels
2016
2015
3.88%
n/a
4.06%
n/a
The mortality assumptions for 2016 were based on the RP-2014 Adjusted to 2006 Total Dataset with Scale MP-2016 and
the mortality assumptions for 2015 were based on the RP-2014 Adjusted to 2006 Total Dataset with Scale MP-2015.
The components of the net pension expense for the Retirement Plan are as follows for the years ended December 31:
Interest cost
Amortization of unrecognized loss
Expected return on plan assets
Net pension expense
Current year actuarial (gain) loss
Amortization of actuarial loss
Total recognized in other comprehensive income
Total recognized in net pension cost (benefit) and other
2016
$
902
809
(1,394)
317
275
(809)
(534)
2015
(In thousands)
889
$
1,112
(1,400)
601
(237)
(1,112)
(1,349)
2014
$
891
759
(1,344)
306
4,798
(759)
4,039
comprehensive income
$
(217)
$
(748)
$
4,345
113
Assumptions used to develop periodic pension cost for the Retirement Plan for the years ended December 31:
Weighted average discount rate
Rate of increase in future compensation levels
Expected long-term rate of return on assets
2016
2015
2014
4.06%
n/a
7.25%
3.76%
n/a
7.50%
4.60%
n/a
7.50%
The following benefit payments, which reflect expected future service, are expected to be paid by the Retirement Plan:
For the years ending December 31:
2017
2018
2019
2020
2021
2022 – 2026
Future Benefit
Payments
(In thousands)
$ 1,190
1,183
1,197
1,197
1,239
6,561
The long-term rate-of-return-on-assets assumption was set based on historical returns earned by equities and fixed
income securities, adjusted to reflect expectations of future returns as applied to the plan's target allocation of asset
classes. Equities and fixed income securities were assumed to earn real rates of return in the ranges of 8-10% and 3-5%,
respectively. When these overall return expectations are applied to the plans target allocation, the result is an expected
rate return of 7.00% for 2017.
The Retirement Plan’s weighted average asset allocations at December 31, by asset category, were:
Equity securities
Debt securities
2016
69%
31%
2015
70%
30%
Plan assets are invested in a diversified mix of stock and bond investment funds on the pooled account, group annuity
platform of Prudential Retirement Services. Each fund has its own investment objectives, investment strategies and risks
as detailed in its prospectus.
The long-term investment objectives are to maintain plan assets at a level that will sufficiently cover long-term
obligations and to generate a return on plan assets that will meet or exceed the rate at which long-term obligations will
grow. A combination of equity and fixed income portfolios are used to help achieve these objectives based on a long-
term, liability based strategic mix of 60% equities and 40% fixed income. Adjustments to this mix are made periodically
based on current capital market conditions and plan funding levels. Performance of the investment fund managers is
monitored on an ongoing basis using modern portfolio risk analysis and appropriate index benchmarks.
The Bank does not expect to make a contribution to the Retirement Plan in 2017.
The fair value of the pooled separate accounts is determined by the investment manager and is based on the value of the
underlying assets held at December 31, 2016 and 2015. These are measured at net asset value under the practical
expedient with future redemption dates.
The fair values of the Plan’s investments in pooled separate accounts are calculated each business day. All investments
can be redeemed on a daily basis without restriction. The investments in pooled separate accounts, which are valued at
net asset value, have not been classified in the fair value hierarchy in accordance with Accounting Standards Update No.
2015-07.
114
The following table sets forth the Retirement Plan’s assets at the periods indicated:
Pooled Separate Accounts
U.S. large-cap growth (a)
U.S. large-cap value (b)
U.S. small-cap blend (c)
International blend (d)
Bond fund (e)
Prudential short term (f)
At December 31,
2016
2015
(In thousands)
$
4,702
4,789
2,362
2,017
5,950
326
$
5,114
4,619
2,094
2,079
5,671
347
Total
$
20,146
$
19,924
a. Comprised of large-cap stocks seeking to outperform, over the long term, the Russell 1000 Growth Index.
The portfolio will typically hold between 55 and 70 stocks.
b. Comprised of large-cap stocks seeking to outperform the Russell 1000 Value benchmark over the rolling
three and five year periods, or a full market cycle, whichever is longer.
c. Comprised of stocks with market capitalization of between $100 million and the market capitalization of the
largest stock in the Russell 2000 index at the time of purchase. The portfolio will typically hold between 40
and 100 stocks.
d. Comprised of non-U.S. domiciled stocks. The portfolio will typically hold between 80 and 90 stocks.
e. Comprised of a portfolio of fixed income securities including U.S agency mortgage-backed securities and
investment grade bonds.
f. Comprised of money market instruments with an emphasis on safety and liquidity.
Other Postretirement Benefit Plans:
The Company sponsors two unfunded postretirement benefit plans (the “Postretirement Plans”) that cover all retirees who were
full-time permanent employees with at least five years of service, and their spouses. Effective January 1, 2011, the Postretirement
Plans are no longer available for new hires. One plan provides medical benefits through a 50% cost sharing arrangement.
Effective January 1, 2000, the spouses of future retirees were required to pay 100% of the premiums for their coverage.
The other plan provides life insurance benefits and is noncontributory. Effective January 1, 2010, life insurance benefits
are not available for future retirees. Under these programs, eligible retirees receive lifetime medical and life insurance
coverage for themselves and lifetime medical coverage for their spouses. The Company reserves the right to amend or
terminate these plans at its discretion.
Comprehensive medical plan benefits equal the lesser of the normal plan benefit or the total amount not paid by
Medicare. Life insurance benefits for retirees are based on annual compensation and age at retirement. As of December
31, 2016, the Company has not funded these plans. The Company used a December 31 measurement date for these plans.
115
The following table sets forth, for the Postretirement Plans, the change in benefit obligation and assets, and for the
Company, the amounts recognized in the Consolidated Statements of Financial Condition at December 31:
Change in benefit obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial gain
Benefits paid
Projected benefit obligation at end of year
Change in plan assets:
Market value of assets at beginning of year
Employer contributions
Benefits paid
Market value of plan assets at end of year
2016
2015
(In thousands)
$
7,977
359
320
(613)
(65)
7,978
$
8,073
382
300
(715)
(63)
7,977
-
65
(65)
-
-
63
(63)
-
Accrued pension cost included in other liabilities
$
(7,978)
$
(7,977)
The accumulated benefit obligation for the Postretirement Plans was $8.0 million at December 31, 2016 and 2015.
Assumptions used in determining the actuarial present value of the accumulated postretirement benefit obligations at
December 31 are as follows:
Discount rate
Rate of increase in health care costs
Initial
Ultimate (year 2018)
Annual rate of salary increase for life insurance
2016
2015
3.88%
4.06%
8.00%
5.00%
n/a
7.00%
5.00%
n/a
The mortality assumptions for 2016 were based on the RP-2014 Adjusted to 2006 White Collar Mortality Table with
Scale MP-2016 and the mortality assumptions for 2015 were based on the RP-2014 Adjusted to 2006 White Collar
Mortality Table with Scale MP-2015.
116
The resulting net periodic postretirement expense consisted of the following components for the years ended December
31:
Service cost
Interest cost
Amortization of unrecognized loss
Amortization of past service credit
Net postretirement benefit expense
Current year actuarial (gain) loss
Amortization of actuarial loss
Amortization of prior service credit
Total recognized in other comprehensive income
Total recognized in net postretirement expense
2016
$
359
320
47
(85)
641
2015
(In thousands)
382
$
300
119
(85)
716
2014
$
358
253
-
(85)
526
(613)
(47)
85
(575)
(715)
(119)
85
(749)
1,925
-
85
2,010
and other comprehensive income
$
66
$
(33)
$
2,536
Assumptions used to develop periodic postretirement expense for the Postretirement Plans for the years ended December
31 were:
Rate of return on plan assets
Discount rate
Rate of increase in health care costs
Initial
Ultimate (year 2018)
Annual rate of salary increase for life insurance
2016
2015
2014
n/a
4.06%
7.00%
5.00%
n/a
n/a
3.76%
8.00%
5.00%
n/a
n/a
4.60%
9.00%
5.00%
n/a
The health care cost trend rate assumptions have a significant effect on the amounts reported. A one percentage point
change in assumed health care trend rates would have the following effects:
Effect on postretirement benefit obligation
Effect on total service and interest cost
The Company expects to pay benefits of $0.2 million under its Postretirement Plans in 2017.
Increase
Decrease
(In thousands)
$1,614
159
$(1,230)
(118)
The following benefit payments under the Postretirement Plan, which reflect expected future service, are expected to be
paid:
For the years ending December 31:
2017
2018
2019
2020
2021
2022 – 2026
117
Future Benefit
Payments
(In thousands)
$ 215
248
268
265
274
1,519
Defined Contribution Plans:
The Company maintains a tax qualified 401(k) plan which covers substantially all salaried employees who have
completed one year of service. Currently, annual matching contributions under the Bank’s 401(k) plan equal 50% of the
employee’s contributions, up to a maximum of 3% of the employee’s base salary. In addition, the 401(k) plan includes
the Defined Contribution Retirement Plan (“DCRP”), under which the Bank contributes an amount equal to 4% of an
employee’s eligible compensation as defined in the plan, and the Profit Sharing Plan (“PSP”), under which at the
discretion of the Company’s Board of Directors a contribution is made. Contributions for the DCRP and PSP are made in
the form of Company common stock at or after the end of each year. Annual contributions under these plans are subject
to the limits imposed under the Internal Revenue Code. Contributions by the Company into the 401(k) plan vest 20% per
year over the employee's first five years of service. Contributions to these plans are 100% vested upon a change of
control (as defined in the applicable plan). Compensation expense recorded by the Company for these plans amounted to
$3.3 million, $3.0 million and $3.1 million for the years ended December 31, 2016, 2015 and 2014, respectively.
The Bank provides a non-qualified deferred compensation plan as an incentive for officers who have achieved the
designated level and completed one year of service. However, certain officers who have not reached the designated level
but were already participants remain eligible to participate in the Plan. In addition to the amounts deferred by the
officers, the Bank matches 50% of their contributions, generally up to a maximum of 5% of the officers’ base salary.
Matching contributions under this plan vest 20% per year for five years. The non-qualified deferred compensation plan
assets are held in a rabbi trust totaling $10.4 million and $10.6 million at December 31, 2016 and 2015, respectively.
Contributions become 100% vested upon a change of control (as defined in the plan). Compensation expense recorded
by the Company for this plan amounted to $0.4 million for each of the years ended December 31, 2016, 2015 and 2014.
Employee Benefit Trust:
An Employee Benefit Trust (“EBT”) has been established to assist the Company in funding its benefit plan obligations.
In connection with the Bank’s conversion to a federal stock savings bank in 1995, the EBT borrowed $7.9 million from
the Company and used $7,000 of cash received from the Bank to purchase 2,328,750 shares of the common stock of the
Company. The loan was repaid from the Company’s discretionary contributions to the EBT and dividend payments
received on common stock held by the EBT. During the year ended December 31, 2010, the loan was fully repaid.
Dividend payments received subsequent 2010 are used to purchase additional shares of common stock. Shares released
are used solely for funding matching contributions under the Bank’s 401(k) plan, contributions to the 401(k) plan for the
DCRP, and contributions to the PSP. For the years ended December 31, 2016, 2015 and 2014, the Company funded $2.8
million, $2.8 million and $2.7 million, respectively, of employer contributions to the 401(k), DCRP and profit sharing
plans from the EBT.
Upon a change of control (as defined in the EBT), the EBT will terminate and any trust assets remaining after certain
benefit plan contributions will be distributed to all full-time employees of the Company with at least one year of service,
in proportion to their compensation over the four most recently completed calendar years plus the portion of the current
year prior to the termination of the EBT.
As shares are released from the suspense account, the Company reports compensation expense equal to the current
market price of the shares, and the shares become outstanding for earnings per share computations.
The EBT shares are as follows at December 31:
Shares owned by Employee Benefit Trust, beginning balance
Shares purchased
Shares released and allocated
Shares owned by Employee Benefit Trust, ending balance
2016
2015
675,436
18,391
(142,065)
551,762
800,950
22,102
(147,616)
675,436
Market value of unallocated shares.
$
16,216,285
$
14,616,435
Outside Director Retirement Plan:
The Bank has an unfunded noncontributory defined benefit Outside Director Retirement Plan (the “Directors’ Plan”),
which provides benefits to each non-employee director who became a non-employee director before January 1, 2004,
118
who has at least five years of service as a non-employee director and whose years of service as a non-employee director
plus age equals or exceeds 55. Any person who became a non-employee director after January 1, 2004 is not eligible to
participate in the Directors’ Plan. Upon termination an eligible director will be paid an annual retirement benefit equal
to $48,000. Such benefit will be paid in equal monthly installments for 120 months. In the event of a termination of Board
service due to a change of control, a non-employee director will receive a cash lump sum payment equal to 120 months of
benefit. In the event of the director’s death, the surviving spouse will receive the equivalent benefit. No benefits will be
payable to a director who is removed for cause. The Holding Company has guaranteed the payment of benefits under
the Directors’ Plan, for this reason the Bank has assets held in a rabbi trust totaling $4.2 million at December 31, 2016
and 2015. Upon adopting the Directors’ Plan, the Bank elected to immediately recognize the effect of adopting the
Directors’ Plan. Subsequent plan amendments are amortized as a past service liability. The Bank uses a December 31
measurement date for the Directors’ Plan.
The following table sets forth, for the Directors’ Plan, the change in benefit obligation and assets, and for the Company,
the amounts recognized in the Consolidated Statements of Financial Condition at December 31:
Change in benefit obligation:
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial gain
Benefits paid
Projected benefit obligation at end of year
Change in plan assets:
Market value of assets at beginning of year
Employer contributions
Benefits paid
Market value of plan assets at end of year
2016
2015
(In thousands)
$
2,530
42
97
(63)
(144)
2,462
$
2,663
45
95
(129)
(144)
2,530
-
144
(144)
-
-
144
(144)
-
Accrued pension cost included in other liabilities
$
(2,462)
$
(2,530)
The accumulated benefit obligation for the Directors’ Plan was $2.5 million at December 31, 2016 and 2015,
respectively.
The components of the net pension expense for the Directors’ Plan are as follows for the years ended December 31:
Service cost
Interest cost
Amortization of unrecognized gain
Amortization of past service liability
Net pension expense
Current actuarial gain
Amortization of actuarial gain
Amortization of prior service cost
Total recognized in other comprehensive income
Total recognized in net pension expense and other
2016
$
42
97
(86)
40
93
2015
(In thousands)
45
$
95
(56)
40
124
2014
$
54
116
(60)
40
150
(63)
86
(40)
(17)
(130)
56
(40)
(114)
(52)
60
(40)
(32)
comprehensive income
$
76
$
10
$
118
119
Assumptions used to determine benefit obligations and periodic pension expense for the Directors’ Plan for the years
ended December 31:
Weighted average discount rate for the benefit obligation
Weighted average discount rate for periodic pension benefit expense
Rate of increase in future compensation levels
2016
2015
2014
3.88%
4.06%
n/a
4.06%
3.76%
n/a
3.76%
4.60%
n/a
The following benefit payments under the Directors’ Plan, which reflect expected future service, are expected to be paid:
For the years ending December 31:
2017
2018
2019
2020
2021
2022 – 2026
Future Benefit
Payments
(In thousands)
$ 288
272
288
288
288
1,148
The Company expects to make payments of $0.3 million under its Directors’ Plan in 2017.
13. Stockholders’ Equity
Dividend Restrictions on the Bank:
In connection with the Bank’s conversion from mutual to stock form in November 1995, a special liquidation account
was established at the time of conversion, in accordance with the requirements of its primary regulator, which was equal
to its capital as of June 30, 1995. The liquidation account is reduced as and to the extent that eligible account holders
have reduced their qualifying deposits. Subsequent increases in deposits do not restore an eligible account holder’s
interest in the liquidation account. In the event of a complete liquidation of the Bank, each eligible account holder will be
entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. As of December 31, 2016, the Bank’s liquidation account was $0.7 million,
and was presented within retained earnings.
In addition to the restriction described above, New York State and Federal banking regulations place certain restrictions
on dividends paid by the Bank to the Holding Company. The total amount of dividends which may be paid at any date is
generally limited to the net income of the Bank for the current year and prior two years, less any dividends previously
paid from those earnings. As of December 31, 2016, the Bank had $91.2 million in retained earnings available to
distribute to the Holding Company in the form of cash dividends.
In addition, dividends paid by the Bank to the Holding Company would be prohibited if the effect thereof would cause
the Bank’s capital to be reduced below applicable minimum capital requirements.
As a bank holding company, the Holding Company is subject to similar dividend restrictions.
Treasury Stock Transactions:
The Holding Company repurchased 403,695 common shares at an average cost of $19.89 and 735,599 common shares at
an average cost of $19.51 during the years ended December 31, 2016 and 2015, respectively. At December 31, 2016,
495,905 shares remain to be repurchased under the current stock repurchase program. Stock will be purchased under the
current stock repurchase program from time to time, in the open market or through private transactions, subject to market
conditions and at the discretion of the management of the Company. There is no expiration or maximum dollar amount
under this authorization.
120
Accumulated Other Comprehensive Loss:
The following are changes in accumulated other comprehensive loss by component, net of tax, for the years ended
December 31, 2016, 2015 and 2014:
December 31, 2016
Beginning balance, net of tax
Other comprehensive income (loss) before
reclassifications, net of tax
Amounts reclassified from accumulated other
comprehensive income (loss), net of tax
Net current period other comprehensive income (loss), net of tax
Unrealized Gains
(Losses) on
Available for Sale
Securities
$
(521)
Defined Benefit
Pension Items
(In thousands)
$
(5,041)
Total
$
(5,562)
(2,452)
(886)
(3,338)
235
303
538
(2,217)
(583)
(2,800)
Ending balance, net of tax
$
(3,859)
$
(4,503)
$
(8,362)
December 31, 2015
Beginning balance, net of tax
Other comprehensive income (loss) before
reclassifications, net of tax
Amounts reclassified from accumulated other
comprehensive income (loss), net of tax
Net current period other comprehensive income (loss), net of tax
Unrealized Gains
(Losses) on
Available for Sale
Securities
$
3,392
Defined Benefit
Pension Items
(In thousands)
$
(6,299)
Total
$
(2,907)
(3,818)
(95)
(3,913)
615
(3,203)
643
1,258
548
(2,655)
Ending balance, net of tax
$
(521)
$
(5,041)
$
(5,562)
December 31, 2014
Beginning balance, net of tax
Other comprehensive income (loss) before
reclassifications, net of tax
Amounts reclassified from accumulated other
comprehensive income (loss), net of tax
Net current period other comprehensive income (loss), net of tax
Unrealized Gains
(Losses) on
Available for Sale
Securities
$
(8,522)
Defined Benefit
Pension Items
(In thousands)
$
(2,853)
Total
$
(11,375)
13,548
(3,790)
9,758
(1,634)
11,914
344
(3,446)
(1,290)
8,468
Ending balance, net of tax
$
3,392
$
(6,299)
$
(2,907)
121
The following tables set forth significant amounts reclassified out of accumulated other comprehensive loss by
component for the periods indicated:
Affected Line Item in the Statement
Where Net Income is Presented
Net gain on sale of securities
Tax expense
Net of tax
(1) Other operating expenses
(1) Other operating expenses
Total before tax
Tax benefit
Net of tax
Affected Line Item in the Statement
Where Net Income is Presented
Net gain on sale of securities
Tax expense
Net of tax
(1) Other operating expenses
(1) Other operating expenses
Total before tax
Tax benefit
Net of tax
Details about Accumulated Other
Comprehensive Income Components
Unrealized gains (losses) on available
for sale securities:
For the year ended December 31, 2016
Amounts Reclassified from
Accumulated Other
Comprehensive Income
(Dollars in thousands)
$
$
Amortization of defined benefit pension items:
Actuarial losses
Prior service credits
$
1,524
(638)
886
(568)
45
(523)
220
(303)
$
Details about Accumulated Other
Comprehensive Income Components
Unrealized gains (losses) on available
for sale securities:
For the year ended December 31, 2015
Amounts Reclassified from
Accumulated Other
Comprehensive Income
(Dollars in thousands)
$
$
167
(72)
95
Amortization of defined benefit pension items:
Actuarial losses
Prior service credits
$
(1,178)
46
(1,132)
489
(643)
$
122
Details about Accumulated Other
Comprehensive Income Components
Unrealized gains (losses) on available
for sale securities:
For the year ended December 31, 2014
Amounts Reclassified from
Accumulated Other
Comprehensive Income
(Dollars in thousands)
$
$
2,875
(1,241)
1,634
Amortization of defined benefit pension items:
Actuarial losses
Prior service credits
$
$
Affected Line Item in the Statement
Where Net Income is Presented
Net gain on sale of securities
Tax expense
Net of tax
(1) Other operating expenses
(1) Other operating expenses
Total before tax
Tax benefit
Net of tax
(700)
45
(655)
311
(344)
(1) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 12 of the Notes
to Consolidated Financial Statements “Pension and Other Postretirement Benefit Plans”).
14. Regulatory Capital
The federal banking agencies have substantially amended the regulatory risk-based capital rules applicable to the Bank.
The amendments implemented the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.
The amended rules included new minimum risk-based capital and leverage ratios, which became effective in January
2015, with certain requirements phased in during 2016, and refined the definition of what constitutes “capital” for
purposes of calculating those ratios.
The new minimum capital level requirements applicable to the Bank include: (i) a new common equity Tier 1 risk-based
capital ratio of 4.5%; (ii) a Tier 1 risk-based capital ratio of 6% (increased from 4%); (iii) a total risk-based capital ratio
of 8% (unchanged from prior rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The amended rules also
establish a “capital conservation buffer” of 2.5% above the new regulatory minimum capital ratios, and would result in
the following minimum ratios: (i) a common equity Tier 1 risk-based capital ratio of 7.0%; (ii) a Tier 1 risk-based capital
ratio of 8.5%; and (iii) a total risk-based capital ratio of 10.5%. The capital conservation buffer requirement for 2016 was
0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. An institution will
be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its
capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained
income that could be utilized for such actions.
As of December 31, 2016, the Bank continues to be categorized as “well-capitalized” under the prompt corrective action
regulations and continues to exceed all regulatory capital requirements. The Bank had a capital conservation buffer of
6.64% at December 31, 2016.
123
Set forth below is a summary of the Bank’s compliance with banking regulatory capital standards.
December 31, 2016
December 31, 2015
Amount
Percent of
Assets
Amount
Percent of
Assets
(Dollars in thousands)
Tier I (leverage) capital:
Capital level
Requirement to be well capitalized
Excess
Common Equity Tier I risk-based capital:
Capital level
Requirement to be well capitalized
Excess
Tier I risk-based capital:
Capital level
Requirement to be well capitalized
Excess
$
607,033
299,848
307,185
$
607,033
279,443
327,590
$
607,033
343,930
263,103
Total risk-based capital:
Capital level
Requirement to be well capitalized
Excess
$
629,262
429,913
199,349
%
%
%
%
10.12
5.00
5.12
14.12
6.50
7.62
14.12
8.00
6.12
14.64
10.00
4.64
$
494,690
278,175
216,515
$
494,690
254,768
239,922
$
494,690
313,560
181,130
$
516,226
391,950
124,276
%
%
%
%
8.89
5.00
3.89
12.62
6.50
6.12
12.62
8.00
4.62
13.17
10.00
3.17
124
The Holding Company is subject to the same regulatory capital requirements as the Bank. As of December 31, 2016, the
Holding Company continues to be categorized as “well-capitalized” under the prompt corrective action regulations and
continues to exceed all regulatory capital requirements. The Holding Company had a capital conservation buffer of
6.56% at December 31, 2016.
Set forth below is a summary of the Holding Company’s compliance with banking regulatory capital standards.
December 31, 2016
December 31, 2015
Amount
Percent of
Assets
Amount
Percent of
Assets
(Dollars in thousands)
$
539,228
299,654
239,574
$
506,432
279,121
227,311
$
539,228
343,534
195,694
$
636,457
429,417
207,040
%
%
%
%
9.00
5.00
4.00
11.79
6.50
5.29
12.56
8.00
4.56
14.82
10.00
4.82
$
490,919
277,611
213,308
$
462,883
254,335
208,548
$
490,919
313,028
177,891
$
512,454
391,285
121,169
%
%
%
%
8.84
5.00
3.84
11.83
6.50
5.33
12.55
8.00
4.55
13.10
10.00
3.10
Tier I (leverage) capital:
Capital level
Requirement to be well capitalized
Excess
Common Equity Tier I risk-based capital:
Capital level
Requirement to be well capitalized
Excess
Tier I risk-based capital:
Capital level
Requirement to be well capitalized
Excess
Total risk-based capital:
Capital level
Requirement to be well capitalized
Excess
15. Commitments and Contingencies
Commitments:
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit and lines of credit.
The instruments involve, to varying degrees, elements of credit and market risks in excess of the amount recognized in
the consolidated financial statements.
The Company’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument
for loan commitments and lines of credit is represented by the contractual amounts of these instruments.
Commitments to extend credit (principally real estate mortgage loans) and lines of credit (principally business lines of
credit and home equity lines of credit) amounted to $78.1 million and $244.6 million, respectively, at December 31,
2016. Included in these commitments were $12.3 million of fixed-rate commitments at a weighted average rate of 4.65%
and $310.5 million of adjustable-rate commitments with a weighted average rate of 3.66%, as of December 31, 2016.
Since generally all of the loan commitments are expected to be drawn upon, the total loan commitments approximate
future cash requirements, whereas the amounts of lines of credit may not be indicative of the Company’s future cash
requirements. The loan commitments generally expire in 90 days, while construction loan lines of credit mature within
eighteen months and home equity lines of credit mature within ten years. The Company uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are legally binding agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates and require payment of a fee.
125
The Company evaluates each customer’s creditworthiness on a case-by-case basis. Collateral held consists primarily of
real estate.
The Bank collateralized a portion of its deposits with letters of credit issued by FHLB-NY. At December 31, 2016, there
were $382.5 million of letters of credit outstanding. The letters of credit are collateralized by mortgage loans pledged by
the Bank.
The Trusts issued capital securities with a par value of $61.9 million in June and July 2007. The Holding Company has
guaranteed the payment of the Trusts’ obligations under these capital securities.
The Company’s minimum annual rental payments for Bank facilities due under non-cancelable leases are as follows:
Minimum Rental
(In thousands)
Years ended December 31:
2017
2018
2019
2020
2021
Thereafter
Total minimum payments required
$
6,068
5,793
6,684
6,756
5,990
26,711
58,002
$
The leases have escalation clauses for operating expenses and real estate taxes. The Company’s non-cancelable operating
lease agreements expire through 2031. Rent expense under these leases for the years ended December 31, 2016, 2015
and 2014 was approximately $5.8 million, $5.8 million and $3.8 million, respectively.
Contingencies:
The Company is a defendant in various lawsuits. Management of the Company, after consultation with outside legal
counsel, believes that the resolution of these various matters will not result in any material adverse effect on the
Company’s consolidated financial condition, results of operations or cash flows.
16. Concentration of Credit Risk
The Company’s lending is concentrated in the New York City metropolitan area. The Company evaluates each
customer’s creditworthiness on a case-by-case basis under the Company’s established underwriting policies. The
collateral obtained by the Company generally consists of first liens on one-to-four family residential, multi-family
residential, and commercial real estate. At December 31, 2016, the largest amount the Bank could lend to one borrower
was approximately $91.1 million, and at that date, the Bank’s largest aggregate amount of loans to one borrower was
$74.0 million, all of which were performing according to their terms.
17. Related Party Transactions
At December 31, 2016, one loan for $8,000 was outstanding to an executive officer of the Company and at December 31,
2015, one loan for $18,000 was outstanding to an executive officer of the Company and one loan for $356,000 was
outstanding to a relative of a Director of the Company. The loans in both years were made in the ordinary course of
business and were fully approved in accordance with all of the Company’s credit underwriting standards and were made
at market rates of interest and other normal terms but with reduced origination fees. No such loans were made during
2016, 2015 and 2014. The Company believes that such loans do not involve more than the normal risk of collectability
or present other unfavorable features. Deposits of related parties totaled $13.2 million and $10.4 million at December 31,
2016 and 2015, respectively.
18. Fair Value of Financial Instruments
The Company carries certain financial assets and financial liabilities at fair value in accordance with GAAP which
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. GAAP permits entities to choose to measure many financial instruments and
certain other items at fair value. At December 31, 2016, the Company carried financial assets and financial liabilities
under the fair value option with fair values of $30.4 million and $34.0 million, respectively. At December 31, 2015, the
126
Company carried financial assets and financial liabilities under the fair value option with fair values of $30.7 million and
$29.0 million, respectively. The Company did not purchase or sell any financial assets or liabilities under the fair value
option during the years ended December 31, 2016 and 2015.
Management selected the fair value option for certain investment securities, and certain borrowed funds as the yield, at
the time of election, on the financial assets was below-market, while the rate on the financial liabilities was above-market
rate. Management also considered the average duration of these instruments, which, for investment securities, was longer
than the average for the portfolio of securities, and, for borrowings, primarily represented the longer-term borrowings of
the Company. Choosing these instruments for the fair value option adjusted the carrying value of these financial assets
and financial liabilities to their current fair value, and more closely aligned the financial performance of the Company
with the economic value of these financial instruments. Management believed that electing the fair value option for these
financial assets and financial liabilities allows them to better react to changes in interest rates. At the time of election,
Management did not elect the fair value option for investment securities and borrowings with shorter duration, adjustable
rates, and yields that approximated the then current market rate, as management believed that these financial assets and
financial liabilities approximated their economic value.
The following table presents the financial assets and financial liabilities reported at fair value under the fair value option
at December 31, 2016 and 2015, and the changes in fair value included in the Consolidated Statement of Income – Net
loss from fair value adjustments, for the years ended December 31, 2016, 2015 and 2014:
Fair Value
Measurements
at December 31,
2016
$
2,016
28,429
33,959
Description
(Dollars in thousands)
Mortgage-backed securities
Other securities
Borrowed funds
Net gain (loss) from fair value adjustments (1)
Fair Value
Measurements
at December 31,
2015
Changes in Fair Values For Items Measured at Fair Value
Pursuant to Election of the Fair Value Option
For the year ended December 31,
2015
2016
2014
$
2,527
28,205
29,018
$
(25)
(38)
(4,908)
$
(59)
53
(238)
$
75
598
802
$
(4,971)
$
(244)
$
1,475
(1) The net gain (loss) from fair value adjustments presented in the above table does not include net gains and
(losses) of $1.5 million, ($1.6) million and ($4.0) million from the change in fair value of derivative instruments
during the years ended December 31, 2016, 2015 and 2014, respectively.
Included in the fair value of the financial assets and financial liabilities selected for the fair value option is the accrued
interest receivable or payable for the related instrument. The Company reports as interest income or interest expense in
the Consolidated Statement of Income, the interest receivable or payable on the financial instruments selected for the fair
value option at their respective contractual rates.
The borrowed funds have a contractual principal amount of $61.9 million at December 31, 2016 and 2015. The fair value
of borrowed funds includes accrued interest payable of $0.1 million at December 31, 2016 and 2015.
The Company generally holds its earning assets, other than securities available for sale, to maturity and settles its
liabilities at maturity. However, fair value estimates are made at a specific point in time and are based on relevant market
information. These estimates do not reflect any premium or discount that could result from offering for sale at one time
the Company’s entire holdings of a particular instrument. Accordingly, as assumptions change, such as interest rates and
prepayments, fair value estimates change and these amounts may not necessarily be realized in an immediate sale.
Disclosure of fair value does not require fair value information for items that do not meet the definition of a financial
instrument or certain other financial instruments specifically excluded from its requirements. These items include core
deposit intangibles and other customer relationships, premises and equipment, leases, income taxes and equity.
Further, fair value disclosure does not attempt to value future income or business. These items may be material and
accordingly, the fair value information presented does not purport to represent, nor should it be construed to represent,
the underlying “market” or franchise value of the Company.
127
Financial assets and financial liabilities reported at fair value are required to be measured based on either: (1) quoted
prices in active markets for identical financial instruments (Level 1); (2) significant other observable inputs (Level 2); or
(3) significant unobservable inputs (Level 3).
A description of the methods and significant assumptions utilized in estimating the fair value of the Company’s assets
and liabilities that are carried at fair value on a recurring basis are as follows:
Level 1 – where quoted market prices are available in an active market. The Company did not value any of its assets or
liabilities that are carried at fair value on a recurring basis as Level 1 at December 31, 2016 and 2015.
Level 2 – when quoted market prices are not available, fair value is estimated using quoted market prices for similar
financial instruments and adjusted for differences between the quoted instrument and the instrument being valued. Fair
value can also be estimated by using pricing models, or discounted cash flows. Pricing models primarily use market-
based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates,
equity or debt prices and credit spreads. In addition to observable market information, models also incorporate maturity
and cash flow assumptions. At December 31, 2016 and 2015, Level 2 included mortgage related securities, corporate
debt, municipals and interest rate swaps.
Level 3 – when there is limited activity or less transparency around inputs to the valuation, financial instruments are
classified as Level 3. At December 31, 2016 and 2015, Level 3 included trust preferred securities owned by and junior
subordinated debentures issued by the Company. Additionally, at December 31, 2014, Level 3 trust preferred securities
owned and junior subordinated debentures issued by the Company and a single issuer trust preferred security.
The methods described above may produce fair values that may not be indicative of net realizable value or reflective of
future fair values. While the Company believes its valuation methods are appropriate and consistent with those of other
market participants, the use of different methodologies, assumptions and models to determine fair value of certain
financial instruments could produce different estimates of fair value at the reporting date.
The following table sets forth the Company's assets and liabilities that are carried at fair value on a recurring basis,
including those reported at fair value under the fair value option, and the level that was used to determine their fair value,
at December 31:
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
2016
2015
Significant Other
Observable Inputs
(Level 2)
2016
2015
Significant Other
Unobservable Inputs
(Level 3)
2016
2015
Total carried at fair value
on a recurring basis
2016
2015
Assets:
Securities available for sale
Mortgage-backed
Securities
Other securities
Interest rate swaps
-
$
-
-
-
$
-
-
$
516,476
337,544
6,350
$
668,740
317,445
48
-
$
7,361
-
-
$
7,212
-
$
516,476
344,905
6,350
$
668,740
324,657
48
Total assets
$
-
$
-
$
860,370
$
986,233
$
7,361
$
7,212
$
867,731
$
993,445
Liabilities:
Borrowings
Interest rate swaps
-
$
-
-
$
-
-
$
3,386
-
$
4,314
$
33,959
-
$
29,018
-
$
33,959
3,386
$
29,018
4,314
Total liabilities
$
-
$
-
$
3,386
$
4,314
$
33,959
$
29,018
$
37,345
$
33,332
128
The following tables set forth the Company's assets and liabilities that are carried at fair value on a recurring basis,
classified within Level 3 of the valuation hierarchy for the periods indicated:
Beginning balance
Net gain from fair value adjustment
of financial assets (1)
Net loss from fair value
adjustment of financial liabilities (1)
Increase in accrued interest payable
Change in unrealized gains included
in other comprehensive income
Ending balance
For the year ended December 31, 2016
Junior subordinated
Trust preferred
debentures
securities
$
7,212
$
29,018
149
-
-
-
4,908
33
-
7,361
$
$
-
33,959
Changes in unrealized held at period end
$
-
$
-
For the year ended December 31, 2015
Trust preferred
securities
(In thousands)
Junior subordinated
debentures
Municipals
Beginning balance
Transfers to held-to-maturity
Purchases
Principal repayments
Maturities
Sales
Net gain from fair value adjustment
of financial assets (1)
Net loss from fair value
adjustment of financial liabilities (1)
Increase in accrued interest payable
Change in unrealized gains included
in other comprehensive income
Ending balance
$
15,519
(4,510)
1,000
(8,009)
(4,000)
-
-
-
-
$
7,090
-
-
-
-
-
117
-
-
$
28,771
-
-
-
-
-
-
238
9
-
$
-
5
7,212
$
$
-
29,018
Changes in unrealized held at period end
$
-
$
5
$
-
(1) These totals in the tables above are presented in the Consolidated Statement of Income under net loss from fair value adjustments.
During the years ended December 31, 2016 and 2015, there were no transfers between Levels 1, 2 and 3.
129
The following tables present the quantitative information about recurring Level 3 fair value of financial instruments and
the fair value measurements at the periods indicated:
December 31, 2016
Assets:
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted Average
(Dollars in thousands)
Trust preferred securities
$
7,361
Discounted cash flows
Discount rate
6.3%- 7.1%
7.0%
Liabilities:
Junior subordinated debentures
$
33,959
Discounted cash flows
Discount rate
6.3%
6.3%
December 31, 2015
Assets:
Fair Value
Valuation Technique
Unobservable Input
Range
Weighted Average
(Dollars in thousands)
Trust preferred securities
$
7,212
Discounted cash flows
Discount rate
7.0%- 7.07%
7.1%
Liabilities:
Junior subordinated debentures
$
29,018
Discounted cash flows
Discount rate
7.0%
7.0%
The significant unobservable inputs used in the fair value measurement of the Company’s trust preferred securities and
junior subordinated debentures valued under Level 3 at December 31, 2016 and 2015, are the effective yields used in the
cash flow models. Significant increases or decreases in the effective yield in isolation would result in a significantly
lower or higher fair value measurement.
The following table sets forth the Company's assets that are carried at fair value on a non-recurring basis, and the level
that was used to determine their fair value, at December 31:
Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
2016
2015
Significant Other
Observable Inputs
(Level 2)
2016
2015
Significant Other
Unobservable Inputs
(Level 3)
2016
2015
Total carried at fair value
on a non-recurring basis
2016
2015
Assets:
Impaired loans
Other real estate owned
-
$
-
-
$
-
-
$
-
-
$
-
$
14,968
533
$
15,360
4,932
$
14,968
533
$
15,360
4,932
Total assets
$
-
$
-
$
-
$
-
$
15,501
$
20,292
$
15,501
$
20,292
130
The following tables present the qualitative information about non-recurring Level 3 fair value measurements of
financial instruments at the periods indicated:
Fair Value
Valuation Technique
At December 31, 2016
Unobservable Input
(Dollars in thousands)
Range
Weighted Average
Assets:
Impaired loans
$
2,007
Income approach
Impaired loans
$ 8,703
Sales approach
Impaired loans
$ 4,258
Blended income and
sales approach
Capitalization rate
Reduction for planned expedited disposal
6.0% to 7.5%
15.0%
Adjustment to sales comparison value to
reconcile differences between
comparable sales
Reduction for planned expedited disposal
Adjustment to sales comparison value to
reconcile differences between
comparable sales
Capitalization rate
Reduction planned for expedited disposal
-40.0% to 16.2%
0% to 15.0%
-50.0% to 25.0%
5.3% to 9.5%
15.0%
7.0%
15.0%
-1.5%
7.7%
-0.6%
7.2%
15.0%
Other real estate owned
$ 533
Sales approach
Adjustment to sales comparison value to
reconcile differences between
comparable sales
3.3% to 18.6%
11.0%
Fair Value
Valuation Technique
At December 31, 2015
Unobservable Input
(Dollars in thousands)
Range
Weighted Average
Assets:
Impaired loans
$
3,878
Income approach
Impaired loans
$ 5,555
Sales approach
Impaired loans
$ 5,927
Blended income and
sales approach
Capitalization rate
Loss severity discount
7.3% to 8.5%
15.0%
Adjustment to sales comparison value
to reconcile differences between
comparable sales
Loss severity discount
-50.0% to 40.0%
15.0%
Adjustment to sales comparison value
to reconcile differences between
comparable sales
Capitalization rate
Loss severity discount
-50.0% to 25.0%
5.3% to 9.0%
5.2% to 15.0%
Other real estate owned
$
3,750
Income approach
Capitalization rate
9.0%
7.7%
15.0%
-2.2%
15.0%
-2.2%
7.0%
13.7%
9.0%
Other real estate owned
$ 366
Sales approach
Other real estate owned
$ 816
Blended income and
sales approach
Adjustment to sales comparison value
to reconcile differences between
comparable sales
Adjustment to sales comparison value
to reconcile differences between
comparable sales
Capitalization rate
-5.0% to 25.0%
12.0%
-10.0% to 15.0%
8.6%
2.5%
8.6%
131
The Company did not have any liabilities that were carried at fair value on a non-recurring basis at December 31, 2016
and 2015.
The fair value of each material class of financial instruments at December 31, 2016 and 2015 and the related methods
and assumptions used to estimate fair value are as follows:
Cash and Due from Banks, Overnight Interest-Earning Deposits and Federal Funds Sold:
The fair values of financial instruments that are short-term or reprice frequently and have little or no risk are considered
to have a fair value that approximates carrying value.
FHLB-NY stock:
The fair value is based upon the par value of the stock which equals its carrying value.
Securities:
The fair values of securities are contained in Note 6 of Notes to Consolidated Financial Statements. Fair value is based
upon quoted market prices, where available. If a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities and adjusted for differences between the quoted instrument and the instrument being
valued. When there is limited activity or less transparency around inputs to the valuation, securities are valued using
discounted cash flows.
Loans:
The fair value of loans is estimated by discounting the expected future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and remaining maturities.
For non-accruing loans, fair value is generally estimated by discounting management’s estimate of future cash flows
with a discount rate commensurate with the risk associated with such assets or for collateral dependent loans 85% of the
appraised or internally estimated value of the property, except for taxi medallion loans. The fair value of the underlying
collateral of taxi medallion loans is the most recent reported arm’s length transaction. When there is no recent sale
activity, the fair value is calculated using capitalization rates.
Other Real Estate Owned:
OREO are carried at fair value less selling costs. The fair value is based on appraised value through a current appraisal,
or sometimes through an internal review, additionally adjusted by the estimated costs to sell the property.
Accrued Interest Receivable:
The carrying amount is a reasonable estimate of fair value due to its short-term nature.
Due to Depositors:
The fair values of demand, passbook savings, NOW, money market deposits and escrow deposits are, by definition,
equal to the amount payable on demand at the reporting dates (i.e. their carrying value). The fair value of certificates of
deposits are estimated by discounting the expected future cash flows using the rates currently offered for deposits of
similar remaining maturities.
Borrowings:
The fair value of borrowings is estimated by discounting the contractual cash flows using interest rates in effect for
borrowings with similar maturities and collateral requirements or using a market-standard model. The fair value of the
junior subordinated debentures was developed using a credit spread based on the subordinated debt issued by the
Company adjusting for differences in the junior subordinated debt’s credit rating, liquidity and time to maturity.
Accrued Interest Payable:
The carrying amount is a reasonable estimate of fair value due to its short-term nature.
Interest Rate Swaps:
The fair value of interest rate swaps is based upon broker quotes.
132
Other Financial Instruments:
The fair values of commitments to sell, lend or borrow are estimated using the fees currently charged or paid to enter into
similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the
counterparties or on the estimated cost to terminate them or otherwise settle with the counterparties at the reporting date.
For fixed-rate loan commitments to sell, lend or borrow, fair values also consider the difference between current levels of
interest rates and committed rates (where applicable). At December 31, 2016 and 2015, the fair values of the above
financial instruments approximate the recorded amounts of the related fees and were not considered to be material.
The following tables set forth the carrying amounts and fair values of selected financial instruments based on the
assumptions described above used by the Company in estimating fair value at the periods indicated:
Carrying
Amount
Fair
Value
December 31, 2016
Level 1
(In thousands)
Level 2
Level 3
$
35,857
$
35,857
$
35,857
$
-
$
-
37,735
35,408
516,476
344,905
4,835,693
59,173
6,350
516,476
344,905
4,814,840
59,173
6,350
-
-
-
-
-
-
-
35,408
516,476
337,544
-
59,173
6,350
-
7,361
4,814,840
-
-
Assets:
Cash and due from banks
Securities held-to-maturity
Other securities
Securities available for sale
Mortgage-backed
securities
Other securities
Loans
FHLB-NY stock
Interest rate swaps
Total assets
$
5,836,189
$
5,813,009
$
35,857
$
919,543
$
4,857,609
Liabilities:
Deposits
Borrowings
Interest rate swaps
Total liabilities
$
4,205,631
1,266,563
3,386
$
4,213,714
1,255,283
3,386
$
2,833,516
-
-
$
1,380,198
1,221,324
3,386
-
$
33,959
-
$
5,475,580
$
5,472,383
$
2,833,516
$
2,604,908
$
33,959
133
Assets:
Cash and due from banks
Securities held-to-maturity
Other securities
Securities available for sale
Mortgage-backed
securities
Other securities
Loans
FHLB-NY stock
Interest rate swaps
Carrying
Amount
Fair
Value
December 31, 2015
Level 1
(In thousands)
Level 2
Level 3
$
42,363
$
42,363
$
42,363
$
-
$
-
6,180
6,180
668,740
324,657
4,387,979
56,066
48
668,740
324,657
4,434,079
56,066
48
-
-
-
-
-
-
-
6,180
668,740
317,445
-
56,066
48
-
7,212
4,434,079
-
-
Total assets
$
5,486,033
$
5,532,133
$
42,363
$
1,042,299
$
4,447,471
Liabilities:
Deposits
Borrowings
Interest rate swaps
Total liabilities
$
3,892,547
1,271,676
4,314
$
3,902,888
1,279,946
4,314
$
2,489,245
-
-
$
1,413,643
1,250,928
4,314
-
$
29,018
-
$
5,168,537
$
5,187,148
$
2,489,245
$
2,668,885
$
29,018
19. Derivative Financial Instruments
At December 31, 2016 and 2015, the Company’s derivative financial instruments consist of interest rate swaps. The
Company’s interest rate swaps are used for two purposes. The first purpose is to mitigate the Company’s exposure to
rising interest rates on a portion ($18.0 million) of its floating rate junior subordinated debentures that have a contractual
value of $61.9 million at both December 31, 2016 and 2015. The second purpose is to mitigate the Company’s exposure
to rising interest rates on certain fixed rate loans totaling $235.4 million and $146.9 million at December 31, 2016 and
2015, respectively.
At December 31, 2016 and 2015, derivatives with a combined notional amount of $36.3 million were not designated as
hedges. At December 31, 2016 and 2015, derivatives with a combined notional amount of $217.1 million and $128.5
million, respectively, were designated as fair value hedges. Changes in the fair value of interest rate swaps not
designated as hedges are reflected in “Net loss from fair value adjustments” in the Consolidated Statements of Income.
The following table sets forth information regarding the Company’s derivative financial instruments at the periods
indicated:
December 31, 2016
December 31, 2015
Notional
Amount
Net Carrying
Value (1)
Notional
Amount
Net Carrying
Value (1)
Interest rate swaps (hedge)
Interest rate swaps (hedge)
Interest rate swaps (non-hedge)
Total derivatives
182,177
34,916
36,321
253,414
6,350
(658)
(2,728)
2,964
28,588
99,955
36,321
164,864
$
$
$
$
$
$
$
$
48
(1,515)
(2,799)
(4,266)
(1) Derivatives in a net positive position are recorded as “Other assets” and derivatives in a net negative position are recorded as “Other liabilities”
in the Consolidated Statements of Financial Condition. There were no unrealized losses at December 31, 2016 and 2015.
134
The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income for the
periods indicated:
(In thousands)
Financial Derivatives:
Interest rate swaps (non-hedge)
Interest rate swaps (hedge)
Net Gain (loss) (1)
For the year ended
December 31,
2015
2016
2014
$
71
1,466
$
(561)
(1,036)
$
(3,919)
(124)
$
1,537
$
(1,597)
$
(4,043)
(1) Net gains (losses) are recorded as “Net loss from fair value adjustments” in the Consolidated Statements of Income.
The Company’s interest rate swaps are subject to master netting arrangements and are all with the same counterparty.
The Company has not made a policy election to offset its derivative positions.
The following tables present the effect of the master netting arrangements on the presentation of the derivative assets and
liabilities in the Consolidated Statements of Condition as of the dates indicated:
December 31, 2016
Gross Amounts Not Offset in the
Consolidated Statement of
Condition
(In thousands)
Gross Amount of
Recognized Assets
Gross Amount Offset in
the Statement of
Condition
Net Amount of Assets
Presented in the Statement of
Condition
Financial
Instruments
Cash Collateral
Received
Net Amount
Interest rate swaps
$
6,350
$
-
$
6,350
$
3,386
$
2,964
$
-
(In thousands)
Gross Amount of
Recognized
Liabilities
Gross Amount Offset in
the Statement of
Condition
Net Amount of Liabilities
Presented in the Statement of
Condition
Financial
Instruments
Cash Collateral
Pledged
Net Amount
Interest rate swaps
$
3,386
$
-
$
3,386
$
3,386
$
-
$
-
Gross Amounts Not Offset in the
Consolidated Statement of
Condition
135
December 31, 2015
Gross Amounts Not Offset in the
Consolidated Statement of
Condition
(In thousands)
Gross Amount of
Recognized Assets
Gross Amount Offset in
the Statement of
Condition
Net Amount of Assets
Presented in the Statement of
Condition
Financial
Instruments
Cash Collateral
Received
Net Amount
Interest rate swaps
$
48
$
-
$
48
$
48
$
-
$
-
(In thousands)
Gross Amount of
Recognized
Liabilities
Gross Amount Offset in
the Statement of
Condition
Net Amount of Liabilities
Presented in the Statement of
Condition
Financial
Instruments
Cash Collateral
Pledged
Net Amount
Interest rate swaps
$
4,314
$
-
$
4,314
$
48
$
4,266
$
-
Gross Amounts Not Offset in the
Consolidated Statement of
Condition
20. New Authoritative Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU
simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. The
Company should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying
amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting
unit's fair value. The impairment charge is limited to the amount of goodwill allocated to that reporting unit. The
amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods
within those fiscal years. Early adoption is permitted for goodwill impairment tests performed on testing dates after
January 1, 2017. The guidance is not expected to have a significant impact on the Company's financial positions, results
of operations or disclosures
In August 2016, the FASB issued ASU No. 2016-15 “Classification of Certain Cash Receipts and Cash Payments”, to
clarify how certain cash receipts and cash payments are presented and classified in the statements of cash flows. The
amendments are intended to reduce diversity in practice by clarifying whether the following items should be categorized
as operating, investing or financing in the statement of cash flows: (i) debt prepayments and extinguishment costs, (ii)
settlement of zero-coupon debt, (iii) settlement of contingent consideration, (iv) insurance proceeds, (v) settlement of
corporate-owned life insurance (COLI) and bank-owned life insurance (BOLI) policies, (vi) distributions from equity
method investees, (vii) beneficial interests in securitization transactions, and (viii) receipts and payments with aspects of
more than one class of cash flows. The ASU will be effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2017. Early adoption is permitted. If an entity early adopts the amendments in an
interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim
period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company does not
expect adoption of this ASU will have a material effect on its consolidated financial statements.
136
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses” which sets forth a “current
expected credit loss” (“CECL”) model which requires the Company to measure all expected credit losses for financial
instruments held at the reporting date based on historical experience, current conditions and reasonable supportable
forecasts. This replaces the existing incurred loss model and will apply to the measurement of credit losses on financial
assets measured at amortized cost and to some off-balance sheet credit exposures. This ASU will be effective for fiscal
years beginning after December 15, 2019, including interim periods within those fiscal years. The Company has begun
collecting and evaluating data and system requirements to implement this standard. The adoption of this update could
have a material impact on the Company’s consolidated results of operations and financial condition. The extent of the
impact is still unknown and will depend on many factors, such as the composition of the Company’s loan portfolio and
expected loss history at adoption.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation”, which introduces targeted
amendments intended to simplify the accounting for stock compensation. Specifically, the ASU requires all excess tax
benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) to be recognized as
income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as
discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits, and assess
the need for a valuation allowance, regardless of whether the benefit reduces taxes payable in the current period. That is,
off balance sheet accounting for net operating losses stemming from excess tax benefits would no longer be required and
instead such net operating losses would be recognized when they arise. Existing net operating losses that are currently
tracked off balance sheet would be recognized, net of a valuation allowance if required, through an adjustment to
opening retained earnings in the period of adoption. Entities will no longer need to maintain and track an additional paid
in capital pool. The ASU also requires excess tax benefits to be classified along with other income tax cash flows as an
operating activity in the statement of cash flows. In addition, the ASU elevates the statutory tax withholding threshold to
qualify for equity classification up to the maximum statutory tax rates in the applicable jurisdiction(s). The ASU also
clarifies that cash paid by an employer when directly withholding shares for tax withholding purposes should be
classified as a financing activity. The ASU provides an optional accounting policy election (with limited exceptions), to
be applied on an entity-wide basis, to either estimate the number of awards that are expected to vest (consistent with
existing GAAP) or account for forfeitures when they occur. The amendments are effective for public business entities for
annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is
permitted. We do not expect adoption of this ASU to have a material effect on our consolidated results of operations,
financial condition or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, “Leases”. From the lessee's perspective, the new standard
establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance
sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with
classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor's
perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be
treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks
and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey
risks and rewards or control, an operating lease results. The new standard is effective for fiscal years beginning after
December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is
required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements, with certain practical expedients available. A modified
retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at,
or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain
practical expedients available. The Company has not adopted a new accounting policy as of the filing date. Management
is continuing to evaluate the standard, but the effects of recognizing most operating leases on the Consolidated
Statements of Financial Condition is expected to be material. The Company expects to recognize right-of-use assets and
lease liabilities for substantially all of its operating lease commitments disclosed in Note 15 based on the present value of
unpaid lease payments as of the date of adoption.
In January 2016, FASB issued ASU No. 2016-01 “Financial Instruments” which requires an entity to: (i) measure equity
investments at fair value through net income, with certain exceptions; (ii) present in other comprehensive income the
changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present
financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value
of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred
tax assets related to unrealized losses of available for sale debt securities in combination with other deferred tax assets.
137
The ASU provides an election to subsequently measure certain nonmarketable equity investments at cost less any
impairment and adjusted for certain observable price changes. The ASU also requires a qualitative impairment
assessment of such equity investments and amends certain fair value disclosure requirements. The amendments are
effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2017. Early adoption is not permitted for the changes that affect the Company. We are currently
evaluating the impact of adopting this new guidance on our consolidated results of operations and financial condition.
In May 2015, the FASB issued ASU 2015-07, “Disclosures for Investments in Certain Entities That Calculate Net Asset
Value per Share (or Its Equivalent)” which seeks to eliminate diversity in practice surrounding how investments
measured at net asset value under the practical expedient, with future redemption dates, have been categorized in the fair
value hierarchy. The guidance is effective for fiscal years beginning after December 15, 2015, and requires retrospective
presentation. These Notes to Financial Statements reflect adoption.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”. This ASU establishes a
comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that
previously followed industry-specific guidance such as real estate, construction and software industries. The revenue
standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and
services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue
recognition based on the consideration to which the vendor is entitled. The guidance in this ASU for public companies is
effective for the annual periods beginning after December 15, 2016, including interim periods therein. ASU 2014-09
does not apply to the majority of our revenue streams. In August 2015, the FASB approved a one-year delay of the
effective date of this standard. The deferral would require public entities to apply the standard for annual reporting
periods beginning after December 15, 2017. Public companies would be permitted to elect to early adopt for annual
reporting periods beginning after December 15, 2016. The Company is in the process of comparing our current revenue
recognition policies to the requirements of this ASU. While we have not identified any material differences in the
amount and timing of revenue recognition for the revenue streams we have reviewed to date, our evaluation is not
complete, and we have not concluded our determination of the overall impact of adopting this ASU on the Company’s
consolidated results of operations, financial condition or cash flows.
21. Quarterly Financial Data (unaudited)
Selected unaudited quarterly financial data for the fiscal years ended December 31, 2016 and 2015 is presented below:
Quarterly operating data:
Interest income
Interest expense
Net interest income
Provision (benefit) for loan losses
Other operating income
Other operating expense
Income before income
tax expense
Income tax expense
Net income
4th
3rd
2nd
1st
4th
3rd
2nd
1st
2016
2015
(In thousands, except per share data)
$
56,019
13,668
42,351
-
15,426
35,375
$
55,524
13,811
41,713
-
1,853
26,277
$
55,091
13,202
41,889
-
37,717
28,454
$
54,363
13,230
41,133
-
2,540
28,497
$
52,468
13,052
39,416
664
2,145
23,824
$
51,913
12,603
39,310
(370)
1,697
23,708
$
50,222
12,082
38,140
(516)
9,947
24,248
$
49,543
11,989
37,554
(734)
1,930
25,939
22,402
8,116
14,286
$
17,289
6,655
10,634
$
51,152
20,717
30,435
$
15,176
5,615
9,561
$
17,073
5,439
11,634
$
17,669
6,661
11,008
$
24,355
9,521
14,834
$
14,279
5,546
8,733
$
Basic earnings per common share
Diluted earnings per common share
Dividends per common share
$0.50
$0.50
$0.17
$0.37
$0.37
$0.17
$1.05
$1.05
$0.17
$0.33
$0.33
$0.17
$0.40
$0.40
$0.16
$0.38
$0.38
$0.16
$0.51
$0.51
$0.16
$0.30
$0.30
$0.16
Average common shares outstanding for:
Basic earnings per share
Diluted earnings per share
28,850
28,860
28,861
28,875
29,022
29,034
29,097
29,111
28,862
28,879
28,927
28,946
29,246
29,268
29,397
29,419
138
22. Parent Company Only Financial Information
Earnings of the Bank are recognized by the Holding Company using the equity method of accounting. Accordingly,
earnings of the Bank are recorded as increases in the Holding Company’s investment, any dividends would reduce the
Holding Company’s investment in the Bank, and any changes in the Bank’s unrealized gain or loss on securities
available for sale, net of taxes, would increase or decrease, respectively, the Holding Company’s investment in the Bank.
The condensed financial statements for the Holding Company are presented below:
Condensed Statements of Financial Condition
Assets:
Cash and due from banks
Securities available for sale:
Other securities ($1,019 and $872 at fair value pursuant to
the fair value option at December 31, 2016 and 2015, respectively)
Interest receivable
Investment in subsidiaries
Goodwill
Other assets
Total assets
Liabilities:
Subordinated debentures
Junior subordinated debentures, at fair value
Other liabilities
Total liabilities
Stockholders' Equity:
Preferred stock
Common stock
Additional paid-in capital
Treasury stock, at average cost (2,897,691 shares and 2,700,037 at
December 31, 2016 and 2015, respectively)
Retained earnings
Accumulated other comprehensive loss, net of taxes
Total equity
Total liabilities and equity
December 31,
2016
December 31,
2015
(Dollars in thousands)
$
13,972
$
5,654
1,317
4
612,374
2,185
3,704
633,556
$
1,170
4
502,798
2,185
4,251
516,062
$
$
73,414
33,959
12,330
119,703
$
-
29,018
13,977
42,995
-
315
214,462
(53,754)
361,192
(8,362)
513,853
-
315
210,652
(48,868)
316,530
(5,562)
473,067
$
633,556
$
516,062
139
Condensed Statements of Income
Dividends from the Bank
Interest income
Interest expense
Net gain (loss) from fair value adjustments
Other operating expenses
Income before taxes and equity in undistributed
earnings of subsidiary
Income tax benefit
Income before equity in undistributed earnings of subsidiary
Equity in undistributed earnings of the Bank
Net income
Other comprehensive (loss) income, net of tax
Comprehensive income
Condensed Statements of Cash Flows
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of the Bank
Deferred income tax (benefit) provision
Fair value adjustments for financial assets and
financial liabilities
Stock-based compensation expense
Net change in operating assets and liabilities
Net cash provided by operating activities
Investing activities:
Investment in Bank
Purchases of securities available for sale
Proceeds from sales and calls of securities available for sale
Net cash (used in) provided by investing activities
Financing activities:
Issuance of subordinated debt, net
Purchase of treasury stock
Cash dividends paid
Stock options exercised
Net cash provided by (used in) financing activities
2016
For the years ended December 31,
2015
(In thousands)
2014
$
24,000
247
(1,324)
(4,761)
(1,611)
$
26,000
242
(1,075)
(231)
(1,298)
$
20,000
512
(1,039)
779
(786)
16,551
3,198
19,749
45,167
64,916
(2,800)
62,116
$
23,638
687
24,325
21,884
46,209
(2,655)
43,554
$
19,466
668
20,134
24,105
44,239
8,468
52,707
$
2016
For the years ended December 31,
2015
(In thousands)
2014
$
64,916
$
46,209
$
44,239
(45,167)
(2,316)
4,761
5,120
3,318
30,632
(66,497)
-
-
(66,497)
73,402
(9,858)
(19,689)
328
44,183
(21,884)
575
231
4,676
2,174
31,981
-
-
-
-
-
(15,605)
(18,616)
145
(34,076)
(24,105)
17
(779)
4,246
2,088
25,706
-
(22)
1,699
1,677
-
(18,872)
(17,852)
565
(36,159)
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
8,318
5,654
13,972
$
(2,095)
7,749
5,654
$
(8,776)
16,525
7,749
$
140
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Flushing Financial Corporations
Uniondale, New York
We have audited the accompanying consolidated statements of financial condition of Flushing Financial
Corporation and subsidiaries (the “Company”) as of December 31, 2016 and 2015 and the related consolidated
statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Flushing Financial Corporation and subsidiaries at December 31, 2016 and 2015, and the
results of their operations and their cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2016, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated March 13, 2017 expressed an
unqualified opinion thereon.
/s/ BDO USA, LLP
New York, New York
March 13, 2017
141
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Flushing Financial Corporation
We have audited the accompanying consolidated statements of income, comprehensive income, changes in
shareholders’ equity, and cash flows of Flushing Financial Corporation (a Delaware corporation) and subsidiaries
(the “Company”) for the year ended December 31, 2014. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
results of operations and cash flows of Flushing Financial Corporation and subsidiaries as of December 31, 2014,
in conformity with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
New York, New York
March 16, 2015
142
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Flushing Financial Corporation
Uniondale, New York
We have audited Flushing Financial Corporation and subsidiaries’ (the “Company”) internal control over financial
reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The
Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated statements of financial condition of the Company as of December 31, 2016 and 2015, and the
related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for
the years then ended and our report dated March 13, 2017 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
New York, New York
March 13, 2017
143
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
The Company carried out, under the supervision and with the participation of the Company's management,
including its Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this Annual Report. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that, as of December 31, 2016, the design and operation of
these disclosure controls and procedures were effective. During the period covered by this Annual Report, there have
been no changes in the Company's internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting,
and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31,
2016. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities
Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and
principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. Internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Management performed an assessment of the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2016 based upon criteria in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (“COSO”). Based on this
assessment, management concluded that the Company’s internal control over financial reporting was effective as of
December 31, 2016 based on those criteria issued by COSO.
BDO USA, LLP, the Company’s independent registered public accounting firm that audited the Company’s
consolidated financial statements included in this Annual Report on Form 10-K, has issued a report on the effectiveness
of the Company’s internal control over financial reporting as of December 31, 2016, as stated in its report which appears
on page 143.
Item 9B. Other Information.
None.
144
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Other than the disclosures below, information regarding the directors and executive officers of the Company
appears in the Company’s Proxy Statement for the Annual Meeting of Stockholders to be held May 31, 2017 (“Proxy
Statement”) under the captions “Board Nominees,” “Continuing Directors,” “Executive Officers Who Are Not
Directors” and “Meeting and Committees of the Board of Directors – Audit Committee” and is incorporated herein by
this reference. Information regarding Section 16(a) beneficial ownership appears in the Company’s Proxy Statement
under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by this
reference.
Code of Ethics. The Company has adopted a Code of Business Conduct and Ethics that applies to all of its
the Company’s website at: https
directors, officers and employees. This code
https://www.snl.com/Cache/1001213939.PDF?Y=&O=PDF&D=&FID=1001213939&T=&IID=102398
Any substantive amendments to the code and any grant of a waiver from a provision of the code requiring disclosure
under applicable SEC or NASDAQ rules will be disclosed in a report on Form 8-K.
is publicly available on
Audit Committee Financial Expert. The Board of Directors of the Company has determined that Louis C.
Grassi, the Chairman of the Audit Committee, is an “audit committee financial expert” as defined under Item 401(h) of
Regulation S-K, and that he is independent as defined under applicable NASDAQ listing standards. Mr. Grassi is a
certified public accountant and a certified fraud examiner.
Item 11. Executive Compensation.
Information regarding executive compensation appears in the Proxy Statement under the caption “Executive
Compensation” and is incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information regarding security ownership of certain beneficial owners appears in the Proxy Statement under the
caption “Stock Ownership of Certain Beneficial Owners” and is incorporated herein by this reference.
Information regarding security ownership of management appears in the Proxy Statement under the caption
“Stock Ownership of Management” and is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information regarding certain relationships and related transactions and directors independence appears in the
Proxy Statement under the captions “Compensation Committee Interlocks and Insider Participation” and “Related Party
Transactions” and is incorporated herein by this reference.
Item 14. Principal Accounting Fees and Services.
Information regarding fees paid to the Company’s independent auditor appears in the Proxy Statement under the
caption “Schedule of Fees to Independent Auditors” and is hereby incorporated by this reference.
145
Item 15. Exhibits, Financial Statement Schedules.
(a) 1. Financial Statements
PART IV
The following financial statements are included in Item 8 of this Annual Report and are incorporated herein by
this reference:
(cid:120) Consolidated Statements of Financial Condition at December 31, 2016 and 2015
(cid:120) Consolidated Statements of Income for each of the three years in the period ended December 31, 2016
(cid:120) Consolidated Statements of Comprehensive Income for each of the three years in the period ended
December 31, 2016
(cid:120) Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period
ended December 31, 2016
(cid:120) Consolidated Statements of Cash Flows for each of the three years in the period ended December 31,
2016
(cid:120) Notes to Consolidated Financial Statements
(cid:120) Reports of Independent Registered Public Accounting Firm
2. Financial Statement Schedules
Financial Statement Schedules have been omitted because they are not applicable or the required information is
shown in the Consolidated Financial Statements or Notes thereto included in Item 8 of this Annual Report and are
incorporated herein by this reference.
146
3. Exhibits Required by Securities and Exchange Commission Regulation S-K
Exhibit
Number Description
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31
10.32*
21.1
23.1
Certificate of Incorporation of Flushing Financial Corporation (1)
Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (5)
Certificate of Amendment to Certificate of Incorporation of Flushing Financial Corporation (15)
Certificate of Designations of Series A Junior Participating Preferred Stock of Flushing Financial
Corporation (6)
Certificate of Increase of Shares Designated as Series A Junior Participating Preferred Stock of Flushing
Financial Corporation (12)
Amended and Restated By-Laws of Flushing Financial Corporation (18)
Subordinated Indenture, dated as of December 12, 2016, by and between the Company and Wilmington Trust,
National Association, as Trustee. (11)
First Supplemental Indenture, dated as of December 12, 2016, by and between the Company and Wilmington
Trust, National Association, as Trustee, including the form of the Notes attached as Exhibit A thereto. (11)
Form of Amended and Restated Employment Agreement between Flushing Bank and
Certain Officers (16)
Form of Amended and Restated Employment Agreement between Flushing Financial Corporation and
Certain Officers (16)
Amended and Restated Employment Agreement between Flushing Financial Corporation and John R.
Buran (16)
Amended and Restated Employment Agreement between Flushing Bank and John R. Buran (16)
Amended and Restated Employment Agreement between Flushing Financial Corporation and Maria A. Grasso
(16)
Amended and Restated Employment Agreement between Flushing Bank and Maria A. Grasso (16)
Flushing Bank Specified Officer Change in Control Severance Policy (as Amended Effective January 1, 2016)
(20)
Employee Severance Compensation Plan for Vice Presidents and Assistant Vice Presidents of Flushing Bank
(Effective as of January 1, 2016) (20)
Employee Severance Compensation Plan of Flushing Bank (Amended and Restated as of January 1, 2016) (20)
Amended and Restated Outside Director Retirement Plan (10)
Amended and Restated Flushing Bank Outside Director Deferred Compensation Plan (4)
Amended and Restated Flushing Bank Supplemental Savings Incentive Plan (19)
Form of Indemnity Agreement among Flushing Bank, Flushing Financial Corporation, and each Director (2)
Form of Indemnity Agreement among Flushing Bank, Flushing Financial Corporation, and Certain Officers (2)
Employee Benefit Trust Agreement (1)
Amendment to the Employee Benefit Trust Agreement (3)
Guarantee by Flushing Financial Corporation (1)
1996 Restricted Stock Incentive Plan of Flushing Financial Corporation (8)
1996 Stock Option Incentive Plan of Flushing Financial Corporation (7)
Form of Outside Director Restricted Stock Award Letter (9)
Form of Outside Director Restricted Stock Unit Award Letter (20)
Form of Outside Director Stock Option Grant Letter (9)
Form of Employee Restricted Stock Award Letter (9)
Form of Employee Restricted Stock Unit Grant Letter Agreement (20)
Form of Employee Stock Option Award Letter (9)
Amended and Restated Flushing Financial Corporation 2005 Omnibus Incentive Plan (13)
Amendment to Flushing Financial Corporation 2005 Omnibus Incentive Plan (14)
Annual Incentive Plan for Executives and Senior Officers (15)
Form of Amendment to Employee Stock Option Award Letter (17)
Form of Amendment to Director Stock Option Award Letter (17)
Lease agreement between Flushing Bank and Rexcorp Plaza SPE LLC (18)
Flushing Financial Corporation 2014 Omnibus Incentive Plan (18)
Subsidiaries information incorporated herein by reference to Part I – Subsidiary Activities
Consent of Independent Registered Public Accounting Firm (filed herewith)
147
23.2
31.1
31.2
32.1
32.2
Consent of Independent Registered Public Accounting Firm (filed herewith)
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed
herewith)
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed
herewith)
Certification Pursuant to 18 U.S.C, Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (furnished herewith)
Certification Pursuant to 18 U.S.C, Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (furnished herewith)
101.INS XBRL Instance Document (filed herewith)
101.SCH XBRL Taxonomy Extension Schema Document (filed herewith)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
101.LAB XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
*Indicates compensatory plan or arrangement.
_______________
(1) Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 filed September 1, 1995, Registration
No. 33-96488.
(2) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended September 30, 1996.
(3) Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 1997.
(4) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended September 30, 2000.
(5) Incorporated by reference to Exhibits filed with Form S-8 filed May 31, 2002.
(6) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended September 30, 2002.
(7) Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2003.
(8) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended June 30, 2004.
(9) Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2004.
(10) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended March 31, 2006.
(11) Incorporated by reference to Exhibit filed with Form 8-K filed December 12, 2016.
(12) Incorporated by reference to Exhibit filed with Form 8-K filed September 27, 2006.
(13) Incorporated by reference to Appendices filed with Proxy Statement on Schedule 14A filed April 7, 2011.
(14) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended September 30, 2011.
(15) Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2011.
(16) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended June 30, 2013.
(17) Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2012.
(18) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended June 30, 2014.
(19) Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2014.
(20) Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2015.
148
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the Company has duly
caused this report, to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York, on
March 13, 2017.
SIGNATURES
FLUSHING FINANCIAL CORPORATION
By
/S/JOHN R. BURAN
John R. Buran
President and CEO
POWER OF ATTORNEY
We, the undersigned directors and officers of Flushing Financial Corporation (the “Company”) hereby severally
constitute and appoint John R. Buran and Susan K. Cullen as our true and lawful attorneys and agents, each acting alone
and with full power of substitution and re-substitution, to do any and all things in our names in the capacities indicated
below which said John R. Buran or Susan K. Cullen may deem necessary or advisable to enable the Company to comply
with the Securities Exchange Act of 1934, and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the report on Form 10-K, or amendment thereto, including specifically, but not limited
to, power and authority to sign for us in our names in the capacities indicated below the report on Form 10-K, or
amendment thereto; and we hereby approve, ratify and confirm all that said John R. Buran or Susan K. Cullen shall do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K, has been signed
by the following persons in the capacities and on the dates indicated.
Signature
Title
Date
/S/JOHN R. BURAN
John R. Buran
/S/ALFRED A. DELLIBOVI
Alfred A. DelliBovi
/S/SUSAN K. CULLEN
Susan K. Cullen
/S/ JAMES D. BENNETT
James D. Bennett
/S/STEVEN J. D'IORIO
Steven J. D'Iorio
Director, President (Principal Executive
Officer)
March 7, 2017
Director, Chairman
March 7, 2017
Treasurer (Principal Financial and
Accounting Officer)
March 7, 2017
Director
March 7, 2017
Director
March 7, 2017
149
/S/LOUIS C. GRASSI
Louis C. Grassi
/S/SAM S. HAN
Sam S. Han
/S/JOHN J. MCCABE
John J. McCabe
/S/JOHN E. ROE, SR.
John E. Roe, Sr.
/S/DONNA M. O'BRIEN
Donna M. O'Brien
/S/MICHAEL J. RUSSO
Michael J. Russo
/S/THOMAS S. GULOTTA
Thomas S. Gulotta
/S/CAREN C. YOH
Caren C. Yoh
Director
Director
Director
Director
Director
Director
Director
March 7, 2017
March 7, 2017
March 7, 2017
March 7, 2017
March 7, 2017
March 7, 2017
March 7, 2017
Director
March 7, 2017
150
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FOR YOU AND THE COMMUNITY
corporate inForMation
Executive and Senior Management
John R. Buran
President,
Chief Executive Officer
Susan K. Cullen
Senior Executive Vice President,
Treasurer & Chief Financial Officer
David W. Fry*
Senior Executive Vice President,
Treasurer & Chief Financial Officer
Maria A. Grasso
Senior Executive Vice President,
Chief Operating Officer &
Corporate Secretary
Francis W. Korzekwinski
Senior Executive Vice President,
Chief of Real Estate Lending
Barbara A. Beckmann
Executive Vice President,
Director of Operations
Michael Bingold
Executive Vice President,
Director of Distribution and
Client Development
Allen M. Brewer
Executive Vice President,
Chief Information Officer
Astrid Burrowes
Executive Vice President,
Chief Accounting Officer
Ruth E. Filiberto
Executive Vice President,
Director of Human Resources
Ronald M. Hartmann
Executive Vice President,
Director of Commercial
Real Estate Lending
James P. Jacovatos
Executive Vice President,
Real Estate Credit Center Manager
Jeoung Yun Jin
Executive Vice President,
Director of Residential &
Mixed-Use Lending
Theresa Kelly
Executive Vice President,
Director of Business Banking
Gary P. Liotta
Executive Vice President,
Chief Risk Officer
Patricia Mezeul
Executive Vice President,
Director of Government Banking
John F. Stewart
Executive Vice President,
Chief of Staff
Kenneth Tays
Executive Vice President,
Chief Audit Officer
Frank Akalski
Senior Vice President,
Chief Investment Officer
Caterina dePasquale
Senior Vice President,
Director of Strategic
Development & Delivery
Alexander Gellerman
Senior Vice President,
Chief Technology Officer
*Retired February 2016
John E. Roe, Sr.
Chairman of the Board Through 2/2/2017
Retired Chairman of City Underwriting
Agency, Inc.
John R. Buran
President & Chief Executive Officer
James D. Bennett
Attorney in Nassau County, New York
Alfred A. DelliBovi
Chairman of the Board
Effective 2/3/2017
Retired President & CEO of the
Federal Home Loan Bank of New York
Steven J. D’Iorio
Senior Vice President
Jones, Lang, LaSalle
Board of Directors
Louis C. Grassi
Managing Partner & Chief Executive
Officer of Grassi & Co.
Donna M. O’Brien
President
Strategic Visions in Healthcare, LLC
Michael J. Russo
Consulting Engineer, CEO
Fresh Meadow Mechanical Corp. and
President & Director of Operations for
Northeastern Aviation Corp.
Caren C. Yoh
President, CPA
Accounting Firm
†Deceased
Thomas S. Gulotta
Special Counsel, Albanese & Albanese
CEO Executive Strategies, LLC
Sam S. Han
Founder & President of the
Korean Channel, Inc.
Michael J. Hegarty†
Former President &
Chief Executive Officer
John J. McCabe
Retired Chief Equity Strategist of
Shay Assets Management
Shareholder Information
Annual Meeting
The Annual Meeting of Shareholders of
Flushing Financial Corporation will be
held at 1:00 PM, May 31, 2017, at:
Uniondale Marriott
Uniondale, New York 11556
Transfer Agent and Registrar
Computershare Trust Company NA
P.O. Box 30170
College Station, Texas 77842-3170
800-426-5523
www.Computershare.com
Independent Registered
Public Accounting Firm
BDO USA, LLP
100 Park Avenue
New York, New York 10017
212-885-8000
Stock Listing
NASDAQ Global Select MarketSM
Symbol “FFIC”
Shareholder Relations
Susan K. Cullen
718-961-5400
Legal Counsel
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
212-837-6000
BROOKLYN
7102 T h i r d Av e n u e
186 M o n t a g u e St r e e t
1402 Av e n u e J
217 H a v e m e y e r S t r e e t
4616 13 t h Av e n u e
MANHATTAN
99 Pa r k Av e n u e
225 Pa r k Av e n u e S o u t h
NASSAU COUNTY
GARDEN CITY
1122 F r a n k l i n Av e n u e
QUEENS
ASTORIA
31-16 30t h Av e n u e
NEW HYDE PARK
661 H i l l s i d e Av e n u e
UNIONDALE
260E R X R P l a z a
BAYSIDE
61-14 S p r i n g f i e l d B o u l e v a r d
42-11 B e l l B o u l e v a r d
FLUSHING
144-51 N o r t h e r n B o u l e v a r d
159-18 N o r t h e r n B o u l e v a r d
188- 08 H o l l i s C o u r t B o u l e v a r d
44- 43 K i s s e n a B o u l e v a r d
136 -41 R o o s e v e l t Av e n u e
FOREST HILLS
107-11 C o n t i n e n t a l A v e n u e
Flushing Bank
220 RXR Plaza, Uniondale, New York 11556
718-961-5400
www.flushingbank.com
© 2017 Flushing Financial Corporation. All rights reserved. BRANR0417
Annual Report Design by Curran & Connors, Inc.