Small enough
to know you.
Large enough
to help you.®
2020 Annual Report
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 (FDIC). The Bank serves consumers, businesses, professionals, corporate
clients, and public entities by offering a full complement of deposit, loan, equipment finance,
and cash management services through its banking offices located in Queens, Brooklyn,
Manhattan, and on Long Island. As a leader in real estate lending, the Bank’s experienced
lending teams create mortgage solutions for real estate owners and property managers both
within and outside the New York City metropolitan area. Flushing Bank is an Equal Housing
Lender. The Bank also operates an online banking division consisting of iGObanking®, which
offers competitively priced deposit products to consumers nationwide, and BankPurely®, an
eco-friendly, healthier lifestyle community brand.
Financial Highlights
(Dollars in thousands, except per share data)
At or for the years ended
December 31,
Selected Financial Condition Data
2020
2019
Total assets
Loans, net
Total Securities
Total Deposits
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
Net interest margin
Efficiency ratio
Equity to total assets
Nonperforming assets to total assets
Allowance for loan losses to gross loans
$ 7,976,394
$ 6,659,521
$ 705,806
$ 6,136,355
$ 618,997
$
$
0.84
20.11
$7,017,776
$5,750,455
$ 831,388
$5,066,424
$ 579,672
$
$
0.84
20.59
$ 195,199
$ 161,940
$
$
$
34,674
1.18
1.18
$
$
$
41,279
$1.44
$1.44
0.48%
5.98 %
2.85 %
58.69 %
7.76 %
0.26 %
0.67 %
0.59%
7.35 %
2.47 %
63.89 %
8.26 %
0.19 %
0.38 %
Allowance for loan losses to total nonperforming loans
214.27 %
164.05 %
1
To Our Valued
Shareholders,
I am extremely proud of the employees
of Flushing Bank and the commitment
shown to our customers and communities,
considering the unique and challenging
circumstances faced in 2020. It is because
of their perseverance that we achieved
our strategic objectives and posted
strong financial results. With the initial
rollout of the COVID-19 vaccine and
recovery in the economy, we are confident
in our ability to execute our strategy and
build upon our strong track record of
delivering favorable total shareholder
returns, which since our IPO in 1995 have
totaled 926%1.
For 2020, we reported GAAP earnings
per diluted share of $1.18, which included
nonrecurring expenses related to the
Empire merger and actions taken during
the year to improve our funding profile.
Our core EPS2 for 2020 was $1.70,
representing a 3% increase over the prior
year. We effectively managed our funding
costs and achieved strong loan growth
of 16% for the year while maintaining
our industry-leading credit quality.
The following 2020 accomplishments
supported our efforts to position our
Company for continued profitable growth:
Completed the acquisition of Empire
Bancorp, Inc., creating Long Island’s
second-largest bank by deposit share
among regional and community banks3.
We successfully integrated the
Empire customers into our systems.
With the integration behind us,
we are well positioned to expand
these relationships and realize
greater operating efficiencies.
In March, as the pandemic was first
escalating in our communities, we
launched our new digital platforms,
which were instrumental in our ability
to successfully service our customers
remotely. We expect these enhancements
will help deepen existing customer
relationships and assist in attracting
customers who may be outside our
existing footprint.
In the midst of the pandemic when
many midsize and large banks fell
short in serving customers, we actively
Net Loan Portfolio
(in millions)
Net Loan Portfolio
(in millions)
Deposits
(in millions)
Deposits
(in millions)
Total Assets
(in millions)
Total Assets
(in millions)
Net Interest
Income
Net Interest Income
(in millions)
(in millions)
$7,000
$7,000
$8,000
$200
6,000
5,000
4,000
3,000
2,000
1,000
0
6,000
5,000
4,000
3,000
2,000
1,000
0
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
150
100
50
0
’16 ’17 ’18 ’19 ’20
’16
’17
’18 ’19 ’20
’16 ’17 ’18 ’19 ’20
’16
’17
’18 ’19 ’20
1 As of February 26, 2021
2 As defined in the Reconciliation of GAAP and Core Earnings table provided in Exhibit 99.1 on the Company’s current
report on Form 8-K filed on January 28, 2021
3 Based on FDIC “Deposits Market Share” as of June 30, 2020, on aggregate deposit market share for Kings, Queens,
Nassau and Suffolk counties for community banks <$20 billion in assets
2
8000
7000
6000
5000
4000
3000
2000
1000
0
200
150
100
50
0
7000
6000
5000
4000
3000
2000
1000
0
7000
6000
5000
4000
3000
2000
1000
0
participated and offered Paycheck
Protection Program (PPP) loans to
businesses within our community.
In the second offering of PPP, our
partnership with a fintech company
has improved the efficiency of our
application processing, resulting in
an increase in applications processed
compared with 2020.
As we worked closely with our customers
to navigate the challenges created by
the COVID-19 pandemic, we reduced
loans in forbearance by 76% from their
2020 peak.
For a fifth consecutive year, we reaffirmed
our investment grade rating from the
Kroll Bond Rating Agency.
Continued our active community
involvement through volunteering
and sponsorship of numerous cultural
events and local organizations, including
Chinatown Health Clinic Foundation,
Neighborhood Housing Services of
New York City, United Way of Long
Island, The Child Center of NY, and
Jamaica Center for Arts & Learning.
In our newest Jamaica and Suffolk
County markets, we launched a
brand-building campaign inclusive
of media and community relations.
As we look ahead to 2021, the future
holds many uncertainties: the continued
impact of the pandemic, the pace of the
vaccine distribution, and the potential for
policy shifts from the new presidential
administration, to name a few. Our
strategic plan, however, remains focused
on diversified growth of assets with the
best risk-adjusted returns while maintaining
a conservative risk management approach.
We continue to leverage our strong
banking relationships and execute our
strategic objectives, which include:
Manage cost of funds and continue
to improve funding mix
Resume historical loan growth while
achieving appropriate risk-adjusted
returns
Enhance core earnings power by
improving scalability and efficiency
Manage credit risk
Remain well capitalized
The challenges of the past year highlight
the enduring relevance of our brand
message: “Small enough to know you.
Large enough to help you.” In the
multicultural markets in which we operate,
this idea continues to perfectly capture
our vision to be the preeminent bank by
exceeding customer expectations. We
have sufficient scale to facilitate banking
and lending solutions offered by larger
commercial banks while being nimble
enough to offer customized solutions
“ Flushing Bank’s PPP team led us through the process with tremendous
care, attention, and professionalism. We cannot imagine having
done it with any of our other lenders.”
― David Weinman, President, Fabco Enterprises, Inc.
“ There’s a lot to be said for working with a personal banker who sees
your relationship as a partnership, not a transaction.”
―John P. Amalfe, President, AutoPartSource
3
that meet the unique individual needs
of our customers. Our collective goal is
to ensure total customer satisfaction by
delivering a consistent and superior
customer experience at every touchpoint
and providing new account access,
product choices, and delivery channels
that enable our customers to bank where,
when, and how they choose.
We expect that a superior level of service
will create value and attract new customers.
We remain confident that our strong brand,
consistent strategy, and experienced
leadership team will continue to execute
and drive positive momentum. Our
proven track record of delivering solid
risk-adjusted returns, consistent
profitable growth, and long-term value
to our shareholders allowed us to
manage through these uncertain times,
and we are well positioned to move the
Company forward.
“ Through this crisis, I’ve heard from other small business colleagues
and it’s clear that we’ve been treated exceptionally well compared
to their experiences with other larger national banks. Flushing Bank
has been understanding, flexible, communicative, and helped us
move quickly, securing both bank support to our existing loans and
relief funds via government interventions.”
―Matthew Viragh, Founder/Executive Director, Nitehawk Cinema
As a community bank, we believe it is
important to staff our branches with
dedicated employees who understand
the culture and speak the language of
our communities. We believe we derive
a significant competitive advantage from
our exceptional employees, who speak
over 20 languages and are the face of
our brand and our connection to our
neighborhoods.
In closing, we appreciate the dedication
and commitment of our employees
throughout the challenges of the past
year, and we thank our customers for
their continued trust. As a community-
focused bank, we truly care about our
customers and the communities we
serve. To our valued shareholders, we are
honored to serve you, and we thank you
for your continued trust and support.
Alfred A. DelliBovi
Chairman of the Board
John R. Buran
President and Chief Executive Offi cer
4
Community-based
approach
For more than 90 years, Flushing Bank has been integrally connected to the
communities we serve, supporting their diversity and helping them to thrive. We
offer the products, services, and conveniences associated with larger commercial
banks combined with the highly personalized and relationship-based attention
you would expect from a community bank.
Across Queens, Brooklyn, Manhattan, and Long Island, we’ve distinguished
ourselves as a leader in serving multicultural neighborhoods, and 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.
As you look for new and better ways of banking and brighter financial opportunities,
we invite you to learn more about Flushing Bank, where 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.”
5
Small enough
to know you.
Our size allows us to be nimble, offer choices
to our customers, and customize solutions
specifically for them.
6
We serve a variety of banking needs with our
comprehensive financial solutions. Our banking
professionals are ready to listen, answer questions,
and offer valuable insight to help you decide which
products and services are right for you.
Retail Banking
Our retail branch network focuses on
Real Estate Lending
Our real estate team, composed of
providing a consistent and superior
experienced lenders with local market
customer experience and expanding
knowledge, takes a community-based
relationships with our customers in the
approach that features solutions with
New York metropolitan area. Our online
competitive rates, such as long-term,
banks, iGObanking and BankPurely,
fixed-rate loan programs. Our prudent
strive for the same while serving
lending philosophy enables us to grow
consumers nationwide.
our loan portfolio while maintaining
high credit standards.
Business Banking
Our business team is inspired by our
commitment to local business owners
Government Banking
Our government banking team focuses
and by our certainty that we will
exclusively on serving the unique needs
continue to grow together. We offer
of public entities, municipalities, and
a full suite of products and lending
school districts across the New York
solutions, including credit lines, term
area. We offer expert service, customized
loans, equipment financing, owner-
solutions (including operating and
occupied commercial real estate
investment accounts), traditional collateral
mortgages, SBA loans, deposit
options, letters of credit, and reciprocal
products, and cash management
deposits with full FDIC coverage.
services designed for small, middle
market, and large corporate clients.
7
Large enough
to help you.
We provide a full range of sophisticated services
formerly available only at the largest banks.
8
We have upgraded our digital platforms to provide a
superior experience with online and mobile solutions
that offer the latest technology and provide customers
access to their accounts when and where they need it.
Online and Mobile Banking
Provides on-the-go account management
Remote Deposit
Allows business customers to deposit
from most devices, including the ability
checks into their accounts from their
to pay bills, check balances, view recent
offices using a scanner attached to
transactions, and transfer funds
their computers.
between accounts.
Mobile Check Deposit
Enables customers to securely deposit
Cash Management Services
Provides Cash Manager Direct business
customers online access to view their
checks remotely into their Flushing
account balances and transaction
Bank accounts anywhere, anytime, using
details and initiate transactions.
their iPhone® or Android™ smartphone
Flushing Bank Online Escrow assists
or tablet.
in the digital management of escrow
and subaccount requirements.
9
The perfect size
for you.
We offer timely, innovative, and flexible
solutions to meet the changing needs of
our customers.
10
Our goal is to be a reliable financial partner small
enough to place the customer at the center of
everything we do yet large enough to offer
accessibility to the latest banking conveniences.
Appointment Banking
Offers customers the opportunity to
Universal Banker
Provides a highly skilled banker as a
meet with branch staff safely during
single point of contact for all the
the COVID-19 crisis for more complex
customer’s financial needs, supplemented
transactions, such as account servicing
with cutting-edge technology, including
and access to traditional loans,
state-of-the-art ATMs, creating a stronger
including lines of credit and mortgages.
banking relationship and a superior
banking experience.
Video Banker
Enables face-to-face live banker service
at the touch of a screen through a
video-chat platform. Customers can
Assisted Service
Kiosk (ASK)
Allows customers to choose to self-serve
simply touch “Help” on the ATM screen
for routine transactions. These enhanced
to request assistance, such as
ATMs handle almost any type of
temporarily increasing their debit card
transaction that a teller can do, from
withdrawal limit for an emergency or
cashing a check to providing cash in
other situation.
preferred denominations.
11
In Recognition
When the COVID-19 crisis hit, we did our best to be responsive, lend a helping
hand, and to come through for our customers, small businesses, and community
with personalized support. We offered PPP loans to businesses and facilitated
access to other programs, such as the Federal Home Loan Bank of New York Small
Business Recovery Grant Program and Main Street Lending Program. We aided
customers with digital banking assistance, provided safe, in-person access to
meet with branch staff for more complex transactions, supported the virtual
events of many charitable organizations, collected food for a local food bank,
and arranged for food deliveries to healthcare workers.
While we hope that our actions made a positive difference, we are humbled by
the service of the essential frontline workers and sectors in our communities
that helped to keep all of us safe through this terrible pandemic. They are the
unsung and true heroes, and we owe them our utmost gratitude for their
selfless sacrifices.
The pandemic has taken the lives of people in our community, and we are deeply
saddened by this. We want to recognize and celebrate the lives of those people
and to express our deepest sympathy to their families and friends.
12
2020 FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 2020
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:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
FFIC
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None.
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 every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). X Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer X
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. X Yes No
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, 2020, 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 $307,789,000. 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 $11.52.
The number of shares of the registrant’s Common Stock outstanding as of February 28, 2021 was 30,954,155 shares.
Portions of the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 18, 2021 are
incorporated herein by reference in Part III.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Page
Item 1. Business.
GENERAL
Overview
Market Area and Competition
Lending Activities
Loan Portfolio Composition
Loan Maturity and Repricing
Multi-Family Residential Lending
Commercial Real Estate Lending
One-to-Four Family Mortgage Lending – Mixed-Use Properties
One-to-Four Family Mortgage Lending – Residential Properties
Construction Loans
Small Business Administration Lending
Taxi medallion
Commercial Business and Other Lending
Loan Extensions, Renewals, Modifications and Restructuring
Covid-19 Modifications
Loan Approval Procedures and Authority
Loan Concentrations
Loan Servicing
Asset Quality
Loan Collection
Troubled Debt Restructured
Delinquent Loans and Non-performing Assets
Other Real Estate Owned
Environmental Concerns Relating to Loans
Classified Assets
Allowance for Credit Losses
Investment Activities
General
Mortgage-backed securities
Sources of Funds
General
Deposits
Borrowings
Subsidiary Activities
Human Capital
Omnibus Incentive Plan
REGULATION
The CARES Act
The Dodd - Frank Act
Basel III
Economic Growth, Regulatory Relief, and Consumer Protection Act
New York State Law
FDIC Regulations
Transactions with Affiliates
Community Reinvestment Act
Federal Home Loan Bank System
Holding Company Regulations
Acquisition of the Holding Company
i
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Consumer Financial Protection Bureau
Mortgage Banking and Related Consumer Protection Regulations
Data Privacy
Cybersecurity
Federal Restrictions on Acquisition of the Company
Available Information
Item 1A. Risk Factors
The COVID-19 Pandemic May Significantly Impact Our Financial Condition and Results of Operations
Changes in Interest Rates May Significantly Impact Our Financial Condition and Results of Operations
Our Lending Activities Involve Risks that May Be Exacerbated Depending on the Mix of Loan Types
Failure to Effectively Manage Our Liquidity Could Significantly Impact Our Financial Condition and
Results of Operations
Our Ability to Obtain Brokered Deposits as an Additional Funding Source Could be Limited
The Markets in Which We Operate Are Highly Competitive
Our Results of Operations May Be Adversely Affected by Changes in National and/or Local Economic
Conditions
Changes in Laws and Regulations Could Adversely Affect Our Business
Current Conditions in, and Regulation of, the Banking Industry May Have a Material Adverse Effect on
Our Results of Operations
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 May Experience Increased Delays in Foreclosure Proceedings
Our Inability to Hire or Retain Key Personnel Could Adversely Affect Our Business.
We Are Not Required to Pay Dividends on Our Common Stock.
Uncertainty surrounding the elimination of LIBOR and the proposed transition to SOFR may adversely
affect our business
The Ultimate Success of Integrating Empire into the Company’s operations cannot be assured and the
anticipated benefits and cost savings of the merger may not be fully realized
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Stock Performance Graph
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Overview
Management Strategy
Trends and Contingencies
Interest Rate Sensitivity Analysis
Interest Rate Risk
Analysis of Net Interest Income
Rate/Volume Analysis
Comparison of Operating Results for the Years Ended December(cid:3)31, 20(cid:21)(cid:19) and 201(cid:28)
Comparison of Operating Results for the Years Ended December(cid:3)31, 201(cid:28) and 201(cid:27)
Liquidity, Regulatory Capital and Capital Resources
Critical Accounting Policies
Contractual Obligations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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ii
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits, Financial Statement Schedules
PART IV
(a) 1. Financial Statements
(a) 2. Financial Statement Schedules
(a) 3. Exhibits Required by Securities and Exchange Commission Regulation S-K
73
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SIGNATURES
POWER OF ATTORNEY
iii
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,”, “goals”, “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 Report, the words “we,” “us,” “our” and the “Company” are used to refer to Flushing Financial
Corporation (the “Holding Company”) and its direct and indirect wholly owned subsidiaries, Flushing Bank (the
“Bank”), Flushing Preferred Funding Corporation, Flushing Service Corporation, and FSB Properties Inc.
Item 1. Business.
Overview
GENERAL
The Holding Company is a Delaware corporation organized in 1994. The Bank was organized in 1929 as a New
York State-chartered mutual savings bank. Today the Bank operates as a full-service New York State commercial bank.
Our primary business is the operation of the Bank. The Bank owns three subsidiaries: Flushing Preferred Funding
Corporation, Flushing Service Corporation, and FSB Properties Inc. The Bank also operates an internet branch (the
“Internet Branch”), which operates under the brands of iGObanking.com® and BankPurely®. The activities of the Holding
Company are primarily funded by dividends, if any, received from the Bank, issuances of subordinated debt and junior
subordinated debt, and issuances of equity securities. The Holding Company’s common stock is traded on the NASDAQ
Global Select Market under the symbol “FFIC.”
The Holding Company also owns Flushing Financial Capital Trust II, Flushing Financial Capital Trust III, and
Flushing Financial Capital Trust IV (the “Trusts”), which are special purpose business trusts 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). The
Holding Company 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 the Holding Company. 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 the Company. Management views the Company as operating a single unit – a community bank.
Therefore, segment information is not provided. At December 31, 2020, the Company had total assets of $8.0 billion,
deposits of $6.1 billion and stockholders’ equity of $619.0 million.
1
On October 30, 2020, the Company completed its acquisition of Empire Bancorp, Inc. (“Empire”), in a transaction
valued at $87.5 million upon closing, all outstanding shares of Empire voting and non-voting common stock were
exchanged for consideration consisting of $54.8 million in cash and 2,557,028 shares of Holding Company common stock.
Goodwill of $1.5 million was recorded as a result of the Empire acquisition. Under the terms of the merger agreement,
each share of Empire common stock was exchanged for either 0.6548 shares of the Company’s common stock or $14.04
in cash, based upon the election of each Empire shareholder, subject to the election and proration procedures specified in
the merger agreement (which provided for an aggregate split of total consideration of 50% Company common stock and
50% cash). In connection with the transaction, Empire National Bank (“Empire Bank”), a wholly-owned subsidiary of
Empire, merged with and into the Bank, with the Bank as the surviving entity.
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; (3) Small Business Administration (“SBA”) 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,
2020, we had gross loans outstanding of $6,701.6 million (before the allowance for loan losses and net deferred costs),
with gross mortgage loans totaling $5,228.3 million, or 78.0% of gross loans, and non-mortgage loans totaling $1,473.4
million, or 22.0% of gross loans. Mortgage loans are primarily multi-family, commercial and one-to-four family mixed-
use properties, which represent 73.0% 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,
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”),
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 changes in interest rates as well as national and local economic
conditions, including the strength of the local economy. The outbreak of the COVID-19 pandemic has adversely impacted
a broad range of industries in which the Company’s customers operate and impaired to some extent the ability of some
customers to fulfill their financial obligations to the Company. The spread of the outbreak has caused significant
disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Company
operates.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law in
response to the coronavirus pandemic. This legislation provided relief for individuals and businesses negatively impacted
by the coronavirus pandemic. On December 27, 2020, the 2021 Consolidated Appropriations Act (“CAA”) was signed
into law, providing for, among other things, further suspension of the exception for loan modifications to not be classified
as “troubled debt restructuring” (“TDR”) if certain criteria are met, as described below.
The CARES Act, as amended, includes provisions for the Company to temporarily opt out of applying the TDR
accounting guidance in Accounting Standards Codification (“ASC”) 310-40 for certain loan modifications. Loan
modifications have been eligible for this relief if the related loans were not more than 30 days past due as of December
31, 2019. The Bank adopted this provision and at December 31, 2020, we had 134 active forbearances for loans with an
aggregate outstanding loan balance of approximately $364.4 million.
According to the New York Department of Labor, the unemployment rate for the New York City region increased
to 11.4% at December 2020 from 3.6% at December 2019, primarily resulting from the impact of COVID-19. Non-
performing loans totaled $21.1 million, $13.3 million and $16.3 million at December 31, 2020, 2019 and 2018,
respectively. We had net charge-offs of impaired loans in 2020 totaling $3.6 million compared to net charge-offs of $2.0
million for the year ended December 31, 2019 and net recoveries of $19,000 for the year ended December 31, 2018.
Additionally, primarily as a result of economic deterioration resulting from the impact of COVID-19, our provision for
2
credit losses increased to $23.1 million for the year ended December 31, 2020 from $2.8 million and $0.6 million for the
years ended December 31, 2019 and 2018, respectively.
Our operating results are also affected by extensions, renewals, modifications and restructuring of loans in our
loan portfolio. 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”).
We obtain a reappraisal by an independent third party when a loan becomes twelve months delinquent. We
generally obtain such a reappraisal for loans over 90 days delinquent when the outstanding loan balance is at least $1.0
million. We also obtain such a reappraisal when our internal 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. Such an internal valuation is prepared for a loan over 90 days delinquent.
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, 2020, the Bank operated 25 full-service offices and the Internet Branch. We have offices located in the New York City
Boroughs of Queens, Brooklyn, and Manhattan, and in Nassau and Suffolk County, New York. We also maintain our
executive offices in Uniondale in Nassau County, New York. Substantially the vast majority of 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. 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, 2020, in
these counties was 0.34% of the total deposits of these FDIC insured competing financial institutions, and we are the 22nd
largest financial institution. 1 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 and other business sources. See “Risk Factors – The Markets in Which We Operate Are Highly
Competitive” included in Item 1A of this Annual Report.
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.
1 Includes Empire Bank branches acquired on October 30, 2020, per June 2020 FDIC Summary of Deposits for the New York State Counties of New
York, Kings, Queens, Nassau and Suffolk
3
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. The vast
majority of our mortgage loans are secured by properties located within our market area. At December 31, 2020, we had
gross loans outstanding of $6,701.6 million (before the allowance for loan losses and net deferred costs).
We have focused our loan origination efforts on multi-family residential mortgage loans, commercial real estate
and commercial business loans with full banking relationships. All of these loan types 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 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.
Our loan portfolio consists of adjustable rate (“ARM”) and fixed-rate 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.
The majority of our commercial business loans are generated by the Company’s business banking group which
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, which at times may include 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 commercial business 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.
At times, we may purchase whole or participations in 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.”
4
The following table sets forth the composition of our loan portfolio at the dates indicated:
2020
2019
At December 31,
2018
2017
2016
Amount
Percent
of Total Amount
Percent
of Total Amount
Percent
of Total Amount
Percent
of Total Amount
Percent
of Total
(Dollars in thousands)
Mortgage Loans:
$ 2,533,952
1,754,754
37.81 % $ 2,238,591
1,582,008
26.18
38.88 % $ 2,269,048
1,542,547
27.48
41.00 % $ 2,273,595
1,368,112
27.86
44.08 % $ 2,178,504
1,246,132
26.51
45.21 %
25.86
602,981
245,211
8,051
83,322
5,228,271
9.00
3.66
0.12
1.24
78.01
592,471
188,216
8,663
67,754
4,677,703
10.29
3.27
0.15
1.18
81.25
577,741
190,350
8,498
50,600
4,638,784
10.44
3.44
0.15
0.91
83.80
564,206
180,663
6,895
8,479
4,401,950
10.93
3.50
0.13
0.16
85.31
558,502
185,767
7,418
11,495
4,187,818
11.59
3.85
0.15
0.24
86.90
167,376
2,757
1,303,225
1,473,358
0.25
0.06
18.44
18.75
6,701,629 100.00 % 5,756,935 100.00 % 5,536,296 100.00 % 5,160,236
14,445
3,309
1,061,478
1,079,232
15,210
4,539
877,763
897,512
18,479
6,834
732,973
758,286
2.50
0.04
19.45
21.99
0.27
0.08
15.85
16.20
0.36
0.13
14.20
14.69
15,198
18,996
597,122
631,316
100.00 % 4,819,134
0.32
0.39
12.39
13.10
100.00 %
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
Non-mortgage loans:
Small Business Administration
Taxi medallion
Commercial business and other
Gross non-mortgage loans
Gross loans
Unearned loan fees and deferred
costs, net
Less: Allowance for loan losses
Loans, net
$ 6,659,521
$ 5,750,455
3,045
(45,153)
15,271
(21,751)
15,188
(20,945)
$ 5,530,539
16,763
(20,351)
$ 5,156,648
16,559
(22,229)
$ 4,813,464
(1) One-to-four family residential mortgage loans also include home equity and condominium loans. At December 31, 2020, gross home equity loans
totaled $31.7 million and condominium loans totaled $30.5 million.
(2) Consists of loans secured by shares representing interests in individual co-operative units that are generally owner occupied.
5
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
One-to-four family mixed-use property
One-to-four family residential
Construction
Total mortgage loans purchased
Acquisition of Empire loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Construction
Total mortgage loans acquired
Less:
Principal reductions
Mortgage loan sales
Charge-offs
Loans transferred to OREO
At end of year
Non-mortgage loans
At beginning of year
Loans originated:
Small Business Administration (1)
Commercial business
Other
Total other loans originated
Non-mortgage loans purchased:
Commercial business
Total non-mortgage loans purchased
Acquisition of Empire loans:
Small Business Administration (2)
Commercial business
Other
Total non-mortgage loans acquired
Less:
Non-mortgage loan sales
Principal reductions
Charge-offs
At end of year
For the years ended December 31,
2019
2018
2020
$
4,677,703
$
4,638,784
$
4,401,950
207,101
157,592
35,131
21,805
704
12,059
434,392
5,628
34,260
—
—
9,800
49,688
287,239
81,349
25,151
54,437
12,912
461,088
245,775
178,336
66,128
25,024
2,117
16,153
533,533
1,832
—
—
—
17,766
19,598
—
—
—
—
—
—
275,409
240,755
73,471
41,402
2,448
36,155
669,640
64,323
30,030
685
1,258
3,440
99,736
—
—
—
—
—
—
394,099
498
3
—
5,228,271
$
505,099
8,482
392
239
4,677,703
$
523,064
8,737
103
638
4,638,784
1,079,232
$
897,512
$
758,286
$
$
112,352
254,121
9,960
376,433
143,601
143,601
62,778
161,495
43
224,316
3,426
402,127
1,992
407,545
201,624
201,624
—
—
—
—
3,843
280,704
1,920
286,467
194,948
194,948
—
—
—
—
6,876
339,346
4,002
1,473,358
$
5,213
419,850
2,386
1,079,232
$
$
5,266
336,094
829
897,512
(1) Includes $111.6 million of SBA PPP loans for the year ended 2020.
(2) Includes $55.5 million of SBA PPP loans acquired from Empire.
6
Loan Maturity and Repricing. The following table shows the maturity of our total loan portfolio at December 31,
2020. Scheduled repayments are shown in the maturity category in which the payments become due.
Mortgage loans
Non-mortgage loans
Multi-family Commercial mixed-use
residential real estate property residential apartment Construction Administration Medallion and other Total loans
Small Business
Co-operative
Taxi
Commercial
business
One-to-four
family
One-to-four
family
$
288,649 $ 288,739 $
41,714 $
14,967 $
264 $
59,223 $
106,872 $
2,376 $
441,378 $ 1,244,182
(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
276,977
239,291
218,899
1,510,136
212,809
183,510
170,166
899,530
41,957
41,631
40,090
437,589
15,363
16,006
15,790
183,085
271
282
290
6,944
9,058
8,942
2,375
3,724
36,652
5,453
5,405
12,994
164
170
36
11
836,767
243,516
688,162
192,877
131,908
584,959
293,546 3,347,559
Total due after
one year
Total amounts due
2,245,303
1,466,015
561,267
230,244
$ 2,533,952 $ 1,754,754 $ 602,981 $ 245,211 $
7,787
8,051 $
24,099
83,322 $
60,504
167,376 $
381
861,847 5,457,447
2,757 $ 1,303,225 $ 6,701,629
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
$
441,015 $ 223,688 $ 160,403 $
29,117 $
497 $
— $
46,657 $
381 $
438,835 $ 1,340,593
1,804,288
1,242,327
400,864
201,127
7,290
24,099
13,847
—
423,012 4,116,854
$ 2,245,303 $ 1,466,015 $ 561,267 $ 230,244 $
7,787 $
24,099 $
60,504 $
381 $
861,847 $ 5,457,447
Multi-Family Residential Lending. Loans secured by multi-family residential properties were $2,534.0 million,
or 37.81% of gross loans at December 31, 2020. Our multi-family residential mortgage loans had an average principal
balance of $1.1 million at December 31, 2020, and the largest multi-family residential mortgage loan held in our portfolio
had a principal balance of $33.4 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.”
7
At December 31, 2020, $2,123.0 million, or 83.77%, 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 $173.6 million, $206.2 million and $281.8 million
during 2020, 2019 and 2018, respectively.
At December 31, 2020, $411.4 million, or 16.23%, 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 $39.1 million, $41.4 million and
$57.9 million of fixed-rate multi-family mortgage loans in 2020, 2019 and 2018, respectively.
Commercial Real Estate Lending. Loans secured by commercial real estate were $1,754.8 million, or 26.18% of
gross loans, at December 31, 2020. Our commercial real estate mortgage loans are secured by properties such as office
buildings, hotels/motels, small business facilities, strip shopping centers and warehouses. At December 31, 2020, our
commercial real estate mortgage loans had an average principal balance of $2.2 million and the largest of such loans,
which is secured by a multi-tenant shopping center, had a principal balance of $43.0 million. Commercial real estate
mortgage loans are generally originated in a range of $100,000 to $10.0 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 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, 2020, $1,531.2 million, or 87.26%, 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 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 $134.0 million, $158.0 million and $243.6 million during 2020, 2019 and 2018,
respectively.
At December 31, 2020, $223.5 million, or 12.74%, 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 $57.9 million, $20.3 million and
$27.2 million of fixed-rate commercial mortgage loans in 2020, 2019 and 2018, 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 include a commercial
component. 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. One-to-four family mixed-use property
mortgage loans were $603.0 million, or 9.00% of gross loans, at December 31, 2020.
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.
8
At December 31, 2020, $423.3 million, or 70.20%, 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 $10.0 million, $22.4 million and $34.5 million during 2020, 2019
and 2018, respectively.
At December 31, 2020, $179.7 million, or 29.80%, 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 $25.2 million, $43.8 million and $39.7 million of fixed-rate one-to-four family mixed-use property
mortgage loans in 2020, 2019 and 2018, 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. Residential
mortgage loans were $245.2 million, or 3.66% of gross loans, at December 31, 2020.
We generally originate residential mortgage loans in amounts up to 80% of the appraised value or the sale price,
whichever is less. Private mortgage insurance is required whenever loan-to-value ratios exceed 80% of the appraised value
of the property securing the loan.
At December 31, 2020, $213.3 million, or 86.98%, 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 residential ARM loans totaling $18.3 million, $22.6 million and $40.8
million during 2020, 2019 and 2018, 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, 2020, $31.9 million, or 13.02%, 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 $4.2 million, $2.4 million and $4.3 million
in 15-year fixed-rate residential mortgages in 2020, 2019 and 2018, respectively. We did not originate or purchase any
30-year fixed-rate residential mortgages in 2020, 2019 and 2018.
9
At December 31, 2020, home equity loans totaled $31.7 million, or 0.47%, 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, 2020, construction loans totaled $83.3 million, or 1.24%, of gross loans.
Our construction loans primarily are adjustable rate loans to finance the construction of one-to-four family residential
properties, multi-family residential properties and owner-occupied commercial properties. We also, to a limited extent,
finance the construction of commercial properties. Our policies provide that construction loans may be made in amounts
up to 70% of the 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 $21.9 million, $33.9 million
and $39.6 million during 2020, 2019 and 2018, 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, 2020, SBA loans totaled $167.4 million, representing
2.50%, 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
is $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%.
The CARES Act created within the SBA the “Paycheck Protection Program” (PPP) loan program. Under the PPP,
the SBA guarantees 100% of the amounts loaned by preferred lending banks. These loans are extended to small businesses
with less than 500 employees that were in business prior to February 15, 2020 with balances of $10.0 million or less and
to cover their payroll costs, health care benefits (including paid sick or medical leave, and insurance premiums), mortgage
interest obligations of business, rent obligations, utility payments, interest on other debt obligations with terms ranging up
to two years with no interest payments required for six months from the date of disbursement. We originated and purchased
$112.4 million (including $111.6 million PPP loans), $3.4 million and $3.8 million of SBA loans during 2020, 2019 and
2018, respectively.
Taxi Medallion. At December 31, 2020, taxi medallion loans consisted of loans made primarily to New York City
taxi medallion owners and to a lesser extent Chicago taxi medallion owners, which are secured by liens on the taxi
medallions, totaling $2.8 million, or 0.04%, of gross loans. In 2015, we decided to no longer originate or purchase taxi
medallion loans.
10
Commercial Business and Other Lending. At December 31, 2020, commercial business and other loans totaled
$1,303.2 million, or 19.45%, 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, equipment and real estate and generally require personal guarantees. The Bank also enters into
participations/syndications on senior secured commercial business loans, which are serviced by other banks. Commercial
business loans are generally originated in a range of $100,000 to $10.0 million. 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. 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. We originated and purchased $397.7 million, $603.8 million and
$475.7 million of commercial business loans during 2020, 2019 and 2018, respectively.
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 $10.0 million, $1.9 million and $1.9
million of other loans during 2020, 2019 and 2018, 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 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 troubled debt restructured (“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 commercial 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.
Covid-19 Modifications. Pursuant to the CARES Act, certain loan modifications are not classified as TDRs if
the related loans were not more than 30 days past due as of December 31, 2019. The Company has elected that loans
temporarily modified for borrowers directly impacted by COVID-19 are not considered TDR, assuming the above criteria
is met and as such, these loans are considered current and continue to accrue interest at its original contractual terms.
Deferrals granted under the Cares Act are deemed in accrual status and interest income is accrued until the end of deferral
period even if there are no payments being collected. When the forbearance period is over, borrowers are expected to
resume contractual payments. The determination of whether a loan is past due is based on the modified terms of the
11
agreement. Once the deferral period is over, the borrower will resume making payments and normal delinquency-based
non-accrual policies will apply.
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 President, Senior Executive Vice President Chief of
Real Estate Lending, the Executive Vice President of Residential, Mixed Use & Small Multifamily Lending or Executive
Vice President Real Estate Credit Center (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 $2.0 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 $2.0 million up to and including $5.0 million after obtaining two signatures from authorized
officers and one signature from loan officers with Management Loan Committee approval. One-to-four family mortgage
loan in excess of $5.0 million may require Director’s inspection. 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 or Executive Vice President Credit Center Manager 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 with the two signatures of the officers 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 subsequently 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 Banking Credit Policy, Commercial business and other loans require two
signatures from the Business Loan Committee for approval up to $0.5 million. All commercial business loans and SBA
loans over $0.5 million and up to $2.5 million must be approved by obtaining two signatures from the Business Loan
Committee and ratified by the Management Loan Committee with the exception of SBA Paycheck Protection Program
(“PPP”) loans. SBA PPP loans must be approved by Business Loan Committee regardless of the lending limit and ratified
by Management Loan Committee. Commercial business loans 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 Director’s Loan Committee. However, SBA
PPP loans are exempt from the loan lending limit. Loans in excess of $5.0 million must be submitted to the Director’s
Loan Committee and/ or the Board of Directors for approval.
Our Construction Loan Policy requires construction loans up to and including $2.0 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 $2.0
million up to and including $5.0 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. Loan proposals in excess of $5.0 million
up to and including $25.0 million that are approved by Management Loan Committee will subsequently be submitted to
either the Directors Loan Committee and/or the Board of Directors for their approval. Construction loans in excess of
$25.0 million require the subsequent approval of the Bank Board of Directors. Any loan, regardless of type, that deviates
from our written credit policies must be approved by the Director’s 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 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
12
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 $110.0 million at
December 31, 2020. 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,
2020, 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 commercial business loans with an aggregate principal balance
of $87.8 million, $79.5 million and $65.7 million for each of the three borrowers, respectively.
Loan Servicing. At December 31, 2020, we were servicing $62.0 million of 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 sales of
delinquent loans, which are sold with servicing released to the buyer. On mortgage loans and commercial business 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, 2020 and 2019, we held $778.1 million and $856.9 million, respectively, of loans that were serviced by
others.
Asset Quality
Loan Collection. When a borrower fails to make a required payment on a loan, except for serviced loans as
described above, 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. 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.
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.
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 on non-accrual status unless there is, in our opinion, compelling evidence the borrower will bring the loan current in
the immediate future. At December 31, 2020, there were three loans for $2.7 million, which were 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
13
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.
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 (charge-offs) recoveries
Gross gains
Gross losses
For the years ended December 31,
2020
2019
2018
2
11
12
$
580 $ 13,048 $
—
42
—
(1)
—
756
8,739
68
38
263
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. The CARES Act , as amended, includes provisions for
the Company to temporarily opt out of applying the TDR accounting guidance in ASC 310-40 for certain loan
modifications.
14
The following table shows our recorded investment in loans classified as TDR at amortized cost that are
performing according to their restructured terms at the periods indicated:
(In thousands)
Accrual Status:
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Taxi medallion
Commercial business and other
Total
Non-Accrual Status:
One-to-four family - mixed-use property
Taxi medallion
Commercial business and other
Total
2020
2019
At December 31,
2018
2017
2016
$
1,700 $
7,702
1,459
507
—
1,588
12,956
1,873 $
—
1,481
531
—
—
3,885
1,916 $
—
1,692
552
—
279
4,439
2,518 $
1,986
1,753
572
—
462
7,291
2,572
2,062
1,800
591
9,735
420
17,180
272
440
2,243
2,955
—
1,668
941
2,609
—
3,926
—
3,926
—
5,916
—
5,916
—
—
255
255
Total performing troubled debt restructured
$ 15,911 $
6,494 $
8,365 $ 13,207 $ 17,435
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,
2020, there were 12 loans totaling $2.2 million which were restructured as TDR not performing in accordance with its
restructured terms. At December 31, 2019, there were five loans totaling $1.3 million which were restructured as TDR 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. 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.
15
The following table shows our non-performing assets at the dates indicated. During the years ended December 31,
2020, 2019 and 2018, the amounts of additional interest income that would have been recorded on non-accrual loans, had
they been current, totaled $1.4 million, $1.1 million and $1.0 million, respectively. These amounts were not included in
our interest income for the respective periods.
(Dollars in thousands)
2020 2019
At December 31,
2018
2017
2016
Loans 90 days or more past due and still accruing:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
Total
Non-accrual mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property (1)
One-to-four family residential
Total
Non-accrual non-mortgage loans:
Small Business Administration
Taxi medallion(1)
Commercial business and other (1)
Total
Total non-accrual loans
Total non-performing loans
Other non-performing assets:
Real Estate Owned
Other assets acquired through foreclosure
Total
Total non-performing assets
$
201
2,547
—
2,748
$
$
445
—
—
445
—
—
—
—
$
—
2,424
—
2,424
$
—
—
386
386
2,524
1,683
1,366
5,854
11,427
1,151
2,317
3,430
6,898
18,325
21,073
2,296
367
274
5,139
8,076
1,151
1,641
1,945
4,737
12,813
13,258
2,410
1,379
928
6,144
10,861
1,267
613
3,512
5,392
16,253
16,253
3,598
1,473
1,867
7,808
14,746
46
918
—
964
15,710
18,134
1,837
1,148
4,025
8,241
15,251
1,886
3,825
68
5,779
21,030
21,416
—
35
35
$ 21,108
239
35
274
$ 13,532
—
35
35
$ 16,288
—
—
—
$ 18,134
533
—
533
$ 21,949
Non-performing loans to gross loans
Non-performing assets to total assets
0.31 %
0.26 %
0.23 %
0.19 %
0.29 %
0.24 %
0.35 %
0.29 %
0.44 %
0.36 %
(1) Not included in the above analysis are non-accrual TDR taxi medallion loans that are performing according to their
restructured terms totaling $0.4 million, $1.7 million $3.9 million and $5.9 million for the years ended December 31,
2020, 2019, 2018 and 2017, respectively. Not included in the above analysis are non-accrual TDR One-to-four family
mixed-use property totaling $0.3 million for the year ended December 31, 2020 and commercial business loans that
are performing according to their restructured terms totaling $2.2 million, $0.9 million and $0.3 million, respectively,
for the years ended December 31, 2020, 2019 and 2016, respectively.
16
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, 2020 December 31, 2019
30 - 59
30 - 59
60 - 89
60 - 89
Multi-family residential
Commercial real estate
One-to-(cid:73)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:68)(cid:80)(cid:76)(cid:79)(cid:92)(cid:3)(cid:650)(cid:3)(cid:80)(cid:76)(cid:91)(cid:72)(cid:71)-use property
One-to-(cid:73)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:68)(cid:80)(cid:76)(cid:79)(cid:92)(cid:3)(cid:650)(cid:3)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)
Construction
Small Business Administration
Commercial business and other
Total
days
days
days
days
(In thousands)
$ 7,582 $ 3,186 $ 1,563 $ 4,042
—
1,117
720
—
—
2,340
$ 36,947 $ 11,519 $ 8,027 $ 8,219
17,903
5,673
3,087
750
1,823
129
5,123
1,132
805
—
—
1,273
4,941
496
1,022
—
—
5
Other Real Estate Owned. We aggressively market our Other Real Estate Owned (“OREO”) properties. At
December 31, 2020 and 2018 , we held no OREO. At December 31, 2019, we owned one OREO for $0.2 million.
We may obtain physical possession of residential real estate collateralizing a consumer mortgage loan via
foreclosure through an in-substance repossession. During the year ended December 31, 2020, we did not foreclose any
real estate property. During the year ended December 31, 2019, we foreclosed on one real estate loan totaling $0.2 million.
Included within net loans as of December 31, 2020 and 2019, was a recorded investment of $5.9 million and $6.6 million,
respectively, 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. If a loan does not fall within one of the previous mentioned categories and management
believes weakness is evident then we designate the loan as “Watch”, all other loans would be considered “Pass”. 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. Loans that are in forbearance pursuant to the CARES Act, and continue to perform according to the terms
of the forbearance agreement, are generally reported in the same category as they were reported immediately prior to
modification. Our Criticized and Classified Assets totaled $71.9 million at December 31, 2020, an increase of $33.7
million from $38.0 million at December 31, 2019.
17
The following table sets forth the Bank’s Criticized and Classified assets at December 31, 2020:
(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
Co-operative apartments
Construction
Small Business Administration (1)
Taxi medallion
Commercial business and other
4,367 $
6,473
2,523
1,673
48
3,336
50
—
3,363
Total
$
21,833 $
2,778 $
12,015
2,324
5,702
—
—
1,174
2,597
22,224
48,814 $
— $
—
—
—
—
—
—
—
1,273
1,273 $
7,145
— $
18,488
—
4,847
—
7,375
—
48
—
3,336
—
1,224
—
2,597
—
—
26,860
— $ 71,920
The following table sets forth the Bank’s Criticized and Classified assets at December 31, 2019:
(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
Small Business Administration (1)
Taxi medallion
Commercial business and other
$
1,563 $
5,525
1,585
1,095
55
—
3,924
Total
$
13,747 $
(1) Balance reported net of SBA Guaranteed portion.
2,743 $
367
453
5,787
85
3,309
11,289
24,033 $
— $
—
—
—
—
—
266
266 $
— $
4,306
—
5,892
—
2,038
—
6,882
—
140
—
3,309
15,479
—
— $ 38,046
Allowance for Credit Losses
The Allowance for credit losses (“ACL”) is an estimate that is deducted from the amortized cost basis of the
financial asset to present the net carrying value at the amount expected to be collected on the financial assets. Loans are
charged off against that ACL when management believes that a loan balance is uncollectable based on quarterly analysis
of credit risk.
As of January 1, 2020, the Company adopted Topic 326, see Note 22 related to the adoption of Topic 326. The
amount of the ACL is based upon a loss rate model that considers multiple factors which reflects management’s assessment
of the credit quality of the loan portfolio. Management estimates the allowance balance using relevant information, from
internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The
factors are both quantitative and qualitative in nature including, but not limited to, historical losses, economic conditions,
trends in delinquencies, value and adequacy of underlying collateral, volume and portfolio mix, and internal loan
processes.
The quantitative allowance is calculated using a number of inputs and assumptions. The process and guidelines
were developed using, among other factors, the guidance from federal banking regulatory agencies and GAAP. The results
of this process, support management’s assessment as to the adequacy of the ACL at each balance sheet date.
18
The process for calculating the allowance for credit losses begins with our historical losses by portfolio segment.
The losses are then incorporated into reasonable and supportable forecast to develop the quantitative component of the
allowance for credit losses.
Upon adoption of CECL, the allowance for credit losses (“ACL”) increased by $1.3 million that included an
increase of $0.6 million to the allowance for off-balance sheet credit losses, $0.4 million to the allowance for loan losses
and $0.3 million to the allowance for HTM securities losses.
When calculating the ACL estimate for December 31, 2020, Management acknowledged deteriorated economic
conditions as a result of the COVID-19 pandemic were captured in the forecast within the model platform. As such, when
determining the reasonable and supportable forecast, Management adjusted the period to reflect a forecast of four quarters,
to align with a previously established framework for contraction periods. Similarly, the reversion period was adjusted to
four quarters. Management believed these adjustments are necessary as the forecast has suggested more stability than at
the beginning of the COVID-19 pandemic. This resulted in the ACL for loans totaling $45.2 million at December 31,
2020.
Non-performing loans totaled $21.1 million and $13.3 million at December 31, 2020 and 2019, 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, 2020, the outstanding principal balance of our non-performing loans was 41.5% of the
estimated current value of the supporting collateral, after considering the charge-offs that have been recorded. We incurred
total net charge-offs of $3.6 million and $2.0 million during the years ended December 31, 2020 and 2019, respectively.
For the year ended December 31, 2020, we recorded a provision for loan losses totaling $22.6 million, which included
$1.8 million at the time of merger from non-purchased credit deteriorated Empire loans. The Company recorded a
provision for loan losses totaling $2.8 million and $0.6 million for the years ended December 31, 2019 and 2018,
respectively. The increase in the provision for loan losses recorded in the year ended December 31, 2020, was primarily
due to the effect of the COVID-19 pandemic on the economic forecast used in our CECL model. Management has
concluded, and the Board of Directors has concurred, that at December 31, 2020, the allowance was sufficient to absorb
losses inherent in our loan portfolio. The allowance for loan losses represented 0.67% and 0.38% of gross loans outstanding
at December 31, 2020 and 2019. The allowance for loan losses represented 214.3% of non-performing loans at
December 31, 2020 compared to 164.1% at December 31, 2019.
At December 31, 2020, we had one active forbearance for held-to-maturity securities with an outstanding balance
of $21.0 million. During the time this security is in forbearance, it is considered current and as such, continues to accrue
interest at its original contractual terms. This resulted in the ACL for held-to-maturity securities totaling $0.9 million at
December 31, 2020.
19
The following table sets forth changes in, and the balance of, our Allowance for credit losses.
(Dollars in thousands)
Balance at beginning of period
Loans- CECL Adoption
Loans- Allowance recorded at the time of Acquisition
Loans- Charge-off
Loans- Recovery
Loans- Provision
Allowance for loan losses
Balance at beginning of period
HTM Securities- CECL Adoption
HTM Securities- Provision
Allowance for HTM Securities losses
Balance at beginning of period
Off-Balance Sheet - CECL Adoption
Off-Balance Sheet- Provision
Allowance for Off-Balance Sheet losses
Allowance for Credit Losses
$
$
$
$
$
$
$
For the year ended December 31,
2020
21,751
379
4,099
(4,005)
366
22,563
45,153
—
340
567
907
—
553
1,262
1,815
47,875
20
The following table sets forth changes in, and the balance of, our Allowance for loan losses.
(Dollars in thousands)
2020
2019
2018
2017
2016
At and for the years ended December 31,
Balance at beginning of year
Allowance recorded at the time of Acquisition
CECL Adoption
Provision for loan losses
$ 21,751
4,099
379
22,563
$ 20,945
—
—
2,811
$ 20,351
—
—
575
$ 22,229 $ 21,535
—
—
—
—
—
9,861
Loans charged-off:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
SBA
Taxi medallion
Commercial business and other loans
Total loans charged-off
Recoveries:
Mortgage loans
SBA, commercial business and other loans
Taxi medallion
Total recoveries
—
—
(3)
—
(178)
(1,075)
(2,749)
(4,005)
(190)
—
(89)
(113)
—
—
(2,386)
(2,778)
188
178
—
366
291
348
134
773
(99)
—
(3)
(1)
(392)
(393)
(44)
(932)
711
97
143
951
(454)
(4)
(39)
(415)
(212)
(11,283)
(65)
(12,472)
(161)
—
(144)
(114)
(529)
(142)
(69)
(1,159)
595
138
—
733
1,493
360
—
1,853
Net (charge-offs) recoveries
Balance at end of year
(3,639)
$ 45,153
(2,005)
$ 21,751
19
$ 20,945
(11,739)
694
$ 20,351 $ 22,229
Ratio of net charge-offs (recoveries) 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 non-performing
loans at the end of the year
Ratio of allowance for loan losses to non-performing
assets at the end of the year
0.06 %
0.04 %
— %
0.24 %
(0.02) %
0.67 %
0.38 %
0.38 %
0.39 %
0.46 %
214.27 % 164.05 % 128.87 % 112.23 % 103.80 %
213.91 % 160.73 % 128.60 % 112.23 % 101.28 %
21
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.
2020
2019
At December 31,
2018
2017
2016
Percent
Percent
of Loans in
Category to
Amount Total loans Amount Total loans Amount Total loans Amount Total loans Amount Total loans
(Dollars in thousands)
Percent
of Loans in
Category to
Percent
of Loans in
Category to
of Loans in
Category to
of Loans in
Category to
Percent
$ 6,557
8,327
37.81 % $ 5,391
4,429
26.18
38.88 % $ 5,676
4,315
27.48
41.00 % $ 5,823
4,643
27.86
44.08 % $ 5,923
4,487
26.51
45.21 %
25.86
1,986
869
—
497
18,236
9.00
3.66
0.12
1.24
78.01
1,817
756
—
441
12,834
10.29
3.27
0.15
1.18
81.25
1,867
749
—
329
12,936
10.44
3.44
0.15
0.91
83.80
2,545
1,082
—
68
14,161
10.93
3.50
0.13
0.16
85.31
2,903
1,015
—
92
14,420
11.59
3.85
0.15
0.24
86.90
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
Gross mortgage loans
Non-mortgage loans:
Small Business Administration
Taxi medallion
Commercial business and other
Gross non-mortgage loans
2,251
—
24,666
26,917
2.50
0.04
19.45
21.99
363
—
8,554
8,917
0.25
0.06
18.44
18.75
418
—
7,591
8,009
0.27
0.08
15.85
16.20
669
—
5,521
6,190
0.36
0.13
14.20
14.69
481
2,243
4,492
7,216
0.32
0.39
12.39
13.10
Unallocated
Total loans
—
$ 45,153
—
—
100.00 % $ 21,751
—
—
100.00 % $ 20,945
—
—
100.00 % $ 20,351
—
593
100.00 % $ 22,229
—
100.00 %
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, 2020 and 2019.
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.
22
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, totaling $14.5 million at December 31, 2020. 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, are excluded from earnings and included in accumulated other comprehensive
loss, net of taxes. Securities held-to-maturity are carried at their amortized cost basis. At December 31, 2020, we had
$648.0 million in securities available for sale and $57.8 million in securities held-to-maturity, which together represented
8.85% of total assets. These securities had an aggregate market value at December 31, 2020 that was approximately 1.1
times the amount of our equity at that date.
Upon adoption of ASC Topic 326, “Credit Losses” on January 1, 2020, see Note 22, we recorded a transition
adjustment of $0.3 million in the allowance for credit losses for held-to-maturity debt securities.
The Company’s estimate of expected credit losses for held-to-maturity debt securities is based on historical
information, current conditions and a reasonable and supportable forecast. The Company’s portfolio is made up of three
securities, one which is structured similar to a commercial owner occupied loan, which is modeled for credit losses similar
to commercial business loans secured by real estate, one that currently has an active forbearance with a specific reserve of
$0.6 million and one security is issued and guaranteed by Fannie Mae, which is a government sponsored enterprise that
has a credit rating and perceived credit risk comparable to the U.S. government and therefore the Company assumes a zero
loss expectation.
23
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.
2020
At December 31,
2019
2018
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(In thousands)
Securities held-to-maturity
Bonds and other debt securities:
Municipal securities (1)
Total bonds and other debt securities
Mortgage-backed securities:
FNMA
Total mortgage-backed securities
$ 50,825 $ 54,538 $ 50,954 $ 53,998 $ 24,065 $ 22,508
22,508
50,954
24,065
53,998
50,825
54,538
7,914
7,914
8,991
8,991
7,934
7,934
8,114
8,114
7,953
7,953
7,366
7,366
Total securities held-to-maturity
58,739
63,529
58,888
62,112
32,018
29,874
Securities available for sale
Bonds and other debt securities:
U.S. government agencies
Municipal securities
Corporate debentures
Collateralized loan obligations
Total bonds and other debt securities
6,452
—
130,000
100,561
237,013
6,453
—
123,865
99,198
229,516
—
12,797
130,000
100,349
243,146
—
12,916
123,050
99,137
235,103
—
46,231
130,000
88,396
264,627
—
46,574
118,535
86,751
251,860
Mutual funds
12,703
12,703
12,216
12,216
11,586
11,586
Equity securities:
Common stock
Total equity securities
Mortgage-backed securities:
REMIC and CMO
GNMA
FNMA
FHLMC
Total mortgage-backed securities
1,295
1,295
1,295
1,295
1,332
1,332
1,332
1,332
1,256
1,256
1,256
1,256
175,142
13,009
143,154
63,796
395,101
180,877
13,053
146,169
64,361
404,460
348,236
653
104,235
68,476
521,600
348,989
704
104,882
69,274
523,849
382,632
785
94,069
90,377
567,863
376,340
826
91,693
89,094
557,953
Total securities available for sale
646,112
647,974
778,294
772,500
845,332
822,655
Interest-earning deposits and Federal
funds sold
Total
133,683
105,761
$ 838,534 $ 845,186 $ 873,693 $ 871,123 $ 983,111 $ 958,290
105,761
133,683
36,511
36,511
(1) Does not include allowance for credit losses totaling $0.9 million for the year ended December 31, 2020.
24
Mortgage-backed securities. At December 31, 2020, we had available for sale and held-to-maturity mortgage-
backed securities with a market value totaling $413.5 million, of which $16.2 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.
The following table sets forth our available for sale mortgage-backed securities purchases, sales and principal
repayments for the years indicated:
For the years ended December 31,
2018
2019
2020
(In thousands)
Balance at beginning of year
$ 523,849 $ 557,953 $ 509,650
Purchases of mortgage-backed securities
308,078
128,001
196,405
Amortization of unearned premium, net of accretion of unearned discount
(4,100)
(3,145)
(1,419)
Net change in unrealized gains (losses) on mortgage-backed securities
available for sale
7,111
12,159
(5,575)
Net realized gains (losses) recorded on mortgage-backed securities carried at
fair value
23
2
(89)
Sales of mortgage-backed securities
(220,971)
(26,448)
(67,047)
Principal repayments received on mortgage-backed securities
(209,530)
(144,673)
(73,972)
Net increase (decrease) in mortgage-backed securities
(119,389)
(34,104)
48,303
Balance at end of year
$ 404,460 $ 523,849 $ 557,953
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.
25
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,
2020. 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
Weighted
Weighted
Weighted
Average
Weighted Remaining
Amortized Average Amortized Average Amortized Average Amortized Average
Cost
Cost
Yield
Yield
Yield
Yield
Cost
Cost
Years to Amortized
Maturity Cost
Fair
Value
Weighted
Average
Yield
(Dollars in thousands)
$
—
— % $
—
— % $
—
— % $ 50,825
3.28 %
24.73 $ 50,825 $ 54,538
3.28 %
—
—
—
—
—
—
50,825
3.28
24.73
50,825
54,538
3.28
—
—
—
—
—
—
—
—
—
—
—
—
7,914
7,914
3.30
3.30
12.34
12.34
7,914
7,914
8,991
8,991
3.30
3.30
—
—
—
—
—
—
—
—
45,000
—
—
1.09
—
—
85,000
53,731
—
0.83
1.94
6,452
—
46,830
1.75
—
1.90
21.94
5.90
9.67
6,452
130,000
100,561
6,453
123,865
99,198
1.75
0.92
1.92
—
45,000
1.09
138,731
1.26
53,282
1.88
7.94
237,013
229,516
1.37
12,703
1.77
—
—
—
—
—
—
—
12,703
12,703
1.77
—
—
—
—
—
—
—
—
—
—
—
—
1,295
1,295
2.35
2.35
—
—
1,295
1,295
1,295
1,295
2.35
2.35
—
—
8,602
—
8,602
—
—
3.85
—
3.85
—
—
12,868
—
12,868
—
—
2.94
—
2.94
—
217
—
—
217
—
7.30
—
—
7.30
175,142
12,792
121,684
63,796
373,414
2.37
2.20
2.55
2.45
2.44
30.13
28.66
19.92
26.06
25.73
175,142
13,009
143,154
63,796
395,101
180,877
13,053
146,169
64,361
404,460
Securities held-to-maturity
Bonds and other debt securities:
Municipal securities (1)
Total bonds and other debt
securities
Mortgage-backed securities:
FNMA
Total mortgage-backed securities
Securities available for sale
Bonds and other debt securities:
US govt. and agencies
Corporate debentures
CLO
Total bonds and other debt
securities
Mutual funds
Equity securities:
Common stock
Total equity securities
Mortgage-backed securities:
REMIC and CMO
GNMA
FNMA
FHLMC
Total mortgage-backed securities
Interest-earning deposits
Total
133,683
$ 154,988
0.08
—
0.43 % $ 57,868
—
—
1.50 % $ 138,948
—
—
1.27 % $ 486,730
—
2.48 %
(1)
Does not include allowance for credit losses totaling $0.9 million.
Sources of Funds
—
133,683
19.01 $ 838,534 $ 845,186
133,683
2.37
2.28
2.67
2.45
2.49
0.08
1.85 %
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 25 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 operate the Internet Branch and a government banking unit. The Internet
Branch 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. At December 31, 2020
and 2019, total deposits at our Internet Branch were $221.7 million and $314.0 million, respectively. The government
banking unit provides 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. At December 31, 2020 and
2019, total deposits in our government banking unit totaled $1,615.4 million and $1,265.1 million, respectively.
26
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 2020 of $1.1 billion, primarily
due to deposits acquired in the merger with Empire. During the year ended December 31, 2020, the cost of our interest-
bearing due to depositors’ accounts decreased 100 basis points to 0.94% from 1.94% for the year ended December 31,
2019. The decrease in the cost of deposits was primarily due to the Company’s quick response to the Federal Reserve
lowering rates. While we are unable to predict the direction of future interest rate changes, if interest rates would rise
during 2021, 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 2021, 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 $693.0 million, $807.1 million and $862.4 million
at December 31, 2020, 2019 and 2018, respectively.
We utilize brokered deposits as an additional funding source and to assist in the management of our interest rate
risk. At December 31, 2020 and 2019, we had $1,074.1 million and $388.8 million, respectively, classified as brokered
deposits. 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 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. At times, we also utilized brokers to obtain money market
deposits. The rate we pay on brokered money market accounts is similar to 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, demand 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 ICS money market and demand accounts which does not require us to provide collateral. This
allows us to invest our funds in higher yielding assets. At December 31, 2020 and 2019, the Bank held ICS deposits totaling
$1,338.1 million and $949.8 million, respectively, of which $720.1 million and $145.0 million, respectively, were
classified as brokered deposits.
27
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.
2020
Percent
of Total
Deposits
Amount
Weighted
Average
Nominal
At December 31,
2019
Weighted
Percent
of Total
Deposits
(Dollars in thousands)
Average
Nominal
2018
Percent
of Total
Deposits
Weighted
Average
Nominal
Rate
Rate
Amount
Rate
Amount
Savings accounts
NOW accounts (1)
Demand accounts (2)
Mortgagors' escrow deposits
Total
$ 168,183
2,323,172
778,672
45,622
3,315,649
2.74 %
37.86
12.69
0.74
54.03
0.18 % $
0.28
0.00
0.02
0.21
191,485
1,365,591
435,072
44,375
2,036,523
3.78 %
26.95
8.59
0.88
40.20
0.67 % $
1.47
210,022
1,300,852
—
0.28
1.05
413,747
44,861
1,969,482
4.23 %
26.22
8.34
0.90
39.70
0.72 %
1.53
—
0.23
1.10
Money market accounts (3)
1,682,345
27.42
0.50
1,592,011
31.42
1.87
1,427,992
28.79
1.93
Certificate of deposit accounts with
original maturities of:
Less than 6 Months (4)
6 to less than 12 Months (5)
12 to less than 30 Months (6)
30 to less than 48 Months (7)
48 to less than 72 Months (8)
72 Months or more (9)
Total certificate of deposit
accounts
113,537
349,621
523,815
37,250
84,970
29,168
1.85
5.70
8.54
0.61
1.38
0.46
0.05
0.48
1.01
2.44
2.51
3.17
140,939
257,408
779,964
117,028
113,622
28,929
2.78
5.08
15.39
2.31
2.24
0.57
1.86
1.85
2.36
2.24
2.27
3.13
67,472
72,928
1,003,206
126,041
264,237
29,426
1.36
1.47
20.22
2.54
5.33
0.59
2.05
2.25
2.07
2.16
2.08
3.07
1,138,361
18.55
0.97
1,437,890
28.38
2.22
1,563,310
31.51
2.10
Total deposits (10)
$ 6,136,355
100.00 %
0.43 % $ 5,066,424
100.00 %
1.64 % $ 4,960,784
100.00 %
1.65 %
(1)
(2)
(3)
(4)
(5)
Includes brokered deposits of $720.1 million at December 31, 2020.
Includes brokered deposits of $2.1 million and $145.0 million at December 31, 2020 and 2019. There were no brokered deposits in this category
at December 31, 2018.
Includes brokered deposits of $102.9 million in this category at December 31, 2020. There were no brokered deposits in this category at December
31, 2019 and 2018.
Includes brokered deposits of $116.5 million, $138.3 million and $65.6 million at December 31, 2020, 2019 and 2018, respectively.
Includes brokered deposits of $20.0 million at December 31, 2020. There were no brokered deposits in this category at December 31, 2019 and
2018.
Includes brokered deposits of $77.8 million, $31.1 million and $116.9 million at December 31, 2020, 2019 and 2018, respectively.
Includes brokered deposits of $25.4 million, $49.7 million and $54.4 million at December 31, 2020, 2019 and 2018, respectively.
Includes brokered deposits of $9.3 million, $24.6 million and $64.7 million at December 31, 2020, 2019 and 2018, respectively.
Includes brokered deposits of $0.1 million in December 31, 2018.
(6)
(7)
(8)
(9)
(10) Include in the above balances are IRA and Keogh deposits totaling $59.6 million, $68.8 million and $68.5 million at December 31, 2020, 2019 and
2018, respectively.
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 the periods indicated:
At December 31,
2019
2020
At December 31, 2020
One to
Within
One Year Three Years Thereafter
2018
(In thousands)
Interest rate:
1.99% or less(1)
2.00% to 2.99%(2)
3.00% to 3.99%
Total
$ 949,274 $ 530,707 $ 535,127 $ 801,161 $ 137,479 $ 10,634
5,407
1,872
$ 1,138,361 $ 1,437,890 $ 1,563,310 $ 923,235 $ 197,213 $ 17,913
847,804
59,379
131,239
57,848
971,812
56,371
32,453
27,281
93,379
28,695
(1)
(2)
Includes brokered deposits of $213.6 million, $153.7 million and $76.8 million at December 31, 2020, 2019 and 2018, respectively.
Includes brokered deposits of $35.4 million, $90.0 million and $224.9 million at December 31, 2020, 2019 and 2018, respectively.
28
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, 2020 and their annualized weighted average interest rates.
Maturity Period:
Three months or less
Over three through six months
Over six through 12 months
Over 12 months
Total
Weighted
Amount Average Rate
(Dollars in thousands)
$ 311,693
119,962
162,250
99,047
$ 692,952
0.92 %
0.72
0.98
1.57
0.99 %
The above table does not include brokered deposits issued in $1,000 amounts under a master certificate of deposit
totaling $162.5 million with a weighted average rate of 0.64%.
The following table presents the deposit activity, including mortgagors’ escrow deposits, for the periods indicated.
For the year ended December 31,
2018
2020
2019
(In thousands)
Net deposits
Acquired in Empire acquisition
Amortization of premiums, net
Interest on deposits
Net increase in deposits
$ 342,126 $ 17,322 $ 512,558
—
451
64,497
$ 1,069,931 $ 105,640 $ 577,506
—
261
88,057
685,393
100
42,312
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.
2020
Percent
of Total Average
Deposits Cost
Average
Balance
At December 31,
2019
Percent
of Total Average
Deposits Cost
Average
Balance
2018
Percent
of Total Average
Deposits Cost
Average
Balance
Savings accounts
NOW accounts
Demand accounts
Mortgagors' escrow deposits
Total
$ 176,443
1,603,402
583,235
70,829
2,433,909
2.74 %
37.86
12.69
0.74
54.03
0.28 % $
0.58
—
0.06
0.40
198,374
1,434,440
407,450
70,209
2,110,473
3.96 %
28.61
8.13
1.40
42.10
0.69 % $
1.64
—
0.33
1.19
233,392
1,407,945
380,889
66,255
2,088,481
4.93 %
29.73
8.04
1.40
44.10
0.59 %
1.13
—
0.32
0.84
(Dollars in thousands)
Money market accounts
1,561,496
27.42
0.92
1,370,038
27.33
2.03
1,164,505
24.59
1.61
Certificate of deposit accounts
Total deposits
1,167,865
$ 5,163,270
18.55
100.00 %
1.55
1,532,440
0.82 % $ 5,012,951
30.57
100.00 %
2.29
1,483,026
1.76 % $ 4,736,012
31.31
100.00 %
1.91
1.36 %
29
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 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 2007. These junior subordinated debentures are carried at fair value in the Consolidated Statement of Financial
Condition. In 2016, the 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 Company uses interest rate swaps on borrowings to help mitigate the impact interest rate increases have on
our cost of funds. At December 31, 2020 and 2019, the Company had forward interest rate swaps on borrowings totaling
$1,021.5 million and $541.5 million, respectively. For the year ended December 31, 2020 and 2019, the interest rate swaps
on borrowings had an average cost of 2.05% and 2.21%, respectively.
The average cost of borrowings was 1.97%, 2.31% and 2.16% for the years ended December 31, 2020, 2019 and
2018, respectively. The average balances of borrowings were $1,361.6 million, $1,251.5 million and $1,162.4 million for
the same years, respectively.
The following table sets forth certain information regarding our borrowings at or for the periods ended on the
dates indicated.
At or for the years ended December 31,
2019
(Dollars in thousands)
2020
2018
FHLB-NY Advances
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
$ 1,147,364
1,498,059
797,201
$ 1,133,025
1,334,304
1,118,528
$ 1,046,504
1,137,318
1,134,994
1.87 %
0.56
2.06 %
1.85
1.77 %
2.09
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
$ 214,195
419,715
223,694
$ 118,427
152,224
118,703
$ 115,925
115,849
115,849
6.18 %
2.78
4.74 %
5.06
5.66 %
5.59
Total 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
$ 1,361,559
1,617,582
1,020,895
$ 1,251,452
1,452,490
1,237,231
$ 1,162,429
1,250,843
1,250,843
1.97 %
1.05
2.31 %
2.16
2.16 %
2.41
30
Subsidiary Activities
At December 31, 2020, the Holding Company had four wholly owned subsidiaries: the Bank and the Trusts. In
addition, the Bank had three wholly owned subsidiaries: FSB Properties Inc., Flushing Preferred Funding Corporation
(“FPFC”), and Flushing Service Corporation.
(cid:120) FSB Properties Inc., which is incorporated in the State of New York, was formed in 1976 with the original
purpose of engaging in joint venture real estate equity investments. These activities were discontinued in
1986 and no joint venture property remains. FSB Properties Inc. is currently used solely to hold title to real
estate owned that is obtained via foreclosure.
(cid:120) Flushing Preferred Funding Corporation, 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. It also is available as an additional vehicle for access by the Company to the capital markets for future
opportunities.
(cid:120) Flushing Service Corporation, which is incorporated in the State of New York, was formed in 1998 to market
insurance products and mutual funds.
Human Capital
At December 31, 2020, we had 510 full-time employees and 20 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, the Holding Company only employs certain officers of the Bank. These employees do not
receive any extra compensation as officers of the Holding Company.
Oversight & Governance. Our Board of Directors and Board committees provide oversight on certain human capital
matters, including our Inclusion and Diversity program and initiatives. The Board of Directors is responsible for discussing
evaluating and reviewing regular updates from management with regard to human capital matters. Our Board of Directors
is comprised of diverse cultures ethnicity, and gender.
Learning and Development. The Company believes that it must find, develop and retain its employees. The Company
invests in its employees by providing quality training and learning opportunities, promoting inclusion and diversity and
upholding a high standard of ethics and respect for human rights.
Diversity, Equity & Inclusion. The Company is responsible for creating an equitable workplace ensuring diversity at the
management and board levels. We pride ourselves on establishing a diverse workforce that serves our diverse customer
base in the New York City metro area. At December 31, 2020, our employees were able to speak more than 20 different
languages.
31
Total Rewards. The Company believes that our future success largely depends upon our continued ability to attract and
retain highly skilled employees. We provide our employees with a rich total rewards program which includes:
•
•
•
•
•
•
•
•
•
•
Competitive base salaries;
Incentive bonus opportunities;
Equity ownership;
401(k) plan;
Healthcare and other insurance programs,
Health savings and flexible spending accounts
Paid time off;
Family leave;
Employee assistance program and,
Tuition assistance.
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. 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. On May 31, 2017, stockholders approved an
amendment to the 2014 Omnibus Plan (the “Amendment”) authorizing an additional 672,000 shares available for future
issuance. In addition, to increasing the number of shares for future grants, the Amendment eliminated, in the case of stock
options and SARs, the ability to recycle shares used to satisfy the exercise price or taxes for such awards. No other
amendments to the 2014 Omnibus Plan were made. Including the additional shares authorized from the Amendment,
324,738 shares are available for future issuance under the 2014 Omnibus Plan at December 31, 2020.
For additional information concerning this plan, see “Note 12 of Notes to Consolidated Financial Statements” in
Item 8 of this Annual Report.
32
General
REGULATION
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 to a lesser extent 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. While the
regulatory environment has entered a period of rebalancing of the post financial crisis framework, we expect that our
business will remain subject to extensive regulation and supervision.
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 CARES Act
On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief and Economic
Security Act (the “CARES Act”) in response to the coronavirus pandemic. This legislation aims at providing relief for
individuals and businesses that have been negatively impacted by the coronavirus pandemic. On December 27, 2020, the
CAA was signed into law, providing for, among other things, further suspension of the exception for loan modifications
to not be classified as TDR if certain criteria are met, as described below. The CARES Act includes a provision for the
Company to opt out of applying the TDR accounting guidance in Accounting Standards Codification (“ASC”) 310-40 for
certain loan modifications. Loan modifications made between March 1, 2020 and the earlier of i) December 31, 2020 or
ii) 60 days after the President declares a termination of the COVID-19 national emergency are eligible for this relief if the
related loans were not more than 30 days past due as of December 31, 2019. The CARES Act includes the Paycheck
Protection Program (“PPP”), a program to aid small and medium- sized businesses through federally guaranteed loans
distributed through banks. These loans are intended to guarantee eight weeks of payroll and other costs to help those
businesses remain viable and allow their workers to pay their bills.
Impact of COVID-19
Overview
In March 2020, the World Health Organization recognized the outbreak of the novel Coronavirus Disease 2019
(“COVID-19”) as a pandemic. The Spread of COVID-19 has created a global public health crisis that has resulted in
unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer
activity in the United States and globally, including the markets we serve. In response to the pandemic, the government
placed orders for shelter in place, maintaining social distancing and closed businesses that are not deemed essential.
33
During these tumultuous times, we are actively assisting our customers by providing short-term forbearances in
the form of deferrals of interest, principal and/or escrow for terms ranging from one to twelve months. At December 31,
2020, we had 134 active forbearances for loans with an aggregate outstanding loan balance of approximately $364.4
million resulting in total deferment of $23.6 million in principal, interest and escrow. Given the pandemic and current
economic environment, we continue to work with our customers to modify loans. We actively participated in the PPP,
closing $111.6 million of these loans through December 31, 2020. We are one of nine banks in the State of New York
participating in the Main Street Lending Program. We are also a proud participant in the FHLBNY Small Business
Recovery Grant Program, helping our customers and communities navigate through the current environment.
Impact on Our Financial Statements and Results of operations
Financial institutions are dependent upon the ability of their loan customers to meet their loan obligations and the
availability of their workforce and vendors. Early in the second quarter of 2020, shelter-at-home mandates and other
remediation from the COVID-19 pandemic were enacted. The pandemic and these remediation measures have directly
impacted the communities we serve, where commercial activity decreased significantly. As of December 31, 2020, that
commercial activity had improved but not returned to pre-pandemic levels. This continuing impact on commercial activity
may have continuing adverse results, including on our customers’ ability to meet their obligations to us.
In addition, the economic pressures and uncertainties related to the COVID-19 pandemic have resulted in changes
in consumer spending behaviors in the communities we serve, which may negatively impact the demand for loans and
other services we offer. However, the Company’s capital and financial resources have not been materially impacted by the
pandemic, as our results of operations depend primarily on net interest income, which benefited from the actions taken by
the Federal Reserve to counteract the negative economic impact of the pandemic. Future operating results and near-and-
long-term financial condition are subject to significant uncertainty. Our funding sources have not changed significantly
and we expect to continue to be able to timely service our debts and its obligations.
The Company has elected that loans temporarily modified for borrowers directly impacted by COVID-19 are not
considered TDR, assuming that CARES Act criteria is met and as such, these loans are considered current and continue to
accrue interest at its original contractual terms. The Company was quick to respond to the pandemic with new health and
safety measures, including social distancing, appointment banking and expansion of our remote capabilities. Our staff
responded to these changes in a superb fashion and continue to provide our customers with excellent service. Today our
staff is returning to work with A and B schedules to maintain social distancing. On any given day, as many as 85% of staff
have the capability to work from home.
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
34
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 not to be based on deposits, but on the
average consolidated total assets less the tangible equity capital of an insured institution. 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.
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.
Basel III
On January 1, 2015, the Company and the Bank became subject to a new comprehensive capital framework for
U.S. banking organizations that was issued by the FDIC and FRB in July 2013 (the “Basel III Capital Rules”), subject to
phase-in periods for certain components and other provisions. Under the Basel III Capital Rules, the minimum capital
ratios effective as of January 1, 2015 are:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
4.5% Common Equity Tier 1 (“CET1”) to risk-weighted assets;
6.0% Tier 1 capital that is CET1 plus Additional Tier 1 capital) to risk-weighted assets;
8.0% Total Capital that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and
4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known
as the “leverage ratio”).
The Basel III Capital Rules also introduced a “capital conservation buffer,” composed entirely of CET1, on top
of these minimum risk-weighted asset ratios. The capital conservation buffer currently is 2.5%. Banking institutions with
a ratio of CET1 to risk-weighted assets below the effective minimum (4.5% plus the capital conservation buffer) will face
constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. As of December 31,
2020, the Company and the Bank meet all capital adequacy requirements under the Basel III Capital Rules.
Together with the FDIC, the Federal Reserve has issued proposed rules that would simplify the capital treatment
of certain capital deductions and adjustments, and the final phase-in period for these capital deductions and adjustments
has been indefinitely delayed. In addition, in December 2018, the federal banking agencies finalized rules that would
permit bank holding companies and banks to phase-in, for regulatory capital purposes, the day-one impact of the new
current expected credit loss accounting rule on retained earnings over a period of three years.
Economic Growth, Regulatory Relief, and Consumer Protection Act
The Economic Growth, Regulatory Relief, and Consumer Protection Act (The “Economic Growth Act”), which
was signed into law on May 24, 2018, scales back certain requirements of the Dodd-Frank Act and provides other
regulatory relief. Title II of the Economic Growth Act provides regulatory relief to community banks, which are generally
characterized in the statute as banking organizations with less than $10 billion in total consolidated assets and with limited
trading activities. The Economic Growth Act required the federal banking agencies to develop a “community bank leverage
ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets
of less than $10 billion. A financial institution can elect to be subject to this new definition. The federal banking agencies,
including the FDIC, have issued a rule pursuant to the Economic Growth Act to establish for institutions with assets of
less than $10 billion a “community bank leverage ratio” (the ratio of a bank’s tier 1 capital to average total consolidated
assets) of 8% that such institutions may elect to use in lieu of the generally applicable leverage and risk-based capital
requirements under Basel III. Pursuant to the CARES Act, the federal banking agencies in August 2020 issued a final rule
to set the community bank leverage ratio at 8% beginning in the second calendar quarter of 2020 through the end of 2020.
35
Beginning in 2021, the community bank leverage ratio increased to 8.5% for the calendar year. Community banks will
have until Jan. 1, 2022, before the community bank leverage ratio requirement will return to 9%. If an election to use the
community bank leverage ratio capital framework is made, a bank with less than $10 billion in assets with capital exceeding
8% will be considered compliant with all applicable regulatory capital and leverage requirements, including the
requirement to be “well capitalized.” As of December 31, 2020, the Bank had elected not to be subject to this new
definition. See “FDIC Regulations – Prompt Corrective Regulatory Action.”
The Truth in Lending Act (“TILA”) is the commonly used name for Title I of the Consumer Credit Protection
Act, passed by Congress in 1968, which is the consumer protection law specifying what information lenders must share
with borrowers before giving them a loan or line of credit. This information includes the annual percentage rate, loan
terms, and total cost of the loan. Section 101 of the Economic Growth Act amends the TILA to add a safe harbor for "plain
vanilla" mortgage loans originated by banking organizations and credit unions with less than $10 billion in total
consolidated assets under existing qualified mortgage and ability to pay rules. This amendment would allow community
banks to exercise greater discretion in lending decisions.
Section 619 of the Dodd-Frank Act, commonly referred to as the “Volcker Rule,” generally prohibits insured
depository institutions and any company affiliated with an insured depository institution from engaging in proprietary
trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge
fund or private equity fund. These prohibitions are subject to a number of statutory exemptions, restrictions, and
definitions. Under the Economic Growth Act, community banks are now exempt from the Volcker Rule and its proprietary
trading prohibitions.
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, 2020, the Bank’s largest aggregate
amount of loans to one borrower was $87.8 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,
36
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 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.
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 was required to be in place,
and the security officer designated, by August 28, 2017. Commencing September 4, 2018, we were required to have
commenced mandatory annual reporting to the board by the Chief Information Security Officer concerning critical aspects
of our cybersecurity program.
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 were required to be
conducted by March 1, 2018.
Ongoing Requirements: The regulation imposes substantial day-to-day and technical requirements. Among
others, we must develop and/or maintain 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.
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 1250%, 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 ALL, subject to certain limitations, and up to 45% of pre-tax
37
net unrealized gains on equity securities with readily determinable fair market values, less required deductions. See
“Prompt Corrective Regulatory Action” below.
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.
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 (the “GLBA”) 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
38
such purposes, the law establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized.
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.
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 based on the assigned risk levels. An institution’s assessment rate depends upon the category to which it is
assigned and certain other factors. Assessment rates range from 1.5 to 40 basis points of the institution’s assessment base,
which is calculated as average total assets minus average tangible equity.
Insurance of deposits may be terminated by the FDIC upon a finding that an 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 for the Bank.
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. 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. 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
39
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
“Outstanding” in its most recent completed CRA examination, which was completed as of June 25, 2018. 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.
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 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 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, 2020, the Bank was required to maintain $43.4
million of FHLB-NY stock.
Holding Company Regulations
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, 2020, 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%
40
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
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.
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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:
(cid:120) The federal Truth-In-Lending Act and Regulation Z issued by the FRB, governing disclosures of credit terms
to consumer borrowers;
(cid:120) 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;
(cid:120) 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;
(cid:120) The Fair Credit Reporting Act and Regulation V issued by the FRB, governing the use and provision of
information to consumer reporting agencies;
(cid:120) The Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection
agencies; and
(cid:120) The guidance of the various federal agencies charged with the responsibility of implementing such federal
laws.
Deposit operations also are subject to:
(cid:120) The Truth in Savings Act and Regulation DD issued by the FRB, which requires disclosure of deposit terms
to consumers;
(cid:120) Regulation CC issued by the FRB, which relates to the availability of deposit funds to consumers;
(cid:120) 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
(cid:120) 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.
42
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.
Data Privacy
Federal and state law contains extensive consumer privacy protection provisions. The GLBA requires financial
institutions to periodically disclose their privacy practices and policies relating to sharing such information and enable
retail customers to opt out of the Bank’s ability to share certain information with affiliates and non-affiliates for marketing
and/or non-marketing purposes, or to contact customers with marketing offers. The GLBA also requires financial
institutions to implement a comprehensive information security program that includes administrative, technical, and
physical safeguards to ensure the security and confidentiality of customer records and information.
Cybersecurity
The Cybersecurity Information Sharing Act (the “CISA”) is intended to improve cybersecurity in the U.S. through
sharing of information about security threats between the U.S. government and private sector organizations, including
financial institutions such as the Bank. The CISA also authorizes companies to monitor their own systems, notwithstanding
any other provision of law, and allows companies to carry out defensive measures on their own systems from potential
cyber-attacks.
Federal Restrictions on Acquisition of the 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, 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,
the ability to control in any manner the election of a majority of the Company’s directors, or the power to exercise a
controlling influence over the management or policies of the Company. Under the BHCA, an existing bank holding
company would be required to obtain the FRB’s approval before acquiring more than 5% of the Company’s voting stock.
See “Holding Company Regulation” earlier in this report.
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
43
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.
The COVID-19 Pandemic Has Significantly Impacted Our Financial Condition and Results of Operations
The novel Coronavirus Disease 2019 ("COVID-19") pandemic has adversely affected us and our customers, employees
and third-party service providers, and the adverse impacts on our business, financial position, operations and prospects
could be significant.
The COVID-19 pandemic has created a global public health crisis that has resulted in unprecedented uncertainty, volatility
and disruption in financial markets and in governmental, commercial and consumer activity in the United States and
globally. Governmental responses to the pandemic have included orders closing businesses not deemed essential and
directing individuals to restrict their movements and observe social distancing. These actions, together with responses to
the pandemic by businesses and individuals, have resulted in reduced commercial and consumer activity, temporary and
potentially permanent closures of many businesses that have led to loss of revenues and increased unemployment, material
decreases in oil and gas prices and in business valuations, disrupted global supply chains changes in consumer behavior
related to pandemic fears, related emergency response legislation and an expectation that Federal Reserve policy will
maintain a low interest rate environment for the foreseeable future. These changes have a significant adverse effect on the
regions and markets in which we conduct our business and the demand for our products and services.
Business and consumer customers of Flushing Bank are experiencing varying degrees of financial distress, which has
adversely affected the ability of some of them to timely pay interest and principal on their loans and the value of the
collateral securing their obligations. This in turn has influenced the recognition of credit losses in our loan portfolios and
has impacted our allowance for credit losses, particularly as businesses remain closed and as some customers draw on their
lines of credit or seek additional loans. These developments as a consequence of the COVID-19 pandemic materially
impact our business and the businesses of our customers and are expected to continue to have a material adverse effect on
our financial results for 2021.
In order to protect the health of our customers and employees, and to comply with applicable government directives, we
have modified our business practices, including restricting employee travel, directing employees to work from home
insofar as is possible, reducing in-person meetings and implementing business continuity plans and protocols to the extent
appropriate.
We may take further such actions that we determine are in the best interest of our employees, customers and communities
or as may be required by government order. These actions in response to the COVID-19 pandemic, and similar actions by
our vendors and business partners, have not materially impaired our ability to support our employees, conduct our business
and serve our customers, but there is no assurance that these actions will be sufficient to successfully mitigate the risks
presented by COVID-19 or that our ability to operate will not be materially affected going forward. For instance, our
business operations may be disrupted if key personnel or significant portions of our employees are unable to work
effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the
COVID-19 pandemic. Similarly, if any of our vendors or business partners become unable to continue to provide their
products and services, which we rely upon to maintain our day-to-day operations, our ability to serve our customers could
be impacted.
Although vaccine programs addressing COVID-19 have commenced, it is not possible to accurately predict when or the
extent to which normal economic and operating conditions will resume. For this reason, the extent to which the COVID-
19 pandemic affects our business, operations and financial condition, as well as our regulatory capital and liquidity ratios
and credit ratings, is uncertain and unpredictable and depends on, among other things, new information that may emerge
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concerning the scope, duration and severity of the COVID-19 pandemic and actions taken by governmental authorities
and other parties in response to the pandemic. If the pandemic is prolonged, the adverse impact on the markets in which
we operate and on our business, operations and financial condition could deepen. Particular concerns referenced above
include:
Credit Risk. Our risks of timely loan repayment and the value of collateral supporting the loans are affected by the strength
of our borrower’s business. Concern about COVID-19 has caused and may continue to cause business shutdowns,
limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased
unemployment and commercial property vacancy rates, reduced profitability and ability for property owners to make
mortgage payments, and overall economic and financial market instability, all of which may cause our customers to be
unable to make scheduled loan payments. If the effects of COVID-19 result in widespread and sustained repayment
shortfalls on loans in our portfolio, we could incur significant delinquencies, foreclosures and credit losses, particularly if
the available collateral is insufficient to cover our exposure. The future effects of COVID-19 on economic activity could
negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral
securing our residential and commercial real estate loans, our ability to maintain loan origination volume and to obtain
additional financing, the future demand for or profitability of our lending and services, and the financial condition and
credit risk of our customers. Further, in the event of delinquencies, regulatory changes and policies designed to protect
borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain
remediation actions, such as foreclosure. Furthermore, in an effort to support our communities during the pandemic, we
have participated in the Paycheck Protection Program (“PPP”) under the CARES Act whereby loans to small businesses
were made and those loans are subject to the regulatory requirements that could require forbearance of loan payments for
a specified time or that would limit our ability to pursue all available remedies in the event of a loan default. If the borrower
under a PPP loan fails to qualify for loan forgiveness, we are at the heightened risk of holding that loan at unfavorable
interest rates as compared to the loans to customers that we would have otherwise extended credit.
Strategic Risk. Our success may be affected by a variety of external factors that may affect the price or marketability of
our products and services, changes in interest rates that may increase our funding costs, reduced demand for our financial
products due to economic conditions and the various response of governmental and nongovernmental authorities. During
its course, the COVID-19 pandemic has increased economic and demand uncertainty. Furthermore, many of the
governmental actions have been directed toward curtailing household and business activity to contain COVID-19.
Operational Risk. Current and future restrictions on our workforce’s access to our facilities could limit our ability to meet
customer servicing expectations and have a material adverse effect on our operations. We rely on business processes and
branch activity that largely depend on people and technology, including access to information technology systems as well
as information, applications, payment systems and other services provided by third parties. In response to COVID-19, we
have modified our business practices with a portion of our employees working remotely from their homes to have our
operations uninterrupted as much as possible. Further, technology in employees’ homes may not be as robust as in our
offices and could cause the networks, information systems, applications, and other tools available to employees to be more
limited or less reliable than in our offices. The continuation of these work-from-home measures also introduces additional
operational risk, including increased cybersecurity risk. These cyber risks include greater phishing, malware, and other
cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and telecommunications
systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to
restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in destruction
or misuse of valuable information, and potential impairment of our ability to perform critical functions, including wiring
funds, all of which could expose us to risks of data or financial loss, litigation and liability and could seriously disrupt our
operations and the operations of any impacted customers.
Changes in Interest Rates May Significantly Impact Our Financial Condition and Results of Operations
Our primary source of income is net interest income, which is the difference between the interest income
generated by our interest-earning assets (consisting primarily of multi-family residential loans, commercial business loans
and commercial real estate mortgage loans) and the interest expense generated by our interest-bearing liabilities (consisting
primarily of deposits). The level of net interest income is primarily a function of the average balance of our interest-earning
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assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost
of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-
bearing liabilities which, in turn, are impacted by such external factors as the local economy, competition for loans and
deposits, the monetary policy of the Federal Open Market Committee of the Federal Reserve Board (the “FOMC”), and
market interest rates. In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range
from 0 to 0.25 percent, citing concerns about the impact of COVID-19 on markets and stress in the energy sector. A
significant portion of our loans have fixed interest rates (or, if adjustable, are initially fixed for periods of five to 10 years)
and longer terms than our deposits and borrowings. Our net interest income could be adversely affected if the rates we pay
on deposits and borrowings increase more rapidly than the rates we earn on loans. Our interest rate risk is exacerbated in
the short term by the fact that approximately 81% of our certificates of deposit accounts and borrowings will reprice or
mature during the next year.
As a result of our historical focus on the origination of multifamily residential mortgage loans, commercial
business loans and commercial real estate mortgage loans, the majority of our loans are adjustable rate, however, many
adjust at periods of five to 10 years. In addition, a large percentage of our investment securities and mortgage-backed
securities have fixed interest rates and are classified as available for sale. As is the case with many financial institutions,
our emphasis on increasing the development of core deposits, those with no stated maturity date, has resulted in our
interest-bearing liabilities having a shorter duration than our assets. This imbalance can create significant earnings
volatility because interest rates change over time and are currently at historical low levels. As interest rates increase, our
cost of funds will increase more rapidly than the yields on the bulk of our interest-earning assets. In addition, the market
value of our fixed-rate assets for example, our investment and mortgage-backed securities portfolios, would decline if
interest rates increase. In line with the foregoing, we have experienced and may continue to experience an increase in the
cost of interest-bearing liabilities primarily due to raising the rates we pay on some of our deposit products to stay
competitive within our market and an increase in borrowing costs from increases in the federal funds rate.
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. Also, in an increasing interest
rate environment, mortgage loans and mortgage-backed securities may prepay at slower rates than experienced in the past,
which could result in a reduction of prepayment penalty 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.”
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Our Lending Activities Involve Risks that May Be Exacerbated Depending on the Mix of Loan Types
At December 31, 2020, our gross loan portfolio was $6,701.6 million, of which 78.0% was mortgage loans
secured by real estate. The majority of these real estate loans were secured by multi-family residential property ($2,534.0
million), commercial real estate ($1,754.8 million) and one-to-four family mixed-use property ($603.0 million), which
combined represent 72.9% 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, commercial
business 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 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 our Internet Branch, 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 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 $1.1 billion, or 17.5% of total deposits, and $388.8 million, or 7.7% of total deposits, in brokered
deposit accounts at December 31, 2020 and 2019, respectively. During 2018, Section 29 of the Federal Deposit Insurance
Act was amended to no longer consider reciprocal deposits held by an FDIC-insured depository institution brokered
deposits. At December 31, 2020 and 2019, reciprocal deposits totaled $735.4 million and $805.6 million, 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
47
incompetence of the depositor. This allows us to better manage the maturity of our deposits and our interest rate risk. We
also at times utilize brokers to obtain money market account deposits. The rate we pay on brokered money market accounts
is similar to 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 money market or ICS demand product, which prior to 2018 was
considered a brokered deposit, does not require us to provide collateral. This allows us to invest our funds in higher yielding
assets. The Bank had $720.1 million in brokered demand accounts and $102.9 million brokered money market accounts
at December 31, 2020. The Bank had $145.0 million in brokered demand accounts and no brokered money market accounts
at December 31, 2019.
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.
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 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.
48
Many factors could require additions to the ACL in future periods above those currently maintained. These factors include,
but not limited to: (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 ACL 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 Credit 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. 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, any of which could adversely affect our business. 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, including the
adoption of The Dodd Frank Act, which imposes a wide variety of regulations affecting us, 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.
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 the Holding
Company, 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 $8.0 billion, as a best practice, we completed these tests. As of December 31, 2020, under all
stress scenarios, we remained well capitalized per current regulations. See “Regulation.” 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 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
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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.
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. We
may be subject to increasingly more risk related to security systems for our Internet Branch as we expand our suite of
online direct banking products, acquire new or outsource some of our business operations, expand our internal usage of
web-based products and applications, and otherwise attempt to keep pace with rapid technological changes in the financial
services industry.
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 significant legal and financial exposure, client attrition, regulatory fines, penalties or intervention,
reputational damage, reimbursement or other compensation costs and/or additional compliance costs, a loss of confidence
50
in the security of our systems, any of which may not be covered by insurance and could materially and adversely affect
our financial condition or results of operations.
In addition, in 2017, the NYDFS established comprehensive cybersecurity requirements for financial services
companies, including us. See Regulation – New York State Law and Cybersecurity.
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.
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 our
common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future. A
reduction or elimination of our common stock dividend could adversely affect the market price of our common stock.
Uncertainty surrounding the elimination of LIBOR and the proposed transition to SOFR may adversely affect our
business
In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel
banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”). Subsequent announcements
have delayed the potential date for certain LIBOR tenors until June 30, 2023. Consequently, at this time, it is not possible
to predict whether and to what extent banks will continue to provide submissions for the calculation of LIBOR. Similarly,
there is still uncertainty around how quickly different alternative rates will develop sufficient liquidity and industry-wide
usage, or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed financial
instruments. We have loans, borrowings and other financial instruments with attributes that are either directly or indirectly
dependent on LIBOR. The transition from LIBOR could create additional costs and risks. Since proposed alternative rates
are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The
transition will change our market risk profiles, requiring changes to risk and pricing models, systems, contracts, valuation
tools, and product design. Furthermore, failure to adequately manage this transition process with our customers could
adversely impact our reputation and potentially introduce additional legal risks. As of December 31, 2020, we have
exposure to approximately $2.5 billion of financial assets and liabilities, including off-balance sheet instruments, which
are LIBOR-based. We do not yet know whether, and if so the extent to which, the elimination of LIBOR will have any
material impact on these instruments.
51
The Ultimate Success of Integrating Empire into the Company’s operations cannot be assured and the anticipated
benefits and cost savings of the merger may not be fully realized
Although the merger has been completed, the ultimate success of the merger will depend, in part, on the
Company’s ability to finalize the integration of the businesses of the Company and Empire in a manner that permits growth
opportunities and cost savings to be realized. As with any merger of financial institutions, there can be no assurances that
the merger and the integration processes will ultimately be successful nor that the anticipated benefits and cost savings of
the merger will be fully realized. In the longer term, as the Company continues to integrate Empire’s legacy business into
the Company’s business, the actual cost savings of the merger could be less than anticipated.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
At December 31, 2020, the Bank conducted its business through 25 full-service offices and its Internet Branch.
The Holding Company 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.
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
The Holding Company’s Common Stock is traded on the NASDAQ Global Select Market® under the symbol
“FFIC.” As of December 31, 2020, we had approximately 928 shareholders of record, not including the number of persons
or entities holding stock in nominee or street name through various brokers and banks.
The following table sets forth information regarding the shares of common stock repurchased by us during the
quarter ended December 31, 2020:
Period
October 1 to October 31, 2020
November 1 to November 30, 2020
December 1 to December 31, 2020
Total
Total
Number
of Shares
Purchased
Average Price
Paid per Share
—
—
—
—
— $
—
—
—
Maximum
Number of
Total Number of
Shares Purchased Shares That May
as Part of Publicly Yet Be Purchased
Announced Plans Under the Plans
or Programs
or Programs
—
—
—
—
284,806
284,806
284,806
52
On February 27, 2018, the Company announced the authorization by the Board of Directors of a 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, 2020 and 2019, the Company repurchased 142,405 shares and 40,000 shares, respectively, of the Company’s
common stock at an average cost of $16.45 per share and $19.28 per share, respectively. At December 31, 2020, 284,806
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.
The following table sets forth securities authorized for issuance under all equity compensation plans of the
Company at December 31, 2020:
(c)
Number of securities
remaining available for
future issuance under
equity compensation
(a)
(b)
Number of securities to Weighted-average
be issued upon exercise
exercise price of
of outstanding options, outstanding options, securities reflected in
warrants and rights
warrants and rights
plans (excluding
column (a)
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
— $
—
— $
—
—
—
324,738
—
324,738
53
Stock Performance Graph
The following graph shows a comparison of cumulative total stockholder return on the Company’s common stock
since December 31, 2015 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
Flushing Financial Corporation
NASDAQ Composite Index
SNL Bank $5B-$10B Index
SNL Mid-Atlantic Bank Index
300
250
200
150
100
l
e
u
a
V
x
e
d
n
I
50
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
The total return assumes $100 invested on December 31, 2015 and all dividends reinvested through the end of
the Company’s fiscal year ended December 31, 2020. The performance graph above is based upon closing prices on the
trading date specified.
Period Ending
Index
Flushing Financial Corporation
NASDAQ Composite Index
SNL Bank $5B-$10B Index
SNL Mid-Atlantic Bank Index
12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20
92.83
271.64
145.37
168.47
100.00
100.00
100.00
100.00
139.93
108.87
143.27
127.10
134.42
141.13
142.73
155.78
108.58
137.12
129.17
133.10
113.34
187.44
160.06
189.29
54
Item 6. Selected Financial Data.
At or for the years ended
December 31,
2020
2019
2018
(Dollars in thousands, except per share data)
2017
2016
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 for loan losses
$ 7,976,394
6,659,521
57,832
647,974
6,136,355
1,020,895
618,997
20.11
$
$ 7,017,776
5,750,455
58,888
772,500
5,066,424
1,237,231
579,672
20.59
$
$ 6,834,176
5,530,539
32,018
822,655
4,960,784
1,250,843
549,464
19.64
$
$ 6,299,274
5,156,648
30,886
738,354
4,383,278
1,309,653
532,608
18.63
$
$ 6,058,487
4,813,464
37,735
861,381
4,205,631
1,266,563
513,853
17.95
$
$ 264,327
69,128
195,199
23,129
$ 278,956
117,016
161,940
2,811
$ 256,998
89,592
167,406
575
$ 234,585
61,478
173,107
9,861
$ 220,997
53,911
167,086
—
Net interest income after provision
for loan losses
Non-interest income:
Net (losses) gains on sales of
securities and loans
Net gains on sales of building
Net gains on sales of assets
Net loss from fair value adjustments
Other income
Total non-interest income
Non-interest expense
Income before income tax
provision
Income tax provision
Net income
172,070
159,129
166,831
163,246
167,086
(701)
—
—
(2,142)
13,886
11,043
137,931
855
—
770
(5,353)
13,199
9,471
115,269
(1,752)
—
1,141
(4,122)
15,070
10,337
111,683
417
—
—
(3,465)
13,410
10,362
107,474
2,108
48,018
—
(3,434)
10,844
57,536
118,603
45,182
10,508
34,674
$
53,331
12,052
41,279
65,485
10,395
55,090
$
66,134
25,013
41,121
106,019
41,103
64,916
$
$
$
Basic earnings per common share (2)
$
Diluted earnings per common share (2) $
Dividends declared per common share $
Dividend payout ratio
$
1.18
$
1.18
0.84
$
71.2 %
$
1.44
$
1.44
0.84
$
58.3 %
$
1.92
$
1.92
0.80
$
41.7 %
$
1.41
$
1.41
0.72
$
51.1 %
2.24
2.24
0.68
30.4 %
(Footnotes on the following page)
55
At or for the years ended December 31,
2020
2019
2018
2017
2016
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 charge-offs (recoveries) 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)
0.48 %
5.98
7.97
7.76
2.70
2.85
1.90
58.69
0.59 %
7.35
8.08
8.26
2.25
2.47
1.66
63.89
0.85 %
10.30
8.22
8.04
2.54
2.72
1.72
62.12
0.66 %
7.75
8.53
8.46
2.81
2.94
1.73
57.90
1.10 %
13.07
8.40
8.48
2.86
2.97
2.01
59.64
1.16 x
1.12 x
1.12 x
1.12 x
1.12 x
9.27 %
9.65 %
9.85 % 10.11 % 10.12 %
11.65
11.65
12.30
13.02
13.02
13.43
13.28
13.28
13.70
13.87
13.87
14.31
14.12
14.12
14.64
0.31 %
0.26
0.06
0.67
213.91
214.27
0.23 %
0.19
0.04
0.38
160.73
164.05
0.29 %
0.24
—
0.38
128.60
128.87
0.35 %
0.29
0.24
0.39
112.23
112.23
0.44 %
0.36
(0.02)
0.46
101.28
103.80
Full-service customer facilities
25
20
19
18
19
The shares held in the Company’s Employee Benefit Trust are not included in shares outstanding for purposes of calculating earnings per share.
(1) Calculated by dividing stockholders’ equity by shares outstanding.
(2)
(3) Represents the Bank’s capital ratios, which exceeded all minimum regulatory capital requirements during the periods presented.
(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.
56
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 (the “Holding Company”) and its direct and indirect wholly owned subsidiaries, Flushing
Bank (the “Bank”), Flushing Preferred Funding Corporation, Flushing Service Corporation, and FSB Properties Inc.
Discussion and analysis of our 2018 fiscal year specifically, as well as the year-over-year comparison of our 2019
financial performance to 2018, are located under Part II, Item 7 – Management’s Discussion and Analysis of Financial
Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019,
filed with the SEC on March 2, 2020, which is available on our investor relations website at www.flushingbank.com and
the SEC’s website at www.sec.gov.
General
We are a Delaware corporation organized in 1994. The Bank was organized in 1929 as a New York State-
chartered mutual savings bank. Today the Bank operates as a full-service New York State commercial bank. The primary
business of the Holding Company 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 also operates an internet
branch, which operates under the brands of iGObanking.com® and BankPurely® (the “Internet Branch”). The Bank’s
primary regulator is the New York State Department of Financial Services, and its primary federal regulator is the Federal
Deposit Insurance Corporation (“FDIC”). The Bank’s deposits are insured to the maximum allowable amount by the FDIC.
The Holding Company also owns Flushing Financial Capital Trust II, Flushing Financial Capital Trust III, and
Flushing Financial Capital Trust IV (the “Trusts”), which are special purpose business trusts 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).
The Holding Company 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 the Holding Company. 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
Holding Company 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.
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; (3) Small Business Administration (“SBA”) 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 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.
57
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) manage cost of funds and continue to improve funding mix;
(cid:120)
(cid:120)
resume historical loan growth while achieving appropriate risk adjusted returns;
enhance earnings power by improving scalability and efficiency;
(cid:120) manage credit risk;
(cid:120)
(cid:120)
remain well capitalized;
increase our commitment to the multi-cultural marketplace, with a particular focus on the Asian community;
(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.
Manage cost of funds 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. In addition to our full-service branches we gather deposits through our Internet
Branch and a government banking unit. The Internet Branch 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. At December 31, 2020 and 2019, total deposits at our Internet Branch were $221.7
million and $314.0 million, respectively. The government banking unit provides 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. At December 31, 2020 and 2019, total deposits in our government banking unit totaled
$1,615.4 million and $1,265.1 million, respectively. Additionally, we have a business banking group which was designed
specifically to develop full business relationships thereby bringing in lower-costing checking and money market deposits.
At December 31, 2020 and 2019, deposits balances in the business banking group were $298.9 million and $281.7 million,
respectively. 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 2020, we realized an increase
in due to depositors of $1,068.7 million, as core deposits increased $1,368.2 million and certificates of deposit decreased
$299.5 million. The increase was primarily due to the acquisition of Empire.
A growing portion of our lending and deposit customers 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.
Resume historical loan growth while achieving appropriate risk adjusted returns. During 2020, gross loans grew
by $944.7 million, or 16.4% to $6.7 billion at December 31, 2020 from $5.8 billion at December 31, 2019. The increase
was primarily driven by the Empire acquisition.
We have emphasized the strategic growth of multi-family residential mortgage loans, non-owner occupied
commercial mortgage loans and floating rate commercial business loans. The commercial business and other loans have
increased to 19.45% of the entire loan portfolio as of December 31, 2020 compared to 18.44% at December 31, 2019. In
58
the multi-family portfolio, we allowed loans to prepay rather than refinance at a rate below our criteria. We no longer
originate taxi medallion loans.
The following table shows loan originations and purchases during 2020, and loan balances as of December 31,
2020.
Loan
Loan Balances
Originations and December 31, Percent of
Purchases
2020
Gross Loans
$
Multi-family residential
Commercial real estate
One-to-(cid:73)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:68)(cid:80)(cid:76)(cid:79)(cid:92)(cid:3)(cid:650)(cid:3)(cid:80)(cid:76)(cid:91)(cid:72)(cid:71)-use property
One-to-(cid:73)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:68)(cid:80)(cid:76)(cid:79)(cid:92)(cid:3)(cid:650)(cid:3)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)
Co-operative apartment
Construction
Small Business Administration
Taxi medallion
Commercial business and Other
Total
$
(Dollars in thousands)
2,533,952
1,754,754
602,981
245,211
8,051
83,322
167,376
2,757
1,303,225
6,701,629
212,729 $
191,852
35,131
21,805
704
21,859
112,352
—
407,682
1,004,114 $
37.81 %
26.18
9.00
3.66
0.12
1.24
2.50
0.04
19.45
100.00 %
At December 31, 2020, multi-family residential, commercial business and other loans and commercial real estate
loans, totaled 83.4% of our gross loans. We have repositioned our loan growth 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 power by improving scalability and efficiency. We are improving scalability and efficiency by
converting our branches to the Universal Banker model with our unique video banker service that gives customers face-
to-face video chat access from 7am to 11pm daily via at our ATM terminals. The Universal Banker model provides
customers with cutting-edge technology, including state-of-the-art ATMs and a higher-quality service experience, all while
further reducing overall costs. We have been rolling this model out across our network as branches are renovated and new
branches are opened. As of December 31, 2020, all Flushing locations were operating under the Universal Banker model,
while the legacy Empire locations were not. In the branches that have been converted to the Universal Banker model,
almost 50% of customer transactions were completed at our high powered ATMs. The Empire merger closed on October
30, 2020, adding $669.7 million in loans and $861.3 million in deposits, while recording only $1.5 million of goodwill.
We completed our systems conversions in November 2020.
Manage credit risk. By adherence to our conservative underwriting standards, we have been able to minimize net
losses from non-performing loans. We recorded net charge-offs of $3.6 million for the year ended December 31, 2020,
compared to net charge-offs of $2.0 million for the year ended December 31, 2019. The net charge-offs recorded in 2020
were primarily due the economic deterioration resulting from the impact of COVID-19. We seek to minimize losses by
adhering to our defined underwriting standards, which among other things generally requires a debt service coverage ratio
of at least 125% and loan to value ratio of 75% or less. The loan to value for the real estate dependent loan portfolio was
38.0% and the average loan to value for non-performing loans collateralized by real estate was 30.5% at December 31,
2020. 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
2 delinquent loans totaling $0.6 million, 11 delinquent loans totaling $13.0 million, and 12 delinquent loans totaling $8.7
million during the years ended December 31, 2020, 2019 and 2018, respectively. 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 $21.1 million and $13.3 million at December 31, 2020 and 2019, respectively. Non-performing
assets as a percentage of total assets were 0.26% and 0.19% at December 31, 2020 and 2019, respectively.
59
Remain well capitalized. 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 the Holding Company, and could limit the annual growth of the Bank. Under the Dodd Frank Act, banks with
assets greater than $10 billion in total assets are required to complete stress tests, which predict capital levels under certain
stress levels. Although, our total assets are currently $8.0 billion, as a best practice, we completed these tests. As of
December 31, 2020, under all stress scenarios, we remained well capitalized per current regulations.
Increase Our Commitment to the Multi-Cultural Marketplace, with a Particular Focus on the Asian Community.
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 20
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. In the fourth quarter of 2020, we completed our acquisition
of Empire, which expanding our branch footprint in Long Island. As of December 31, 2020, we had six branches which
have a particular focus on the Asian community, of which four are in the borough of Queens, one is in the borough of
Manhattan and one on Long Island, with deposits and loans totaling in excess of $900 million and $650 million,
respectively, in these locations.
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. 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, commercial mortgages and commercial business loans with a full banking relationship. Because of this
strategy, we were able to continue to achieve a higher yield on our mortgage portfolio than we would have otherwise
experienced.
Loan originations and purchases were $1,004.1 million, $1,162.3 million and $1,250.8 million for the years
ended December 31, 2020, 2019 and 2018, respectively. While we primarily rely on originating our own loans, we
purchased $193.3 million, $221.2 million and $294.7 million during the years ended December 31, 2020, 2019 and 2018,
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, 2020, the allocation of our loan portfolio has remained fairly
consistent with a steady increase in non-mortgage loans. The majority of our loans are collateralized by real estate, which
comprised 78.0% of our portfolio at December 31, 2020 compared to 81.3% at December 31, 2019 and 83.8% at
December 31, 2018, while non-mortgage loans comprised 22.0% of our portfolio at December 31, 2020, compared to
18.7% at December 31, 2019 and 16.2% at December 31, 2018.
Due to depositors increased $1,068.7 million, $106.1 million and $575.3 million in 2020, 2019 and 2018,
respectively. Lower-costing core deposits increased $1,368.2 million, $231.5 million and $363.9 million in 2020, 2019
and 2018, respectively. Higher-costing certificates of deposit decreased $299.5 million during 2020 compared to a decrease
of $125.4 million in 2019 and an increase of $211.4 million during 2018. Brokered deposits represented 17.5%, 7.7% and
60
6.1% of total deposits at December 31, 2020, 2019 and 2018, respectively. During 2018, Section 29 of the Federal Deposit
Insurance Act was amended to no longer consider reciprocal deposits held by an FDIC-insured depository institution
brokered deposits. At December 31, 2020, 2019 and 2018, reciprocal deposits totaled $735.4 million, $805.6 million and
$685.3 million, 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.
Net interest income increased $33.3 million, or 20.5%, to $195.2 million for the twelve months ended
December 31, 2020 from $161.9 million for the prior year, as a 38 basis points increase in the net interest margin to 2.85%
for the twelve months ended December 31, 2020 was coupled with balance sheet growth. The increase in the net interest
margin for 2020 was primarily due to a decrease in our funding costs resulting from the Federal Reverse lowering rates,
partially offset by a decrease in the yield of our interest-earning assets. The decrease in the yield of our interest earning
assets was primarily due to loans being both originated and repriced at lower rates. During 2020, the cost of borrowed
funds decreased 34 basis points to 1.97% from 2.31% in the comparable period while the cost of interest-bearing deposits
decreased 99 basis points to 0.92% from 1.91% for the prior year. The cost of money market, NOW and certificates of
deposits accounts decreased 111 basis points, 106 basis points and 74 basis points, respectively, for the twelve months
ended December 31, 2020 from the prior year. The cost of deposits decreased as we decreased the rates we pay resulting
from Federal Reverse lowering rates.
We are unable to predict the direction or timing of future interest rate changes. Approximately 81% of our
certificates of deposit accounts and borrowings will reprice or mature during the next year. Also, in an increasing interest
rate environment, mortgage loans and mortgage-backed securities may prepay at slower rates than experienced in the past,
which could result in a reduction of prepayment penalty income.
On October 30, 2020, the Company completed its acquisition of 100% of the outstanding voting and non-voting
shares of Empire. The shareholders of Empire received total consideration of $87.5 million which consisted of $54.8
million in cash and 2,557,028 shares of Flushing Financial Corporation common stock. The combined company has $8.0
billion in assets, $6.7 billion in loans, $6.1 billion in deposits, and 25 branches in Queens, Brooklyn, Manhattan, and on
Long Island.
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
61
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, 2020 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 3% to 50%, depending on the contractual rate of interest
and the underlying collateral. NOW Accounts, money market accounts and savings accounts were assumed to have
withdrawal or “run-off” rates of 19%, 13% and 9%, 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.
Interest Rate Sensitivity Gap Analysis at December 31, 2020
Three
Months
And Less
More Than
Three
Months To
One Year Years
More Than
One Year
To Three
More Than
Three Years
To Five
Years
(Dollars in thousands)
More Than
Five Years
To Ten
Years
More Than
Ten Years
Total
Interest-Earning Assets
Mortgage loans
Other loans
Short-term securities (1)
Securities held-to-maturity:
Mortgage-backed securities
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)
$
398,880
640,296
133,683
$ 739,143
145,797
—
$ 1,977,759
233,217
—
$ 1,269,186
170,733
—
$
701,280
281,713
—
$ 142,023
—
—
$ 5,228,271
1,471,756
133,683
—
326
—
979
—
2,612
—
2,612
—
1,385
49,918
—
49,918
7,914
48,071
240,657
1,461,913
49,672
—
935,591
123,042
—
2,336,630
79,097
—
1,521,628
78,795
—
1,063,173
25,783
2,857
220,581
404,460
243,514
7,539,516
4,762
852,230
110,179
477,323
—
657,997
14,285
136,200
70,303
445,912
—
170,086
29,008
169,664
119,890
197,213
—
185,064
21,663
110,553
86,303
17,882
—
7,748
98,465
1,054,525
1,295,670
31
—
—
—
—
—
—
45,622
—
168,183
2,323,172
1,682,345
1,138,361
45,622
1,020,895
$ 2,102,491
$ 836,786
$ 700,839
$
244,149
$ 2,448,691
$
45,622
$ 6,378,578
Interest rate sensitivity gap
$ (640,578)
Cumulative interest-rate sensitivity gap $ (640,578)
Cumulative interest-rate sensitivity gap
as a percentage of total assets
Cumulative net interest-earning assets
as a percentage of interest-bearing
liabilities
69.53 %
(8.03) %
$
98,805
$ (541,773)
$ 1,635,791
$ 1,094,018
$ 1,277,479
$ 2,371,497
$ (1,385,518)
985,979
$
$ 174,959
$ 1,160,938
$ 1,160,938
—
(6.79)%
13.72 %
29.73 %
12.36 %
14.55 %
—
81.57 %
130.05 %
161.05 %
115.57 %
118.20 %
—
(1) Consists of interest-earning deposits.
(2) Does not include non-interest bearing demand accounts totaling $435.1 million at December 31, 2020.
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
62
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 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, 2020. Various estimates regarding prepayment assumptions are made at each level of rate shock. Actual
results could differ significantly from these estimates. At December 31, 2020, 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
Analysis of Net Interest Income
Projected Percentage Change In
Net Interest Income
2020
2019
0.86 % 12.94 %
2.71
—
(6.87)
(13.54)
6.08
—
(6.63)
(13.58)
2019
Net Portfolio Value
2020
Net Portfolio
Value Ratio
2020 2019
1.77 % 35.61 % 9.76 % 12.93 %
6.55
—
(15.66)
(24.55)
14.10
—
(9.28)
(18.12)
10.27
9.93
8.67
7.98
11.30
10.22
9.52
8.82
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.
63
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, 2020, 2019 and 2018, 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.
2020
For the year ended December 31,
2019
2018
Interest-earning deposits and federal funds sold
Total interest-earning assets
Other assets
Assets
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
Total assets
Liabilities and Equity
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
Total interest-bearing liabilities
Non interest-bearing demand deposits
Other liabilities
Total liabilities
Equity
Total liabilities and equity
Average
Balance
Interest Cost
Yield/
Average
Balance
Yield/
Interest Cost
Average
Balance
Yield/
Interest Cost
(Dollars in thousands)
$ 4,798,232 $ 202,722
45,431
248,153
1,207,715
6,005,947
4.22 % $ 4,609,439 $ 203,440
48,304
3.76
251,744
4.13
1,011,594
5,621,033
4.41 % $ 4,494,210 $ 193,186
39,533
822,758
4.78
232,719
5,316,968
4.48
4.30 %
4.80
4.38
450,065
249,533
699,598
8,730
5,178
13,908
1.94
2.08
1.99
572,223
243,324
815,547
15,468
8,102
23,570
56,530
56,530
100,723
6,862,798
413,224
$ 7,276,022
2,419
2,419
355
264,835
4.28
4.28
0.35
3.86
2,580
2,580
1,604
279,498
60,971
60,971
84,922
6,582,473
365,408
$ 6,947,881
2.70
3.33
2.89
4.23
4.23
1.89
4.25
539,771
140,461
680,232
15,065
4,658
19,723
4,261
4,261
1,190
257,893
121,412
121,412
75,636
6,194,248
310,350
$ 6,504,598
2.79
3.32
2.90
3.51
3.51
1.57
4.16
$
176,443
1,603,402
1,561,496
1,167,865
4,509,206
70,829
4,580,035
1,361,559
5,941,594
583,235
171,126
6,695,955
580,067
$ 7,276,022
495
9,309
14,368
18,096
42,268
44
42,312
26,816
69,128
0.28
0.58
0.92
1.55
0.94
0.06
0.92
1.97
1.16
$
198,374
1,434,440
1,370,038
1,532,440
4,535,292
70,209
4,605,501
1,251,452
5,856,953
407,450
122,189
6,386,592
561,289
$ 6,947,881
1,378
23,553
27,819
35,078
87,828
229
88,057
28,959
117,016
0.69
1.64
2.03
2.29
1.94
0.33
1.91
2.31
2.00
1,370
15,896
18,707
28,310
64,283
214
64,497
25,095
89,592
0.59
1.13
1.61
1.91
1.50
0.32
1.48
2.16
1.62
$
233,392
1,407,945
1,164,505
1,483,026
4,288,868
66,255
4,355,123
1,162,429
5,517,552
380,889
71,422
5,969,863
534,735
$ 6,504,598
Net interest income / net interest rate spread (4)
$ 195,707
2.70 %
$ 162,482
2.25 %
$ 168,301
2.54 %
Net interest-earning assets / net interest margin
(5)
Ratio of interest-earning assets to interest-
bearing liabilities
$
921,204
2.85 % $
725,520
2.47 % $
676,696
2.72 %
1.16 X
1.12 X
1.12 X
(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 $2.3 million, $2.0 million and $2.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. In addition, it
includes net losses from fair value adjustments in qualifying hedges of $1.2 million and $1.7 million for December 31, 2020 and 2019; and none
for the years ended December 31, 2018.
Interest and yields are calculated on the tax equivalent basis using statutory federal income tax rate of 21% for the years ended December 31, 2020,
December 31, 2019 and December 31, 2018.
Interest rate spread represents the difference between the average rate on interest-earning assets and the average cost of interest-bearing liabilities.
(4)
(5) Net interest margin represents net interest income before the provision for loan losses divided by average interest-earning assets.
(3)
64
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 for the years ended December 31,
2020 vs. 2019
Due to
2019 vs. 2018
Due to
Volume Rate
Net
Volume Rate
Net
(Dollars in thousands)
$ 8,187 $ (8,905) $
(718) $
8,456
(2,906)
201
(190)
(11,329)
(3,832)
(3,125)
29
(2,873)
(6,738)
(2,924)
(161)
5,133 $
8,938
895
3,430
(2,428)
5,121 $ 10,254
8,771
(167)
403
(492)
3,444
14
(1,681)
747
254
14,002
(1,503)
(28,665)
(1,249)
(14,663)
156
16,124
258
5,481
414
21,605
(138)
2,492
3,453
(7,201)
2
2,382
990
(745)
(16,736)
(16,904)
(9,781)
(187)
(4,525)
(48,878)
(883)
(14,244)
(13,451)
(16,982)
(185)
(2,143)
(47,888)
(215)
306
3,677
971
10
2,026
6,775
223
7,351
5,435
5,797
5
1,838
20,649
8
7,657
9,112
6,768
15
3,864
27,424
Interest-Earning Assets:
Mortgage loans, net
Other loans, net
Mortgage-backed securities
Other securities
Tax-Exempt 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
Net change in net interest income
$ 13,012 $ 20,213 $ 33,225 $
9,349 $ (15,168) $ (5,819)
Comparison of Operating Results for the Years Ended December 31, 2020 and 2019
General. Net income for the twelve months ended December 31, 2020 was $34.7 million, a decrease of $6.6
million, or 16.0%, compared to $41.3 million for the twelve months ended December 31, 2019. Diluted earnings per
common share were $1.18 for the twelve months ended December 31, 2020, a decrease of $0.26, or 18.06%, from $1.44
for the twelve months ended December 31, 2019. Return on average equity decreased to 5.98% for the twelve months
ended December 31, 2020, from 7.35% for the prior year. Return on average assets decreased to 0.48% for the
twelve months ended December 31, 2020 from 0.59% for the prior year.
Interest Income. Interest income decreased $14.6 million, or 5.24%, to $264.3 million for the year ended
December 31, 2020 from $279.0 million for the year ended December 31, 2019. The decrease in interest income was
primarily due to a decrease of 39 basis points in the yield of interest-earning assets to 3.86% for the year ended December
31, 2020 from 4.25% for the year ended December 31, 2019, partially offset by an increase of $280.3 million in the average
balance of interest-earning assets to $6,862.8 million for the year ended December 31, 2020 from $6,582.5 million for
the year ended December 31, 2019. The 39 basis point decrease in the yield of interest-earning assets was primarily due
to a 35 basis point decrease in the yield on total loans to 4.13% for the twelve months ended December 31, 2020 from
4.48% from December 31, 2019 combined with a 82 basis point decrease in the yield of total securities to 2.16% for the
year ended December 31, 2020 from 2.98% for the year ended December 31, 2019. The yield on the loan portfolio,
65
excluding prepayment penalty income, decreased 34 basis points to 4.09% for the twelve months ended December 31,
2020 from 4.43 % for the twelve months ended December 31, 2019.
Interest Expense. Interest expense decreased $47.9 million, or 40.92%, to $69.1 million for the year ended
December 31, 2020 from $117.0 million for the year ended December 31, 2019. The decrease in interest expense was
primarily due to a decrease of 84 basis points in the average cost of interest-bearing liabilities to 1.16% for the year ended
December 31, 2020 from 2.00% for the year ended December 31, 2019. The 84 basis point decrease in the cost of interest-
bearing liabilities was primarily due to the Company’s quick response to the Federal Reserve lowering rates.
Net Interest Income. Net interest income for the year ended December 31, 2020 totaled $195.2 million, an increase
of $33.3 million, or 20.54%, from $161.9 million for 2019. The increase in net interest income was primarily due to a 45
basis point increase in the net interest spread to 2.70% for the twelve months ended December 31, 2020 from 2.25% for
the prior year. The yield on interest-earning assets decreased 39 basis points to 3.86% for the year ended December 31,
2020, from 4.25% for the year ended December 31, 2019, and the cost of interest-bearing liabilities decreased 84 basis
points to 1.16% for the year ended December 31, 2020 from 2.00% for the prior year. The net interest margin increased
38 basis points to 2.85% for the year ended December 31, 2020 from 2.47% for the year ended December 31, 2019.
Excluding prepayment penalty income, the net interest margin would have been 2.81% and 2.42% for the years ended
December 31, 2020 and 2019, respectively.
Provision for Credit Losses. Provision for credit losses of $23.1 million was recorded for the year ended
December 31, 2020, compared to $2.8 million during the prior year. The provision was primarily the result of economic
deterioration resulting from the impact of COVID-19. During the twelve months ended December 31, 2020, non-accrual
loans increased $5.5 million to $18.3 million from $12.8 million at December 31, 2019. During the twelve months ended
December 31, 2020, the Bank recorded net charge-offs totaling $3.6 million. The average loan-to-value ratio for our non-
performing loans collateralized by real estate was 30.5% at December 31, 2020. 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, 2020 was $11.0 million,
an increase of $1.6 million, or 16.60%, from $9.5 million for the twelve months ended December 31, 2019. Non-interest
income increased primarily due to a decrease in net losses from fair value adjustments of $3.2 million, partially offset by
a decrease of $1.6 million in net gains from the sale of assets and loans for the year ended December 31, 2020 compared
to the prior year.
Non-Interest Expense. Non-interest expense was $137.9 million for the twelve months ended December 31, 2020,
an increase of $22.7 million, or 19.66%, from $115.3 million for the twelve months ended December 31, 2019. The
increase in non-interest expense was primarily due to the year ended December 31, 2020 including $8.7 million in merger
expenses and $7.8 million in prepayment penalties from the early extinguishment of FHLB borrowings combined with
increases in salaries and employee benefits and occupancy and equipment expense due to the growth of the Bank.
Income Tax Provisions. Income tax expense for the year ended December 31, 2020 decreased $1.5 million, or
12.81%, to $10.5 million, compared to $12.1 million for the year ended December 31, 2019. The decrease was primarily
due to the $8.1 million decrease in income before income taxes for the year ended December 31, 2020 compared to the
prior year. The effective tax rate for the year ended December 31, 2020 was 23.3% compared to 22.7% for the year ended
December 31, 2019.
66
Comparison of Operating Results for the Years Ended December 31, 2019 and 2018 (1)
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, 2020,
the Bank was able to borrow up to $3,568.0 million from the FHLB-NY in Federal Home Loan Bank advances and letters
of credit. As of December 31, 2020, the Bank had $1,652.6 million outstanding in combined balances of FHLB-NY
advances and letters of credit. At December 31, 2020, the Bank also has unsecured lines of credit with other commercial
banks totaling $618.0 million, with no outstanding amount. In addition, the Holding Company has subordinated debentures
with a principal balance totaling $90.3 million and junior subordinated debentures with a face amount of $61.9 million
and a carrying amount of $43.1 million (which are both included in Borrowed Funds). (See Note 10 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, 2020, cash and
cash equivalents totaled $157.4 million, an increase of $107.6 million from December 31, 2019. We also held marketable
securities available for sale with a market value of $648.0 million at December 31, 2020.
At December 31, 2020, we had commitments to extend credit (principally real estate mortgage loans) of $62.4
million and open lines of credit for borrowers (principally business lines of credit and home equity loan lines of credit) of
$411.7 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 non-interest expense in 2020 were $69.1 million and $137.9 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 to future retirees 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 2020, we incurred cash expenditures of $0.1 million for each of the
medical and life insurance plans and the non-employee director plan. We did not make a contribution to the employee
pension plan in 2020. We expect to pay similar amounts for these plans in 2021. (See Note 13 of Notes to Consolidated
Financial Statements in Item 8 of this Annual Report.)
(1) – Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2019, filed with the SEC on March 2, 2020, which is available on our investor relations website at www.flushingbank.com
and the SEC’s website at www.sec.gov.
67
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 on
the FTSE Pension Discount Curve (formerly 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 2.18% for 2020. 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, 2020, our employee
pension plan had an unrecognized loss of $1.8 million and the medical and life insurance plan had an unrecognized loss
of $1.3 million. At December 31, 2020, the non-employee director plan had an unrecognized gain of $0.3 million due to
experience different from what had been estimated and changes in actuarial assumptions. The employee pension plan’s
and medical and life insurance plan’s unrecognized losses are primarily attributed to the reduction in the discount rate. In
addition, the medical and life insurance plan has a $0.1 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 $0.9 million as of
December 31, 2020.
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 the three years ended December 31,
2020. During the years ended December 31, 2020, 2019 and 2018, the actual return on the employee pension plan assets
was approximately 311%, 372% and 94%, 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 $27.7 million at December 31, 2020, which is
$3.5 million more 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 2020, funds were provided by the Company’s investing activities and operating activities which amounted
to $93.1 million and $71.3 million, respectively and were used for financing activities totaling $56.8 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). During the year ended December 31, 2020, the net total of loan originations and purchases less loan
repayments and sales was $241.1 million. During the year ended December 31, 2020, the Company also purchased $217.4
million in securities and used $54.8 million to fund the purchase of Empire. During 2020, funds were provided by a net
increase of $208.5 million in total deposits and $215.4 million in long-term borrowings. Additionally, funds were provided
by $504.5 million in proceeds from maturities, sales, calls and prepayments of securities and $86.3 million provided by
the acquisition of Empire. The Company also used funds of $452.0 million, $24.8 million and $3.9 million for the
repayment of long-term borrowed funds, dividend payments and treasury stock, respectively, during the year ended
December 31, 2020.
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, 2020 was $0.4
million. In the unlikely event of a complete liquidation of the Bank, each eligible account holder will be entitled to receive
68
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. The Holding Company 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-
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, 2020 and 2019, the Bank and the Company exceeded each of their four regulatory capital
requirements. (See Note 15 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 (“ALL”) is provided to absorb probable estimated losses
inherent in the loan portfolio. Management reviews the adequacy of the ALL by reviewing individual loans when it has
disparate risk characteristics from the rest of the loan portfolio. These loans include non-accrual and TDR loans, while the
remainder of the portfolio is grouped by categories with similar risk characteristics. The amount of the ALL is based upon
a loss rate model that considers multiple factors which reflects management’s assessment of the credit quality of the loan
portfolio. Management estimates the allowance balance using relevant information, from internal and external sources,
relating to past events, current conditions, and reasonable and supportable forecasts. The factors are both quantitative and
qualitative in nature including, but not limited to, historical losses, economic conditions, trends in delinquencies, value
and adequacy of underlying collateral, volume and portfolio mix, and internal loan processes 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.
The quantitative allowance is calculated using a number of inputs and assumptions. The process and guidelines
were developed using, among other factors, the guidance from federal banking regulatory agencies and GAAP. The results
of this process, support management’s assessment as to the adequacy of the ALL at each balance sheet date.
Notwithstanding the judgment required in assessing the components of the ALL, the Company believes that the
ALL 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. See Notes 2 and 4 of Notes to Consolidated Financial
Statements included in Item 8 of this Annual Report.
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.
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
69
in accumulated other comprehensive loss. Securities held-to-maturity are carried at their amortized cost in the Consolidated
Statements of Financial Condition.
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. See Notes 2, 7 and 20 of Notes to Consolidated Financial Statements included in
Item 8 of this Annual Report.
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
Company has one reporting unit. If the fair value of the reporting unit exceeds its carrying amount, there is no impairment
of goodwill.
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.
As described above, fair value of our reporting unit is derived using a combination of an asset approach, an
income approach and a market approach. These valuation techniques consider several other factors beyond our market
capitalization, such as the estimated future cash flows of our reporting unit, the discount rate used to present value such
cash flows and the market multiples of comparable companies. Changes to input assumptions used in the analysis could
result in materially different evaluations of goodwill impairment. See Notes 2 of Notes to Consolidated Financial
Statements included in Item 8 of this Annual Report.
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. See Notes 2 and 11 of Notes to Consolidated Financial Statements
included in Item 8 of this Annual Report.
70
Contractual Obligations
Payments Due By Period
Total
Less Than
1 Year
1 - 3
Years
(In thousands)
More
Than
3 - 5
Years 5 Years
Borrowings
Deposits
Loan commitments
Operating lease obligations
Purchase obligations
Pension and other
postretirement benefits
Deferred compensation plans
Total
$ 1,020,895 $ 835,831 $ 185,064 $
5,921,229
474,028
8,757
7,651
6,136,355
474,028
67,240
17,430
197,213
—
17,877
6,924
17,882
—
17,059
2,378
—
31
—
23,547
477
— $
5,521
18,971
2,765
16,591
$ 7,740,440 $ 7,248,515 $ 409,183 $ 39,331 $ 43,411
1,060
952
1,153
952
543
476
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 10 and 11 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, 2020, we had
commitments to extend credit and lines of credit of $474.0 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 17 of Notes to Consolidated Financial
Statements in Item 8 of this Annual Report.)
At December 31, 2020, the Bank had 25 branches, which were all leased. 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 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 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 13 of Notes to Consolidated Financial Statements in Item 8 of this Annual Report.)
71
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. 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 62 and in Notes 20 and 21 of
the Notes to Consolidated Financial Statements in Item 8 of this Annual Report.
72
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:
Mortgage-backed securities (include assets pledged of $5,853 and $5,283 at December 31, 2020 and 2019,
respectively; fair value of $8,991 and $8,114 at December 31, 2020 and 2019, respectively)
Other securities, net of allowance of $907 at December 31, 2020 (none pledged; fair value of $54,538 and
$53,998 at December 31, 2020 and 2019, respectively)
Securities available for sale, at fair value:
Mortgage-backed securities (including assets pledged of $264,968 and $212,038 at December 31, 2020 and
2019, respectively; $505 and $772 at fair value pursuant to the fair value option at December 31, 2020 and
2019, respectively)
Other securities (including assets pledged of $6,453 and none at December 31, 2020 and 2019,
respectively; $13,998 and $13,548 at fair value pursuant to the fair value option at December 31, 2020 and
2019, 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 real estate owned, net
Core deposit intangibles
Right of Use Asset
Other assets
Total assets
Liabilities
Due to depositors:
Non-interest bearing
Interest-bearing
Total Due to depositors
Mortgagors' escrow deposits
Borrowed funds:
Federal Home Loan Bank advances
Subordinated debentures
Junior subordinated debentures, at fair value
Total borrowed funds
Operating lease liability
Other liabilities
Total liabilities
Commitments and contingencies (Note 17)
December 31,
2020
December 31,
2019
(Dollars in thousands, except per share data)
$
157,388
$
49,787
7,914
49,918
7,934
50,954
404,460
523,849
243,514
6,704,674
(45,153)
6,659,521
44,041
28,179
43,439
181,710
17,636
—
3,172
50,743
84,759
7,976,394
778,672
5,312,061
6,090,733
45,622
887,579
90,180
43,136
1,020,895
59,100
141,047
7,357,397
$
$
248,651
5,772,206
(21,751)
5,750,455
25,722
28,676
56,921
157,713
16,127
239
—
41,254
59,494
7,017,776
435,072
4,586,977
5,022,049
44,375
1,118,528
74,319
44,384
1,237,231
49,367
85,082
6,438,104
$
$
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; 34,087,623 shares and 31,530,595 shares
issued at December 31, 2020 and 2019, respectively; 30,775,854 shares and 28,157,206 shares outstanding at
December 31, 2020 and 2019, respectively)
Additional paid-in capital
Treasury stock, at average cost (3,311,769 shares and 3,373,389 shares at December 31, 2020 and 2019,
respectively)
Retained earnings
Accumulated other comprehensive loss, net of taxes
Total stockholders' equity
—
—
341
261,533
(69,400)
442,789
(16,266)
618,997
315
226,691
(71,487)
433,960
(9,807)
579,672
Total liabilities and stockholders' equity
$
7,976,394
$
7,017,776
The accompanying notes are an integral part of these consolidated financial statements.
73
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
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
Provision for credit losses
Net interest income after provision for credit losses
Non-interest income
Banking services fee income
Net gain on sale of loans
Net loss on sale of securities
Net gain on sale of assets
Net loss from fair value adjustments
Federal Home Loan Bank of New York stock dividends
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 (benefit)
Net loss (gain) from sales of real estate owned
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
For the years ended December 31,
2018
2019
(In thousands, except per share data)
2020
$ 248,153 $ 251,744 $ 232,719
15,776
43
355
264,327
25,535
73
1,604
278,956
42,312
26,816
69,128
195,199
23,129
172,070
88,057
28,959
117,016
161,940
2,811
159,129
4,500
48
(701)
—
(2,142)
3,453
659
3,814
1,412
11,043
3,723
870
(15)
770
(5,353)
3,589
462
3,534
1,891
9,471
74,228
12,134
9,374
2,676
8,586
6,212
216
36
7,834
16,635
137,931
45,182
67,765
11,328
8,358
869
5,878
5,930
204
—
—
14,937
115,269
53,331
23,022
67
1,190
256,998
64,497
25,095
89,592
167,406
575
166,831
4,030
168
(1,920)
1,141
(4,122)
3,576
2,998
3,099
1,367
10,337
64,560
10,079
8,360
2,115
5,663
5,792
(94)
(27)
—
15,235
111,683
65,485
9,188
1,320
10,508
34,674 $
1.18 $
1.18 $
10,439
1,613
12,052
41,279 $
1.44 $
1.44 $
8,574
1,821
10,395
55,090
1.92
1.92
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
74
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Net income
Other comprehensive income (loss), net of tax:
Amortization of prior service credits, net of taxes of $26, $26 and $12 for
the years ended December 31, 2020, 2019 and 2018, respectively
Amortization of net actuarial losses, net of taxes of ($120), ($40) and
($167) for the years ended December 31, 2020, 2019 and 2018,
respectively
Unrecognized actuarial gains (losses), net of taxes of $484, ($290) and
($1,162) for the years ended December 31, 2020, 2019 and 2018,
respectively
Change in net unrealized gains (losses) on securities available for sale, net
of taxes of ($2,169), ($5,211) and $4,473 for the years ended
December 31, 2020, 2019 and 2018, respectively
Reclassification adjustment for net losses included in net income, net of
taxes of ($216), ($5) and ($595) for the years ended December 31, 2020,
2019 and 2018, respectively
Net unrealized (loss) gain on cash flow hedges, net of taxes of $5,177,
$4,353 and ($1,538) for the years ended December 31, 2020, 2019 and
2018, respectively
Change in fair value of liabilities related to instrument-specific credit risk,
net of taxes of ($367), ($74) and ($35) for the years ended
December 31, 2020, 2019 and 2018, respectively
For the years ended December 31,
2018
2019
2020
(in thousands)
$
34,674 $
41,279 $
55,090
(59)
(59)
(27)
270
88
363
(1,112)
661
2,484
4,787
11,657
(10,127)
485
10
1,325
(11,658)
(9,567)
3,423
828
155
87
Total other comprehensive income (loss), net of tax
(6,459)
2,945
(2,472)
Comprehensive net income
$
28,215 $
44,224 $
52,618
The accompanying notes are an integral part of these consolidated financial statements.
75
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
Balance at December 31, 2017
$
532,608
315
217,906
(57,675)
381,048
(8,986)
Total
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated Other
Comprehensive Loss
(Dollars in thousands, except per share data)
Reclassification of the Income Tax Effects of the
Tax Cuts and Jobs Act from Accumulated Other
Comprehensive Income (Loss) to Retained
Earnings
Impact of adoption of Accounting Standard
Update 2016-01
Net income
Award of common shares released from
Employee Benefit Trust (129,601 shares)
Vesting of restricted stock unit awards (258,567
shares)
Exercise of stock options (900 shares)
Stock-based compensation expense
Purchase of treasury shares (787,069 shares)
Repurchase of shares to satisfy tax obligation
(76,698 shares)
Dividends on common stock ($0.80 per share)
Other comprehensive loss, net of tax
Balance at December 31, 2018
Impact of adoption of ASC 842 - Leases
Net income
Award of shares released from Employee Benefit
Trust (154,746 shares)
Vesting of restricted stock unit awards (297,559
shares)
Exercise of stock options (300 shares)
Stock-based compensation expense
Purchase of treasury shares (40,000 shares)
Repurchase of shares to satisfy tax obligation
(84,290 shares)
Dividends on common stock ($0.84 per share)
Other comprehensive income, net of tax
Balance at December 31, 2019
Adoption of ASC 326- Credit Losses
Net income
Shares issued in acquisition of Empire Bancorp,
Inc. (2,557,028 shares)
Award of shares released from Employee Benefit
Trust (145,447 shares)
Vesting of restricted stock unit awards (281,636
shares)
Stock-based compensation expense
Purchase of treasury shares (142,405 shares)
Repurchase of shares to satisfy tax obligation
(77,611 shares)
Dividends on common stock ($0.84 per share)
Other comprehensive loss, net of tax
—
—
55,090
2,728
—
6
7,016
(20,438)
(2,147)
(22,927)
(2,472)
549,464
2,716
41,279
2,307
—
3
7,763
(771)
(1,885)
(24,149)
2,945
579,672
(875)
34,674
32,705
1,520
—
6,450
(2,342)
(1,535)
(24,813)
(6,459)
—
—
—
—
—
—
—
—
—
—
—
315
—
—
—
—
—
—
—
—
—
—
315
—
—
26
—
—
—
—
—
—
—
Balance at December 31, 2020
$
618,997 $
341 $
—
—
—
2,728
(4,929)
(1)
7,016
—
—
—
—
222,720
—
—
2,307
(6,099)
—
7,763
—
—
—
—
226,691
—
—
32,679
1,520
(5,807)
6,450
—
—
—
—
—
5,104
10
—
(20,438)
(2,147)
—
—
(75,146)
—
—
—
6,309
6
—
(771)
(1,885)
—
—
(71,487)
—
—
—
—
5,964
—
(2,342)
2,073
(779)
55,090
—
(175)
(3)
—
—
—
(22,927)
—
414,327
2,716
41,279
—
(210)
(3)
—
—
—
(24,149)
—
433,960
(875)
34,674
—
—
(157)
—
—
(2,073)
779
—
—
—
—
—
—
—
—
(2,472)
(12,752)
—
—
—
—
—
—
—
—
—
2,945
(9,807)
—
—
—
—
—
—
—
—
—
—
261,533 $
(1,535)
—
—
(69,400) $
—
(24,813)
—
442,789 $
—
—
(6,459)
(16,266)
The accompanying notes are an integral part of these consolidated financial statements.
76
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:
Provision for credit losses
Depreciation and amortization of premises and equipment
Net gain on sales of loans
Net loss on sales of securities
Net loss (gain) on sales of OREO
Net gain on sales of assets
Amortization of premium, net of accretion of discount
Fair value adjustments for financial assets and financial liabilities
Net loss from fair value adjustments of qualifying hedges
Income from bank owned life insurance
Life insurance proceeds
Stock-based compensation expense
Deferred compensation
Amortization of core deposit intangibles
Deferred income tax
Decrease in other assets
Increase 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 calls of securities held-to-maturity
Proceeds from prepayments 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 assets
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 OREO, net
Cash used in acquisition of Empire Bancorp, Inc.
Cash provided by acquisition of Empire Bancorp, Inc.
Net cash provided by (used in) investing activities
For the years ended December 31,
2018
2019
2020
(In thousands)
$ 34,674 $
41,279
$ 55,090
23,129
6,212
(48)
701
36
—
6,446
2,142
1,185
(3,814)
(659)
6,450
(4,403)
108
(4,637)
2,605
1,151
71,278
2,811
5,930
(870)
15
—
(770)
7,110
5,353
1,677
(3,534)
(462)
7,763
(3,078)
—
(3,895)
706
3,735
63,770
(2,512)
14,617
—
180
603
(217,405)
232,970
271,533
—
—
2,477
(55,276)
(193,289)
7,493
203
(54,836)
86,340
93,098
(4,213)
361
(30,030)
2,568
583
(146,183)
65,493
144,673
813
(25,000)
3,071
(800)
(221,222)
15,117
—
—
—
(194,769)
575
5,792
(168)
1,920
(27)
(1,141)
8,146
4,122
—
(3,099)
(2,998)
7,016
(3,061)
—
(2,664)
824
6,976
77,303
(5,409)
2,807
(2,653)
1,130
377
(305,059)
128,474
73,968
1,184
—
6,165
(111,351)
(282,703)
14,410
665
—
—
(477,995)
Continued
The accompanying notes are an integral part of these consolidated financial statements.
77
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Financing Activities
Net increase in non interest-bearing deposits
Net increase in interest-bearing deposits
Net (decrease) increase in mortgagors' escrow deposits
Net proceeds from short-term borrowed funds
Proceeds from long-term borrowings
Repayment of long-term borrowings
Purchases of treasury stock
Proceeds from issuance of common stock upon exercise of stock options
Cash dividends paid
Net cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
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:
Loans transferred to other real estate owned
Right-of-use assets
Operating lease liabilities
Reclassification of the income tax effects of Tax Cuts and Jobs Act from
accumulated other comprehensive income to retained earnings
For the years ended December 31,
2018
2019
2020
(In thousands)
$ 174,104 $
39,591
(5,159)
—
215,378
(451,999)
(3,877)
—
(24,813)
(56,775)
107,601
49,787
$ 157,388 $
21,325
84,540
(486)
15,750
225,000
(257,102)
(2,656)
3
(24,149)
62,225
(68,774)
118,561
49,787
$ 28,478
546,322
2,255
165,250
40,996
(270,088)
(22,585)
6
(22,927)
467,707
67,015
51,546
$ 118,561
$
71,380 $ 115,616
15,369
17,919
$ 85,112
6,616
17,764
15,403
7,245
—
—
—
—
239
42,869
51,780
673
—
—
2,073
Continued
The accompanying notes are an integral part of these consolidated financial statements.
78
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Acquisition of Empire Bancorp, Inc. non-cash activities
Assets acquired:
Securities available for sale
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
Core deposit Intangibles
Right of Use Asset
Other assets
Liabilities assumed:
Due to depositors:
Non-interest bearing
Interest-bearing
Mortgagors' escrow deposits
Borrowed funds
Operating lease liability
Other liabilities
Goodwill recorded
Common stock issued
For the years ended December 31,
2018
2019
2020
(In thousands)
$ 159,369
669,682
$
5,394
3,203
1,135
21,992
3,280
9,993
22,300
896,348
169,496
685,393
6,406
21,215
11,039
3,108
896,657
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
1,509
32,705
$
$
— $
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
79
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the years ended December 31, 2020, 2019 and 2018
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 deposits from public entities and the general public, while
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 twenty-five full-service banking offices, nine of which are located in Queens County, five
in Nassau County, three in Suffolk County, five in Kings County (Brooklyn), and three in New York County (Manhattan),
New York. The Bank also operates an internet branch, which operates under the brands of iGObanking.com® and
BankPurely® (the “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 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). The
Holding Company 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 the Holding Company. 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. See Note 10,
“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.
80
Use of Estimates:
In December 2019, a novel coronavirus (COVID-19) was reported in China, and, in March 2020, the World
Health Organization declared it a pandemic. The outbreak of COVID-19 has adversely impacted a broad range of industries
in which the Company’s customers operate and could impair their ability to fulfill their financial obligations to the
Company. The World Health Organization has declared COVID-19 to be a global pandemic indicating that almost all
public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate
of new infections. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted
banking and other financial activity in the areas in which the Company operates.
As a result of the emergence of the pandemic and the uncertainty, it is not possible to determine the overall impact
of the pandemic on the Company’s business. However, if the pandemic continues for an extended period of time, there
could be a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.
On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief and Economic
Security (“CARES”) Act in response to the coronavirus pandemic. This legislation aims at providing relief for individuals
and businesses that have been negatively impacted by the coronavirus pandemic. On December 27, 2020, the 2021
Consolidated Appropriations Act (“CAA”) was signed into law, providing for, among other things, further suspension of
the exception for loan modifications to not be classified as “troubled debt restructuring” (“TDR”) if certain criteria are
met, as described below.
The CARES Act includes a provision for the Company to opt out of applying the TDR accounting guidance in
Accounting Standards Codification (“ASC”) 310-40 for certain loan modifications. Loan modifications made between
March 1, 2020 and the earlier of i) December 31, 2020 or ii) 60 days after the President declares a termination of the
COVID-19 national emergency are eligible for this relief if the related loans were not more than 30 days past due as of
December 31, 2019. The Bank adopted this provision and at December 31, 2020, we have 134 active forbearances for
loans with an aggregate outstanding loan balance of approximately $364.4 million resulting in total deferment of $23.6
million in principal, interest and escrow, as disclosed more fully in Note 4 (“Loans”) of the Notes to the Consolidated
Financial Statements.
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, including COVID-19 related changes, are used in connection
with the determination of the allowance for credit losses, the evaluation of goodwill for impairment, the review of the need
for a valuation allowance of the Company’s deferred tax assets and the fair value of financial instruments.
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,
2020 and 2019, the Company’s cash and cash equivalents totaled $157.4 million and $49.8 million, respectively. Included
in cash and cash equivalents at those dates were $133.7 million and $36.5 million, respectively, 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 New York (“FHLB-NY”). At December 31, 2020, the Company’s cash and cash equivalents included restricted
cash totaling $63.5 million. These funds are pledged as collateral for unrealized losses on interest-rate swaps. In prior
periods the Company was required to maintain reserves at the Federal Reserve in an amount equal to a percentage of
certain deposits as set by the Federal Reserve. Effective March 26, 2020, as part of the CARES Act, the Federal Reserve
temporarily removed this requirement. The reserve requirement for December 31, 2019 was $14.4 million and was
included in total cash and cash equivalents.
81
Securities:
Securities are classified as held-to-maturity when management intends to hold the securities until maturity. Held-
to-maturity securities are stated at amortized cost, adjusted for unamortized purchase premiums and discounts and an
allowance for credit losses. 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.
Unrealized gains and losses on securities available for sale are excluded from earnings and reported as part of accumulated
other comprehensive loss, net of taxes. 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.
Effective January 1, 2020, the Company adopted Accounting Standards Topic 326, “Financial Instruments –
Credit Losses” which replaced the previously existing U.S. GAAP “incurred loss” approach to “expected credit losses”
approach, which is referred as Current Expected Credit Losses (“CECL”). CECL modifies the accounting of impairment
on available-for-sale debt securities by recognizing a credit loss through an allowance for credit losses. See Note 7
(“Securities”) of the Notes to the Consolidated Financial Statements.
The Company recorded tax exempt interest income totaling $1.9 million, $2.0 million and $3.4 million during
the years ended December 31, 2020, 2019 and 2018, respectively.
Goodwill:
Goodwill is presumed to have an indefinite life and is tested annually for impairment, or more frequently when
certain conditions are met. If the fair value of the reporting unit is greater than the carrying value, no further evaluation is
required. If the fair value of the reporting unit is less than the carrying value, further evaluation would be required to
compare the fair value of the reporting unit to the carrying value and determine if impairment 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.
Volatility in the Company’s stock price primarily driven by the COVID-19 pandemic has resulted in the net book
value of our reporting unit exceeding market capitalization, however, the fair value of our reporting unit is not driven
solely by the market price of our stock. As described above, fair value of our reporting unit is derived using a combination
of an asset approach, an income approach and a market approach. These valuation techniques consider several other factors
beyond our market capitalization, such as the estimated future cash flows of our reporting unit, the discount rate used to
present value such cash flows and the market multiples of comparable companies. Changes to input assumptions used in
the analysis could result in materially different evaluations of goodwill impairment. We qualitatively assess whether the
carrying value of our reporting unit exceeds fair value. If this qualitative assessment determines that it is more likely than
not that the carrying value exceeds fair value, further qualitative evaluation for impairment would be required to compare
the fair value of the reporting unit to the carrying value and determine if impairment is required.
In performing the goodwill impairment testing, the Company has identified a single reporting unit. The Company
performed the quantitative assessment in reviewing the carrying value of goodwill as of December 31, 2020, and the
qualitative assessment as of December 31, 2019 and 2018, concluding that there was no goodwill impairment in any period.
At December 31, 2020 and 2019, the carrying amount of goodwill totaled $17.6 million and $16.1 million, respectively.
The increase in the goodwill resulted from the consummation of merger with Empire Bancorp, Inc. 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.
82
Loans:
Loans are reported at their outstanding principal balance net of any unearned income, charge-offs, deferred loan
fees and costs on originated loans and unamortized premiums or discounts on purchased loans. Loan fees and certain loan
origination costs are deferred. Net loan origination costs and premiums or discounts on loans purchased are amortized into
interest income over the contractual life of the loans using the level-yield method. Prepayment penalties received on loans
which pay in full prior to their scheduled maturity are included in interest income in the period they are collected.
Interest on loans is recognized on the accrual basis. Accrued interest receivable totaled $41.5 million and $19.7
million at December 31, 2020 and 2019, respectively and was reported in “Interest and dividends receivable” on the
Consolidated Statements of Financial Condition. 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. Payments received on non-accrual loans that do not bring the loan to less than 90
days delinquent are recorded on a cash basis. 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 likely to occur.
Pursuant to the CARES Act, loan modifications made between March 1, 2020 and the earlier of i) December 30,
2020 or ii) 60 days after the President declares a termination of the COVID-19 national emergency are not classified as
TDRs if the related loans were not more than 30 days past due as of December 31, 2019. On December 27, 2020, the CAA
was signed into law, providing for, among other things, further suspension of the exception for loan modifications to not
be classified as TDR if certain criteria are met, as described below. The Company has elected that loans temporarily
modified for borrowers directly impacted by COVID-19 are not considered TDR, assuming the above criteria is met and
as such, these loans are considered current and continue to accrue interest at its original contractual terms. Deferrals
granted under the CARES Act are deemed in accrual status and interest income is accrued until the end of deferral period
even if there are no payments being collected. When the forbearance period is over, borrowers are expected to resume
contractual payments. The determination of whether a loan is past due is based on the modified terms of the agreement.
Once the deferral period is over, the borrower will resume making payments and normal delinquency-based non-accrual
policies will apply.
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 the loan is well secured and there is, in our opinion, compelling
evidence the borrower will bring the loan current in the immediate future. Prior to a real estate secured loan becoming 90
days delinquent, an updated appraisal is ordered and/or an internal evaluation is prepared.
The Company 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, 2020 and 2019 were performing loans that did not
display credit deterioration from origination at the time of purchase and therefore were not considered impaired when
purchased. The Company purchased loans totaling $193.3 million, $221.2 million and $294.6 million during the years
ended December 31, 2020, 2019 and 2018. The Company sold loans totaling $7.4 million, $13.7 million and $14.0 million
during the years ended December 31, 2020, 2019 and 2018.
Allowance for Credit Losses:
The Allowance for credit losses (“ACL”) is an estimate that is deducted from the amortized cost basis of the
financial asset to present the net carrying value at the amount expected to be collected on the financial assets. Loans are
charged off against that ACL when management believes that a loan balance is uncollectable based on quarterly analysis
of credit risk.
83
As of January 1, 2020, the Company adopted Topic 326, as disclosed in Note 22.
The amount of the ACL is based upon a loss rate model that considers multiple factors which reflects
management’s assessment of the credit quality of the loan portfolio. Management estimates the allowance balance using
relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and
supportable forecasts. The factors are both quantitative and qualitative in nature including, but not limited to, historical
losses, economic conditions, trends in delinquencies, value and adequacy of underlying collateral, volume and portfolio
mix, and internal loan processes.
The quantitative allowance is calculated using a number of inputs and assumptions. The process and guidelines
were developed using, among other factors, the guidance from federal banking regulatory agencies and GAAP. The results
of this process, support management’s assessment as to the adequacy of the ACL at each balance sheet date.
The process for calculating the allowance for credit losses begins with our historical losses by portfolio segment.
The losses are then incorporated into reasonable and supportable forecast to develop the quantitative component of the
allowance for credit losses.
The Bank has established an Asset Classification Committee which carefully evaluates loans which are past due
90 days and/or are classified. The Asset Classification Committee thoroughly assesses the condition and circumstances
surrounding each loan meeting the criteria. The Bank also has a Delinquency Committee that evaluates loans meeting
specific criteria. The Bank’s loan policy requires loans to be placed into non-accrual status once the loan becomes 90 days
delinquent unless there is, compelling evidence the borrower will bring the loan current in the immediate future.
For the quantitative measurement, the Company’s portfolio consists of mortgage loans secured by real estate
(both commercial and retail) and non-mortgage loans, which are primarily commercial business term loans and line of
credit. Based on the Company’s evaluation of the loan portfolio, listed below are the pools that were established as a
baseline level of segmentation with their primary risk factor. The Company confirms this data remains relevant in absence
of changes to the composition of the portfolio.
The mortgage portfolio is a substantial component of Company’s portfolio and it is a focus of the Company’s
lending strategy, primarily focusing on multi-family and commercial real estate. While the mortgage portfolio consists of
real-estate secured loans, the source of repayment and types of properties securing these loans varies and thus the Company
first considered these differences as follows:
1.
One-to-four family residential property – These loans are secured by residential properties for which
the primary source of repayment is the income generated by the residential borrower. Delinquency status is considered a
risk factor in this pool.
2.
One-to-four family mixed use – These loans are secured by residential properties for which the primary
source of repayment is the income generated by the property. Unlike the one-to-four residential credits, properties securing
mixed use loans include a commercial space component. Delinquency status is considered a risk factor in this pool.
3.
Multi-family residential – These loans are secured by multi-unit residential buildings for which the
primary source of repayment is the income generated by the property. Properties securing multifamily loans have five or
more residential units and thus a greater number of cash flow streams compared to one-to-four mixed use loans.
Delinquency status and risk rating are considered risk factors in this pool.
4.
Commercial real estate (CRE) – These loans are secured by properties for commercial use for which
the primary source of repayment is the income generated by the property. Delinquency status, risk rating and collateral
type are considered risk factors in this pool.
Construction – These loans are provided to fund construction projects for both residential and
commercial properties. These loans are inherently different from all others as they represent “work in progress” and expose
5.
84
the Company to risk from non-completion and less recovery value should the sponsor of an unfinished property default.
Delinquency status and risk rating are considered risk factors in this pool.
Relative to the non-mortgage portfolio, the Company considered the following categories as a baseline for
evaluation:
6.
Commercial Business – These loans are not typically secured by real estate. The primary source of
repayment is cash flows from operations of the borrower’s business. Within this category are Small Business
Administration (“SBA”) credits and equipment finance credits. Delinquency status, risk rating and industry are considered
a risk factors in this pool.
7.
Commercial Business secured by real estate – These loans are secured by properties used by the
borrower for commercial use where the primary source of repayment is expected to be the income generated by the
borrower’s business use of the property. As a result of the Coronavirus pandemic and the strain placed upon many
businesses, the Company recognized in circumstances where the borrower is not performing, the real estate collateral
would be the source of repayment. The Company considers these credits to be less risky than commercial business loans,
however, riskier than commercial real estate loans. Delinquency status, risk rating and industry are considered risk factors
in this pool.
8.
Taxi Medallions – These loans consist primarily of loans made to New York taxi medallion owners and
are secured by liens on the taxi medallions. No new taxi medallions have been originated since 2014, the remaining
portfolio is running off and all credits are individually evaluated for expected credit losses.
9.
Company’s portfolio.
Overdrafts – These are unsecured consumer lines of credits and are an immaterial component of the
For the qualitative measurement, the Company aggregated the portfolio segments according to three business
units: business banking, residential and commercial real estate. In accordance with the interagency statement and SEC
guidance, Management evaluates nine qualitative risk factors to determine if the risk is captured elsewhere in the ACL
process. If not captured elsewhere, the Company has identified specific risk factors to evaluate and incorporate into its
Qualitative Framework. Some risk factors include time to maturity, origination loan-to-value, loan type composition, the
value of underlying collateral, changes in policies and procedures for lending strategies and underwriting standards,
collection and recovery practices, internal credit review, changes in personnel, divergence between the levels of NYC and
national unemployment, divergence between the NYC GDP and national GDP, industry concentrations and riskiness and
large borrower concentrations.
The Company recorded a provision for loans losses totaling $22.6 million, $2.8 million and $0.6 million for the
years ended December 31, 2020, 2019 and 2018, respectively. The increase in the provision in 2020 was primarily due to
the economic conditions resulting from COVID-19. The Company specifies both the reasonable and supportable forecast
and reversion periods in three economic conditions (expansion, transition, contraction). When calculating the ACL
estimate for December 31, 2020, Management acknowledged deteriorated economic conditions as a result of the COVID-
19 pandemic were captured in the forecast within the model platform. As such, when determining the reasonable and
supportable forecast, Management adjusted the period to reflect a forecast of four quarters, to align with a previously
established framework for contraction periods. Similarly, the reversion period was adjusted to four quarters.
The Company may restructure loans that are not directly impacted by COVID-19 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 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 individually evaluated, however TDR loans which have been current for six consecutive months at the time
85
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-accrual
performing TDR loans until they have made timely payments for six consecutive months. These restructurings have not
included a reduction of principal balance.
Purchased financial assets with credit deterioration:
Purchased financial assets with credit deterioration (“PCD”) assets are acquired in an acquisition and which have
experienced more-than-insignificant deterioration in credit quality since origination. PCD assets are accounted for in
accordance with ASC 326, where the purchased impaired asset will be grossed up initial amortized cost equal to the sum
of purchase price and the estimate of credit losses at the time of acquisition. Day 1 ACL is established for these loans
without statement of operations effect. At October 30, 2020, the Company acquired PCD assets with a fair value totaling
$286.1 million. The Company recorded Day 1 ACL of $4.1 million allowance for loans losses resulting from PCD loans.
Loans Held for Sale:
Loans held for sale are carried at the lower of cost or estimated fair value. At December 31, 2020 and 2019, 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 Company 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:
OREO consists of property acquired through foreclosure. At the time of foreclosure these properties are acquired
at fair value and subsequently carried at the lower of cost or 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 of the loan, the difference is recognized as a charge to the ALL. Further decreases to the
estimated value will be recorded directly to the Consolidated Statements of Income. Included within net loans as of
December 31, 2020 and 2019, was a recorded investment of $5.9 million and $6.6 million, respectively, 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.
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, recorded in the Depreciation Expense in Consolidated Statements of Income.
For equipment and furniture the useful life is between 3 to 10 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.
86
Federal Home Loan Bank Stock:
The FHLB-NY has assigned to the Company a mandated membership stock ownership requirement, based on its
asset size. In addition, for all borrowing activity, the Company 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 Company’s borrowing levels.
The Company 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, 2020, 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, 2020.
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 basis 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. Uncertain tax
positions that meet the more likely than not recognition threshold are measured to determine the amount to recognize. An
uncertain tax position is measured at the amount that management believes has a greater than 50% likelihood of realization
upon settlement. 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. Forfeitures are recorded in the period they occur.
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 on a gross basis in
“Other assets” and/or “Other liabilities”. The accounting for changes in value of a derivative depends on the type of hedge
and on whether or not the transaction has been designated and qualifies for hedge accounting. Derivatives that are not
87
designated as hedges are reported and measured at fair value through earnings and included in Net loss from fair value
adjustments on the Consolidated Statements of Income.
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 at least quarterly. For cash flow hedges, the changes in the
fair value of the derivative is recorded as a component of accumulated other comprehensive income or loss, net of tax, and
subsequently reclassified into earnings when the hedged transaction effects earnings. For fair value hedges, the gain or
loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, is recognized
in earnings on the same line as hedged item. If it is determined that a derivative is not highly effective at hedging the
designated exposure, hedge accounting is discontinued. Changes in the fair value of derivatives are disclosed in the
Consolidated Statements of Cash Flows within operating activities in the line items Fair Value Adjustment for Financial
Assets and Financial Liabilities and net loss from fair value adjustments on qualifying hedges.
Leases:
In 2019, the Company adopted Topic 842, Leases, by recording a cumulative adjustment at adoption. Topic 842
provides a number of optional practical expedients in transition. The Company has elected the “package of practical
expedients”, which permits the Company not to reassess prior conclusions about lease identification, lease classification
and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land
easements; the latter not being applicable to the Company. Topic 842 also provides certain accounting policy elections for
an entity’s ongoing accounting. For operating leases wherein the Company is the lessee, the Company has elected the
practical expedient to not separate lease and non-lease components. Upon adoption, the Company recorded right of use
assets totaling $45.4 million and operating lease liabilities totaling $54.0 million. Additionally, a deferred gain from the
sale of buildings totaling $2.7 million, net of tax, was reclassified to retained earnings. Prior period financial statements
were not adjusted under the new standard.
The Company has 28 operating leases for branches (including the headquarters) and office spaces, 10 operating
leases for vehicles, and one operating lease for equipment. Additionally, one of our leased locations is subleased. Our
leases have remaining lease terms ranging from one month to approximately 15 years, none of which has a renewal option
reasonably certain of exercise, which has been reflected in the Company’s calculation of lease term.
The Company has elected the short-term lease recognition exemption such that the Company will not recognize
Right of Use assets or lease liabilities for leases with a term of less than 12 months from the commencement date. The
Company’s operating lease expense was recorded in Occupancy and equipment on the Consolidated Statements of Income,
and totaled $7.7 million and $7.6 million for the years ended December 31, 2020 and 2019, respectively. The Company
has one agreement that qualifies as a short-term lease with expense totaling $0.1 million for each of the years ended
December 31, 2020 and 2019, included in Professional services on the Consolidated Statements of Income. The
Company’s variable lease payments, which include insurance and real estate tax expenses was recorded in Occupancy and
equipment on the Consolidated Statements of Income and totaled $1.1 million and $1.0 million for the years ended
December 31, 2020 and 2019, respectively. At December 31, 2020, the weighted-average remaining lease term for our
operating leases is approximately eight years and the weighted average discount rate is 3.2%. Our lease agreements do not
contain any residual value guarantees.
Certain leases have escalation clauses for operating expenses and real estate taxes. The Company’s non-
cancelable operating lease agreements expire through 2036.
Comprehensive Income:
Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive
income (loss) includes (i) unrealized gains and losses on securities available for sale and reclassification adjustments for
88
realized gains and losses on securities available for sale; (ii) unrealized gains and losses on derivatives in cash flow hedge
relationships and reclassifications of deferred gains and losses when the hedge item impacts earnings; (iii) adjustments to
net periodic pension costs; and (iv) changes in the fair value of instrument-specific credit risk from the Company’s
liabilities carried at fair value pursuant to the fair value option.
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 $1.8
million, $2.2 million and $2.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, recorded in
the professional services in the Consolidated Statements of Income.
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 non-forfeitable 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:
Net income, as reported
Divided by:
Weighted average common shares outstanding
Weighted average common stock equivalents
Total weighted average common shares
outstanding and common stock equivalents
Basic earnings per common share
Diluted earnings per common share
Dividend Payout ratio
2020
2019
(In thousands, except per share data)
$ 55,090
$ 34,674
$ 41,279
2018
29,301
—
28,709
—
28,709
1
29,301
28,709
28,710
$
$
1.18
1.18
71.2 %
$
$
1.44
1.44
58.3 %
$
$
1.92
1.92
41.7 %
There were no options that were anti-dilutive for the years ended December 31, 2020, 2019 and 2018.
3. Business Combination
On October 30, 2020, the Company completed its acquisition of 100% of the outstanding voting and non-voting
shares of Empire Bancorp, Inc. (“Empire”). In connection with the transaction, Empire National Bank (“Empire Bank”),
a wholly-owned subsidiary of Empire, merged with and into Flushing Bank, with Flushing Bank as the surviving entity.
89
The shareholders of Empire received total consideration of $87.5 million which consisted of $54.8 million in cash and
2,557,028 shares of Flushing Financial Corporation common stock.
The merger was accounted for under the acquisition method of accounting, in which the assets and liabilities are
acquired at preliminary estimated fair values at the merger date. The excess of the fair value of the consideration paid over
the preliminary net fair value of Empire’s assets and liabilities resulted in recognition of goodwill totaling $1.5 million,
none of which is deductible for tax purposes. Upon closing of the merger, the Company’s assets increased by $982.7
million and four new branch locations were added, which expanded our presence on Long Island with having entrance to
Suffolk County.
The assets acquired and liabilities assumed in the merger were recorded at their estimated fair values based on
management’s best estimates, using the information available at the date of merger, including the use of third party
valuation specialists. The fair values are subject to adjustment for up to one year after the closing date of the transaction.
The following table summarizes the consideration paid:
(Dollars in thousands)
Consideration Paid :
Company stock issued ( 2,557,028 shares )
Cash payment
Total consideration paid
Amount
$
$
32,705
54,836
87,541
The following table summarizes the estimated fair value of the acquired assets and liabilities assumed at October
30, 2020:
(Dollars in thousands)
Assets acquired:
Cash and Cash Equivalents
Securities available for sale
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
Core deposit Intangibles
Right of Use Asset
Other assets
Liabilities assumed:
Due to depositors:
Non-interest bearing
Interest-bearing
Mortgagors' escrow deposits
Borrowed funds
Operating lease liability
Other liabilities
Goodwill recorded
90
Amount
86,340
159,369
669,682
5,394
3,203
1,135
21,992
3,280
9,993
22,300
982,688
169,496
685,393
6,406
21,215
11,039
3,108
896,657
1,509
$
$
$
$
ASC 805-10 provides guidance for business combinations, it requires the acquirer to consider all pertinent factors
which could result in adjustments to the preliminary provisional amounts and subsequently measure and account for assets
acquired, liabilities assumed and equity instruments. Fair value estimates related to acquired assets and liabilities are
subject to adjustment up to one year after the closing date of the acquisition as additional information becomes available.
Investments were measured upon quoted market prices, where available. If a quoted market price was not
available, fair value was estimated using quoted market prices for similar securities and adjusted for differences between
the quoted instrument and the instrument being valued.
Loans acquired were recorded at fair value and subsequently accounted for in accordance with ASC Topic 310.
The fair values of the loans were estimated utilizing the cash flow projections based on the remaining maturities and
repricing terms. Cash flows were adjusted for estimated future credit losses and estimated prepayments. Projected cash
flows were then discounted to present value, utilizing the Company’s CECL model. The Company recorded Day 1 ACL
of $4.1 million resulting from PCD loans and non credit discount of $7.6 million.
Core deposit intangibles (“CDI”) were recorded at fair value estimated based on discounted cash flow
methodology that gave appropriate consideration to expected client attrition rates, cost of deposit base, reserve
requirements, net maintenance cost attributable to client deposits and an estimate of the cost associated with alternative
funding sources. The discount rates used for CDI assets are based on market rates. The CDI is being amortized over 10
years based upon the estimated economic benefit received using sum of months digit method.
Deposits were recorded at fair value calculated based on discounted cash flow calculation using the current
interest rate being offered to the contractual interest rates on such deposits.
Long-term debt was recorded at fair value based on current incremental borrowing rates for similar type of
instruments.
Supplemental Pro Forma Financial Information
The following table presents unaudited financial information regarding the former Empire operations included in
Company’s Consolidated Statements of Income from the date of the acquisition (October 30, 2020) through December 31,
2020, under the column “Actual from Acquisition Date to December 31, 2020”. In addition, the table presents unaudited
condensed pro forma financial information assuming that the acquisition had been completed as of beginning of the full
twelve month periods presented. In the table, merger related expenses totaling $6.9 million were excluded. The table has
been prepared for comparative purposes only and does not reflect cost savings.
Actual from Acquisition Date
to December 31, 2020 (1)
Unaudited Proforma
for the twelve months
ended December 31,
2020
Unaudited Proforma
for the twelve months
ended December 31,
2019
(Dollars in thousands)
Net interest Income
Non-Interest Income (loss)
Non-Interest Expense
Income Taxes
Net Income
$
$
4,159
(96)
1,657
706
2,256
$
$
220,153 $
12,142
140,979
16,084
52,659 $
186,894
10,570
125,211
16,025
53,973
(1) Non-interest income (loss) includes $0.3 million from loss on sale of securities.
91
4. Loans and Allowance for Credit Losses
The composition of loans is as follows at December 31:
Multi-family residential
Commercial real estate
One-to-(cid:73)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:68)(cid:80)(cid:76)(cid:79)(cid:92)(cid:3)(cid:650)(cid:3)(cid:80)(cid:76)(cid:91)(cid:72)(cid:71)-use property
One-to-(cid:73)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:68)(cid:80)(cid:76)(cid:79)(cid:92)(cid:3)(cid:650)(cid:3)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)
Co-operative apartments
Construction
Small Business Administration (1)
Taxi medallion
Commercial business and other
Gross loans
Net unamortized premiums and unearned loan fees
Total loans, net of fees and costs
2020
2019
(In thousands)
$ 2,533,952 $ 2,238,591
1,582,008
592,471
188,216
8,663
67,754
14,445
3,309
1,061,478
5,756,935
15,271
$ 6,704,674 $ 5,772,206
1,754,754
602,981
245,211
8,051
83,322
167,376
2,757
1,303,225
6,701,629
3,045
(1) Includes $151.9 million of SBA PPP loans at December 31, 2020.
The majority of our loan portfolio is invested in multi-family residential, commercial real estate and commercial
business and other loans, which totaled 83.4% and 84.8% of our gross loans at December 31, 2020 and 2019, respectively.
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 provision for loan losses and to maintain an ACL
as a percentage of total loans in excess of the allowance currently maintained. At December 31, 2020, we were servicing
$62.0 million of loans for others.
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 Company adheres to defined 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 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
92
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.
The following tables show loans modified and classified as TDR during the periods indicated:
(Dollars in thousands)
For the year ended
December 31, 2020
Number Balance
Modification description
Commercial real estate
One-to-four family - mixed-use property
Total
1 $
1
2 $
7,583
Loan received a below market interest rate
and had an amortization extension
270 Loan received a below market interest rate.
7,853
(Dollars in thousands)
Commercial business and other
Total
(Dollars in thousands)
Commercial business and other
Total
For the year ended
December 31, 2019
Number Balance
Modification description
3 $
3 $
951 Loan amortization extension.
951
For the year ended
December 31, 2018
Number Balance
Modification description
1 $ 1,620 Loan amortization extension.
1 $ 1,620
The recorded investment of the loans modified and classified as TDR, presented in the tables above, were
unchanged as there was no principal forgiven in these modifications. There were seven loans that were acquired as TDR
in the acquisition totaling $3.5 million.
93
The following table shows our recorded investment for loans classified as TDR at amortized cost 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
Taxi medallion
Commercial business and other
Total performing
(Dollars in thousands)
Multi-family residential
One-to-four family - mixed-use property
One-to-four family - residential
Taxi medallion
Commercial business and other
Total performing
December 31, 2020
Number
of contracts
Amortized
Cost
6
1
5
3
2
8
25
$
$
1,700
7,702
1,731
507
440
3,831
15,911
December 31, 2019
Number
of contracts
Recorded
investment
7
4
3
7
3
24
$
$
1,873
1,481
531
1,668
941
6,494
The following table shows our recorded investment for loans classified as TDR at amortized cost that are not
performing according to their restructured terms at the periods indicated:
(Dollars in thousands)
Taxi medallion
Commercial business and other
Total troubled debt restructurings that subsequently defaulted
(Dollars in thousands)
Taxi medallion
Commercial business and other
Total TDR's that subsequently defaulted
December 31, 2020
Number
of contracts
Amortized
Cost
11
1
12
$
$
1,922
279
2,201
December 31, 2019
Number
of contracts
Recorded
investment
4
1
5
$
$
1,065
279
1,344
During the year ended December 31, 2020 and 2019, there were no defaults of TDR loans within 12 months of
their modification date.
94
The following table shows our non-accrual loans at amortized cost with no related allowance and interest income
recognized for loans ninety days or more past due and still accruing for period shown below:
At or for the year December 31, 2020
Non-
accrual
amortized
cost
beginning
of the
reporting
period
Non-
accrual
amortized
cost ending
of the
reporting
period
Non-
accrual
with no
related
Interest
income
recognized
Loans
ninety days
or more
past due
and still
accruing:
201
2,547
—
—
—
—
—
2,748
— $
—
—
—
—
—
58
58 $
(In thousands)
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property (1)
One-to-four family - residential
Small Business Administration
Taxi medallion(1)
Commercial business and other(1)
Total
$
$
2,723 $
2,714
1,704
9,992
1,169
2,318
7,406
28,026 $
2,576 $
1,766
1,706
5,313
1,168
2,758
5,660
20,947 $
allowance
2,576 $
1,766
1,706
5,313
1,168
2,758
1,593
16,880 $
(1)
Included in the above analysis are non-accrual performing TDR one-to-four family – mixed-use property totaling $0.3 million, non-accrual
performing TDR taxi medallion loans totaling $0.4 million December 31, 2020 and non-accrual performing TDR commercial business loans totaling
$2.2 million at December 31, 2020.
95
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
$
Total
Non-accrual mortgage loans:
Multi-family residential
Commercial real estate
One-to-four family mixed-use property
One-to-four family residential
Total
At December 31,
2019
445
445
2,296
367
274
5,139
8,076
Non-accrual non-mortgage loans:
Small Business Administration
Taxi medallion (1)
Commercial business and other (1)
1,151
1,641
1,945
4,737
12,813
13,258
Not included in the above analysis are non-accrual performing TDR taxi medallions loans totaling $1.7 million and non-accrual performing
Total non-accrual loans
Total non-performing loans
$
Total
(1)
TDR commercial business loans totaling $0.9 million.
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
$
$
1,845 $
412
1,433 $
1,546 $
418
1,128 $
1,604
623
981
The following tables shows the aging of the amortized cost basis in past-due loans at the period indicated by class
of loans at December 31, 2020:
2020
2019
(In thousands)
2018
(in thousands)
Multi-family residential
Commercial real estate
One-to-(cid:73)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:68)(cid:80)(cid:76)(cid:79)(cid:92)(cid:3)(cid:650)(cid:3)(cid:80)(cid:76)(cid:91)(cid:72)(cid:71)-use
property
One-to-(cid:73)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:68)(cid:80)(cid:76)(cid:79)(cid:92)(cid:3)(cid:650)(cid:3)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)
Co-operative apartments
Construction
Small Business Administration
Taxi medallion
Commercial business and other
Total
$
Greater
than
Total Past
30 - 59 Days 60 - 89 Days
Past Due
$
Past Due
7,582 $
17,903
90 Days Due
Total Loans
3,186 $ 2,777 $ 13,545 $ 2,522,432 $ 2,535,977
1,758,384
5,123
1,731,045
Current
27,339
4,313
5,673
3,087
—
750
1,823
—
129
36,947 $
1,132
805
—
—
—
—
1,273
606,885
252,691
—
83,161
165,570
2,597
1,299,409
11,519 $ 18,915 $ 67,381 $ 6,637,293 $ 6,704,674
598,647
243,486
—
82,411
162,579
279
1,296,414
1,433
5,313
—
—
1,168
2,318
1,593
8,238
9,205
—
750
2,991
2,318
2,995
96
The following table shows by delinquency an analysis of our recorded investment in loans at December 31, 2019:
(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 60 - 89 Days
Past Due
$
Past Due
4,042 $
—
1,563 $ 2,741 $
4,941
367
Greater
than
Total Past
90 Days Due
Current
Total Loans
8,346 $ 2,230,245 $ 2,238,591
1,582,008
5,308
1,576,700
1,117
720
—
—
—
—
2,340
8,219 $
496
1,022
—
—
—
—
5
592,471
188,216
8,663
67,754
14,445
3,309
1,061,478
8,027 $ 12,682 $ 28,928 $ 5,728,007 $ 5,756,935
590,584
181,335
8,663
67,754
13,294
2,244
1,057,188
1,887
6,881
—
—
1,151
1,065
4,290
274
5,139
—
—
1,151
1,065
1,945
The following tables show the activity in the allowance for loan losses for the periods indicated:
For the year ended December 31, 2020
Multi-family Commercial mixed-use
property
residential
real estate
Co-operative Construction Small Business
loans
apartments
Administration medallion
Taxi
Commercial
business and
other
Total
One-to-four
family -
One-to-four
family -
residential
(in thousands)
Allowance for credit
losses:
Beginning balance
Impact of CECL
Adoption
Impact of Day 1 PCD -
Empire Acquisition
Charge-off's
Recoveries
Provision (benefit)
Ending balance
$
(in thousands)
Allowance for credit
losses:
Beginning balance
Charge-off's
Recoveries
Provision (benefit)
$
Ending balance
$
$
5,391 $
4,429 $
1,817 $
756 $
— $
441 $
363 $
— $
8,554 $ 21,751
(650)
1,170
(55)
(160)
—
(279)
1,180
—
(827)
379
444
—
38
1,334
6,557 $
587
—
—
2,141
8,327 $
183
(3)
138
(94)
1,986 $
158
—
12
103
869 $
—
—
—
—
— $
20
—
—
315
497 $
278
(178)
70
538
2,251 $
124
(1,075)
—
951
— $
4,099
2,305
(4,005)
(2,749)
366
108
17,275
22,563
24,666 $ 45,153
For the year ended December 31, 2019
Multi-family Commercial mixed-use
property
residential
real estate
Co-operative Construction Small Business
loans
apartments
Administration medallion
Taxi
Commercial
business and
other
Total
One-to-four
family -
One-to-four
family -
residential
5,676 $
(190)
44
(139)
5,391 $
4,315 $
—
37
77
4,429 $
1,867 $
(89)
197
(158)
1,817 $
749 $
(113)
13
107
756 $
— $
—
—
—
— $
329 $
—
—
112
441 $
418 $
—
60
(115)
363 $
— $
—
134
(134)
— $
7,591 $ 20,945
(2,778)
(2,386)
773
288
3,061
2,811
8,554 $ 21,751
One-to-four
For the year ended December 31, 2018
(in thousands)
Allowance for credit
losses:
Beginning balance
Charge-off's
Recoveries
Provision (benefit)
Ending balance
Multi-family Commercial mixed-use
property
real estate
residential
family -
One-to-four
family -
residential
Co-operative Construction Small Business
loans
apartments
Administration medallion
Taxi
Commercial
business and
other
Total
$
$
5,823 $
(99)
6
(54)
5,676 $
4,643 $
—
—
(328)
4,315 $
2,545 $
(3)
136
(811)
1,867 $
1,082 $
(1)
569
(901)
749 $
— $
—
—
—
— $
68 $
—
—
261
329 $
669 $
(392)
51
90
418 $
— $
(393)
143
250
— $
5,521 $ 20,351
(932)
(44)
951
46
2,068
575
7,591 $ 20,945
97
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 and management believes weakness is
evident then we designate the loan as “Watch”, all other loans would be considered “Pass.” Loans that are non-accrual are
designated as Substandard, Doubtful or Loss. These loan designations are updated quarterly. We designate a loan as
Substandard when a well-defined weakness is identified that may jeopardize 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 Credit Losses. 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. Loans that are in forbearance pursuant to the CARES Act generally continued to be reported in the same category
as they were reported immediately prior to modification.
98
The following table summarizes the risk category of mortgage and non-mortgage loans by loan portfolio segments
and class of loans by year of origination:
For the year ended
2018
2017
2016
Prior
Revolving Loans,
Amortized Cost
Basis
Lines of Credit
converted to
term loans
Total
10,793 $
635
—
—
11,428 $
15,974 $ 234,683
10,585
2,397
1,721
383
1,559
5,702
20,313 $ 252,691
2019
2020
—
—
$ 245,551
$ 343,887
—
—
—
1,115
—
720
—
—
938
—
—
486
—
—
816
—
—
1,359
—
9,436
$ 32,752 $ 37,869 $
$ 37,307 $ 72,920 $
$ 16,768 $ 17,908 $
$ 16,768 $ 16,793 $
$ 32,266 $ 37,149 $
$ 173,089 $ 263,007 $
$ 36,491 $ 72,920 $
(In thousands)
1-4 Family Residential
Pass
Watch
Special Mention
Substandard
Total 1-4 Family Residential
1-4 Family Mixed-Use
Pass
Watch
Special Mention
Substandard
Total 1-4 Family Mixed Use
Commercial Real Estate
Pass
Watch
Special Mention
Substandard
Total Commercial Real Estate $ 174,027 $ 273,802 $
Construction
Pass
Watch
Special Mention
Total Construction
Multifamily
Pass
Watch
Special Mention
Substandard
Total Multifamily
Commercial Business - Secured
by RE
Pass
Watch
Special Mention
Substandard
Total Commercial Business -
Secured by RE
Commercial Business
Pass
Watch
Special Mention
Substandard
Doubtful
Total Commercial Business
Small Business Administration
Pass
Watch
Special Mention
Substandard
Total Small Business
Administration
Taxi Medallions
Substandard
Total Taxi Medallions
Other
Pass
Total Other
1,453 $
—
—
—
22,490
—
594
—
250
—
4,897
—
$ 102,218 $ 141,585 $
$ 97,071 $ 118,501 $
$ 246,677 $ 349,492 $
$ 110,649 $ 43,909 $
$ 135,188 $ 95,988 $
24,539
—
—
51,466
613
—
1,126
—
—
4,906
699
—
— $
— $
— $
— $
— $
— $
— $
— $
$ 151,449 $
$ 151,449 $
—
—
—
1,453 $
$
$
$
$
$
38,063 $ 21,293 $ 13,229 $
—
—
—
3,302
—
—
38,063 $ 24,595 $ 14,635 $
446
—
960
77,037 $ 58,404 $ 53,518 $
4,077
—
809
6,107
368
—
81,923 $ 64,879 $ 55,122 $
882
722
—
65,916 $
2,599
1,338
3,183
73,036 $
282,169 $
9,617
1,433
1,515
294,734 $
266,949 $ 191,532 $ 220,560 $
499,186 $
15,557
—
—
15,687
2,547
—
282,506 $ 209,766 $ 252,581 $
29,445
2,576
—
62,587
1,350
2,579
565,702 $
28,984 $
9,572
761
39,317 $
5,253 $
750
2,575
8,578 $
— $
—
—
— $
590 $
—
—
590 $
479,644
$ 282,185
$ 376,275
931
2,536
—
482,623 $ 379,742 $ 286,106 $
982
—
1,997
3,457
464
—
$
54,016 $ 36,010 $ 50,230 $
17,390
—
—
1,320
—
—
962
—
—
$
769,712
14,806
668
580
785,766 $
86,662 $
16,192
—
4,220
71,406 $ 37,330 $ 51,192 $
107,074 $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
— $
$
4,572
798
—
201
5,571 $
— $
—
—
—
— $
104,304 $ 51,627 $ 17,340 $
19,202
2,411
17
—
20,591
93
6,441
—
125,934 $ 78,752 $ 19,664 $
39
—
2,285
—
66,398 $
26
—
1,647
—
68,071 $
250,633 $
11,564
246
1,161
1,273
264,877 $
4,194 $
—
—
—
1,327 $
1,948
—
1,168
1,882 $
570
—
6
1,523 $
—
50
—
4,194 $
4,443 $
2,458 $
1,573 $
— $
— $
279 $
279 $
— $
— $
2,318 $
2,318 $
— $
— $
— $
— $
— $
— $
37 $
37 $
— $
—
—
—
— $
— $
— $
93 $
93 $
— $ 580,539
21,499
—
2,523
—
—
2,324
— $ 606,885
— $ 1,614,323
125,573
—
6,473
—
—
12,015
— $ 1,758,384
— $
—
—
— $
68,388
11,437
3,336
83,161
— $ 2,501,826
27,006
—
4,367
—
—
2,778
— $ 2,535,977
— $ 381,476
111,869
—
613
—
4,220
—
— $ 498,178
— $ 705,874
74,162
—
2,750
—
17,042
—
—
1,273
— $ 801,101
— $ 161,828
2,518
—
50
—
1,174
—
— $ 165,570
— $
— $
2,597
2,597
— $
— $
130
130
Total Loans
$ 896,386 $ 991,017 $ 1,125,966 $ 808,364 $ 681,758 $ 1,898,901 $
281,969 $
20,313 $ 6,704,674
99
The following table sets forth the recorded investment in loans designated as Criticized or Classified at December
31, 2019:
(In thousands)
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Small Business Administration (1)
Taxi medallion
Commercial business and other
Special Mention Substandard Doubtful
$
1,563 $
5,525
1,585
1,095
55
—
3,924
2,743 $
367
453
5,787
85
3,309
11,289
24,033 $
— $
—
—
—
—
—
266
266 $
Loss
Total
— $
—
—
—
—
—
—
— $
4,306
5,892
2,038
6,882
140
3,309
15,479
38,046
Total loans
$
13,747 $
(1)
Balance reported net of SBA Guaranteed portion.
The following table presents types of collateral-dependent loans by class of loans as of December 31, 2020:
(In thousands)
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Small Business Administration
Commercial business and other
Taxi Medallion
Total
Off-Balance Sheet Credit Losses
Collateral Type
Real Estate
2,576
2,994
1,706
5,313
—
—
—
12,589
Business Assets
—
$
—
—
—
1,168
3,482
2,758
7,408
$
$
$
Also included within scope of the CECL standard are off-balance sheet loan commitments, which includes the
unfunded portion of committed lines of credit and commitments “in-(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:180)(cid:17)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:179)(cid:76)(cid:81)(cid:4136)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:180)(cid:3)(cid:85)(cid:72)(cid:73)(cid:79)(cid:72)(cid:70)(cid:87)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)
in the Company’s books but rather negotiated loan / line of credit terms and rates that the Company has offered to
customers and is committed to honoring. In (cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3) (cid:87)(cid:82)(cid:3) (cid:179)(cid:76)(cid:81)(cid:4136)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:180)(cid:3) (cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:86)(cid:15)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3) (cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3) (cid:71)(cid:72)(cid:73)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3) (cid:68)(cid:81)(cid:3) (cid:88)(cid:81)(cid:73)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)
commitment as a credit that has been offered to and accepted by a borrower, which has not closed and by which the
obligation is not unconditionally cancellable.
The Company estimates expected credit losses over the contractual period in which the company is exposed to
credit risk through a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the
Company. The allowance for credit losses on losses on off-balance sheet exposures is adjusted as a provision for credit
loss expense. The Company uses similar assumptions and risk factors that are developed for collectively evaluated
financing receivables. This estimates includes consideration of the likelihood that funding will occur and an estimate of
expected credit losses on commitments to be funded over its estimated life.
At December 31, 2020, allowance for off-balance-sheet credit losses is $1.8 million, which is included the “Other
liabilities” on the Consolidated Statements of Financial Condition. During the year ended December 31, 2020, the
Company has $1.2 million in credit loss expense for off-balance-sheet items, which is included in the “Other operating
expense” on the Consolidated Statements of Income.
100
PCD Financial Assets
The Company acquired purchased financial assets with credit deterioration during the acquisition of Empire. The
following table shows a reconciliation between the purchase price of the financial assets and the par value of the assets.
(Dollars in thousands)
Purchase price (1)
Allowance for Credit Losses at Acquisition Date
Noncredit Discount
Total consideration paid
(1)
Purchase price includes $1.7 million of charge-offs by ENB prior to acquisition.
5. Loans held for sale
Amount
297,807
(4,099)
(7,616)
286,092
$
$
At December 31, 2020 and 2019, the Company did not have any 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 closes 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 include
cash due upon the closing of the sale, no contingencies or recourse to the Company and servicing is released to the buyer.
Additionally, at times the Company may sell participating interests in performing loans.
The following tables show loans sold during the period indicated:
(Dollars in thousands)
Delinquent and non-performing loans
Multi-family residential
One-to-four family - mixed-use property
Total
Performing loans
Commercial business and other
Small Business Administration
Total
(Dollars in thousands)
Delinquent and non-performing loans
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
Commercial business and other
Total
Performing loans
Small Business Administration
Total
For the year ended December 31, 2020
Loans sold
Proceeds
Net charge-offs Net gain (loss)
1 $
1
2 $
1
1 $
2 $
284 $
296
580 $
6,139
774 $
6,913 $
— $
—
— $
—
— $
— $
42
—
42
(62)
68
6
For the year ended December 31, 2019
Loans sold
Proceeds
Net charge-offs
Net gain
5 $
2
3
1
11 $
2,115 $
6,800
885
3,248
13,048 $
3 $
3 $
2,069 $
2,069 $
— $
—
(1)
—
(1) $
— $
— $
367
383
6
—
756
114
114
101
Loans sold
For the year ended December 31, 2018
Net (charge-offs)
recoveries
Proceeds
Net gain (loss)
4 $
4
2
2
12 $
1,559 $
6,065
725
390
8,739 $
9 $
9 $
5,671 $
5,671 $
— $
—
(4)
72
68 $
— $
— $
—
(235)
—
10
(225)
393
393
(Dollars in thousands)
Delinquent and non-performing loans
Multi-family residential
Commercial real estate
One-to-four family - mixed-use property
One-to-four family - residential
Total
Performing loans
Small Business Administration
Total
6. Other Real Estate Owned
The following table shows the activity in OREO during the periods indicated:
Balance at beginning of year
Additions
Reductions to carrying value
Sales
Balance at end of year
For the years ended December 31,
2018
2019
2020
(In thousands)
$
239 $
— $
—
(31)
(208)
239
—
—
$
— $
239 $
—
638
—
(638)
—
The following table shows the gross gains, gross losses and write-downs of OREO reported in the Consolidated
Statements of Income during the periods presented:
Gross gains
Gross losses
Write-down of carrying value
Total income
7. Securities
For the years ended December 31,
2018
2019
2020
(In thousands)
$
$
— $
(5)
(31)
(36) $
— $
—
—
— $
27
—
—
27
The Company did not hold any trading securities at December 31, 2020 and 2019. Securities available for sale
are recorded at fair value. Securities held-to-maturity are recorded at amortized cost.
102
Allowance for credit losses
The Company’s estimate of expected credit losses for held-to-maturity debt securities is based on historical
information, current conditions and a reasonable and supportable forecast. The Company’s portfolio is made up of three
securities, one which is structured similar to a commercial owner occupied loan, which is modeled for credit losses similar
to commercial business loans secured by real estate, one that currently has an active forbearance with a specific reserve of
$0.6 million and one security is issued and guaranteed by Fannie Mae, which is a government sponsored enterprise that
has a credit rating and perceived credit risk comparable to the U.S. government and therefore the Company assumes a zero
loss expectation. As of December 31, 2020, the active forbearance has an outstanding balance of $21.0 million. During
the time this security is in forbearance, it is considered current and as such, continues to accrue interest at its original
contractual terms. Accrued interest receivable on held-to-maturity securities totaled $0.1 million at December 31, 2020
and is excluded from estimates of credit losses.
The following table summarizes the Company’s portfolio of securities held-to-maturity at December 31, 2020:
Amortized
Cost
Fair Value
Gross
Allowance
Gross
Unrecognized Unrecognized for Credit
Losses
Losses
Gains
(In thousands)
Securities held-to-maturity:
Municipals
Total municipals
FNMA
Total mortgage-backed securities
Total
$ 50,825 $ 54,538 $
50,825
54,538
7,914
7,914
8,991
8,991
$ 58,739 $ 63,529 $
3,713 $
3,713
1,077
1,077
4,790 $
— $
—
(907)
(907)
—
—
— $
—
—
(907)
The following table summarizes the Company’s portfolio of securities held-to-maturity at December 31, 2019:
Amortized
Cost
Gross
Gross
Unrecognized Unrecognized
Allowance
for Credit
Fair Value Gains
Losses
Losses
Securities held-to-maturity:
Municipals
Total municipals
FNMA
Total mortgage-backed securities
Total
(In thousands)
$ 50,954 $ 53,998 $
50,954
53,998
7,934
7,934
8,114
8,114
$ 58,888 $ 62,112 $
3,044 $
3,044
180
180
3,224 $
— $
—
—
—
— $
—
—
—
—
—
103
The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2020:
Amortized
Gross
Unrealized
Cost
Fair Value Gains
Gross
Unrealized
Losses
U.S. government agencies
Corporate
Mutual funds
Collateralized loan obligations
Other
Total other securities
REMIC and CMO
GNMA
FNMA
FHLMC
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
$
The following table summarizes the Company’s portfolio of securities available for sale at December 31, 2019:
Amortized
Gross
Gross
Unrealized Unrealized
Cost
Fair Value Gains
Losses
(In thousands)
$
6,452 $
(In thousands)
6,453 $
2 $
130,000
12,703
100,561
1,295
251,011
175,142
13,009
143,154
63,796
395,101
646,112 $
123,865
12,703
99,198
1,295
243,514
180,877
13,053
146,169
64,361
404,460
647,974 $
131
—
—
—
133
5,735
66
3,046
648
9,495
9,628 $
1
6,266
—
1,363
—
7,630
—
22
31
83
136
7,766
$
130,000 $
123,050 $
12,797
12,216
100,349
1,332
256,694
348,236
653
104,235
68,476
521,600
778,294 $
12,916
12,216
99,137
1,332
248,651
348,989
704
104,882
69,274
523,849
772,500 $
— $
119
—
—
—
119
2,193
51
1,073
871
4,188
4,307 $
6,950
—
—
1,212
—
8,162
1,440
—
426
73
1,939
10,101
Total mortgage-backed securities
Total securities available for sale
$
We did not hold any private issue CMO’s that are collateralized by commercial real estate mortgages at
December 31, 2020 and 2019. The corporate securities held by the Company at December 31, 2020 and 2019 are issued
by U.S. banking institutions.
104
The following table details the amortized cost and fair value of the Company’s securities classified as held-to-
maturity at December 31, 2020, by contractual maturity. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Due after ten years
Total other securities
Mortgage-backed securities
Total securities held-to-maturity
Amortized
Cost
Fair Value
(In thousands)
$
$
50,825 $
50,825
7,914
58,739 $
54,538
54,538
8,991
63,529
The amortized cost and fair value of the Company’s securities, classified as available for sale at December 31,
2020, by contractual maturity, are shown below.
Due after one year through five years
Due after five years through ten years
Due after ten years
Total other securities
Mutual funds
Mortgage-backed securities
Total securities available for sale
Amortized
Cost
Fair Value
(In thousands)
45,000 $
138,730
54,578
238,308
12,703
395,101
646,112 $
43,738
133,201
53,872
230,811
12,703
404,460
647,974
$
$
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, 2020.
Total
Less than 12 months
12 months or more
Unrealized
Unrealized
Unrealized
Count Fair Value Losses
Fair Value Losses
(Dollars in thousands)
Fair Value Losses
Available for sale securities
U.S. government agencies
Corporate
CLO
Total other securities
GNMA
FNMA
FHLMC
Total mortgage-backed securities
Total securities available for sale
—
6,266
1,311
7,577
—
3
—
3
7,580
4,988 $
1 $
14
13
28
113,734
99,199
217,921
1 $
4,988 $
—
7,441
12,429
6,266
1,363
7,630
— $
1 $
—
52
53
113,734
91,758
205,492
10,341
32,463
30,095
72,899
1
5
3
9
37 $ 290,820 $
22
31
83
136
10,341
23,864
30,095
64,300
7,766 $ 76,729 $
22
28
83
133
186 $ 214,091 $
—
8,599
—
8,599
105
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, 2019.
Total
Less than 12 months
12 months or more
Unrealized
Unrealized
Unrealized
Count Fair Value Losses
Fair Value Losses
(Dollars in thousands)
Fair Value Losses
Available for sale securities
Corporate
CLO
Total other securities
REMIC and CMO
GNMA
FNMA
FHLMC
Total mortgage-backed securities
Total securities available for sale
16 $ 123,050 $
13
29
99,137
222,187
6,950 $
1,212
8,162
25,451
25,451
— $
— $ 123,050 $
108
108
73,686
196,736
120,989
49
67,618
30,200
218,856
23
1
8
1
33
62 $ 441,043 $ 10,101 $ 146,957 $
102,384
49
19,073
—
121,506
1,440
—
426
73
1,939
1,117
138
—
18,605
—
48,545
— 30,200
97,350
$ 294,086 $
1,255
1,363
6,950
1,104
8,054
323
—
288
73
684
8,738
The Company reviewed each available for sale debt security that had an unrealized loss at December 31, 2020
and December 31, 2019. At December 31, 2020, the Company evaluated whether the decline in fair value of a debt security
resulted from credit losses or other factors under ASC 326. 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.
All of these securities are rated investment grade or above and have a long history of no credit losses. 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.
In determining the risk of loss for available for sale securities, the Company considered that mortgage-backed
securities are either fully guaranteed or issued by a government sponsored enterprise, which has a credit rating and
perceived credit risk comparable to U.S. government, the issuer of Corporate securities are global systematically important
banks, and the tranche of the purchased CLO’s. Each of these securities is performing according to its terms and, in the
opinion of management, will continue to perform according to its terms. Based on this review, management believes that
the unrealized losses have resulted from other factors not deemed credit-related and no allowance for credit loss was
recorded.
Accrued interest receivable on available-for-sale debt securities totaled $1.3 million at December 31, 2020 and is
excluded from the estimate of credit losses.
Upon adoption of ASC Topic 326, “Credit Losses” on January 1, 2020, see Note 22 related to the adoption of
Topic 326, we recorded a transition adjustment of $0.3 million in the allowance for credit losses for held-to-maturity debt
securities.
The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity for
the year ended December 31, 2020:
Mortgage-backed securities
Other securities
Beginning balance
CECL adoption
Provision
Allowance for credit losses - securities
$
$
106
(In thousands)
—
—
—
—
$
$
—
340
567
907
The Company sold available for sale securities with carrying values at the time of sale totaling $221.0 million,
$26.4 million and $67.0 million during the years ended December 31, 2020, 2019 and 2018, respectively. The Company
purchased mortgage-backed available for sale securities totaling $308.1 million, $128.0 million and $196.4 million during
the years ended December 31, 2020, 2019 and 2018, 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
2020
For the years ended
December 31,
2019
(In thousands)
2018
$
1,499 $
(2,200)
423 $
(438)
105
(2,025)
Net losses from the sale of securities
$
(701) $
(15) $
(1,920)
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 $22.6 million and $20.0 million at December 31, 2020
and 2019, respectively.
8. Bank Premises and Equipment, Net
Bank premises and equipment are as follows at December 31:
Leasehold improvements
Equipment and furniture
Total
Less: Accumulated depreciation and amortization
Bank premises and equipment, net
2020
2019
(In thousands)
44,984 $
29,202
74,186
46,007
28,179 $
41,304
27,166
68,470
39,794
28,676
$
$
107
9. Deposits
Total deposits at December 31, 2020 and 2019, and the weighted average rate on deposits at December 31, 2020,
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
Weighted
Average
Rate
2020
2020
2019
(Dollars in thousands)
$ 1,138,361 $ 1,437,890
191,485
1,592,011
1,365,591
4,586,977
435,072
5,022,049
44,375
$ 6,136,355 $ 5,066,424
168,183
1,682,345
2,323,172
5,312,061
778,672
6,090,733
45,622
0.97 %
0.18
0.50
0.28
0.02
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 $266.9 million and $351.0 million at December 31,
2020 and 2019, respectively. The aggregate amount of brokered deposits was $1,074.1 million and $388.8 million at
December 31, 2020 and 2019, respectively.
During 2018, Section 29 of the Federal Deposit Insurance Act was amended to no longer consider reciprocal
deposits held by an FDIC-insured depository institution brokered deposits. At December 31, 2020 and 2019, reciprocal
deposits subject to certain limitations, totaled $735.4 million and $805.6 million, respectively.
Government deposits are collateralized by either securities, letters of credit issued by FHLB-NY or are placed in
an Insured Cash Sweep service (“ICS”). The letters of credit are collateralized by mortgage loans pledged by the Company.
At December 31, 2020, government deposits totaled $1,615.4 million, of which $524.0 million were ICS deposits
and $1,091.4 million were collateralized by $260.3 million in securities and $855.4 million of letters of credit. At
December 31, 2019, government deposits totaled $1,265.1 million, of which $685.0 million were ICS deposits and $580.1
million were collateralized by $181.0 million in securities and $494.0 million of letters of credit.
Interest expense on deposits is summarized as follows for the years ended December 31:
2020
2019
(In thousands)
2018
$ 18,096 $ 35,078 $ 28,310
1,370
18,707
15,896
64,283
214
$ 42,312 $ 88,057 $ 64,497
495
14,368
9,309
42,268
44
1,378
27,819
23,553
87,828
229
Certificate of deposit accounts
Savings accounts
Money market accounts
NOW accounts
Total due to depositors
Mortgagors' escrow deposits
Total interest expense on deposits
108
Scheduled remaining maturities of certificate of deposit accounts are summarized as follows for the years ended
December 31:
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
10. Borrowed Funds
Borrowed funds are summarized as follows at December 31:
2020
2019
(In thousands)
$ 923,235 $ 1,220,601
143,520
14,223
48,318
11,082
146
$ 1,138,361 $ 1,437,890
139,088
58,125
14,488
3,394
31
FHLB-NY advances - fixed rate:
Due in 2020
Due in 2021
Due in 2022
Due in 2023
Total FHLB-NY advances
Other Borrowings:
Due in 2022
Subordinated debentures - fixed rate through 2021
Due in 2025
Due in 2026
Total Subordinated debentures
2020
2019
Amount
Weighted
Average
Rate
Amount
(Dollars in thousands)
Weighted
Average
Rate
$
—
702,515
55,685
39,001
797,201
—
0.57
0.52
0.48
0.56
$ 727,516
200,016
175,000
15,996
1,118,528
1.86
1.65
1.93
3.14
1.85
90,378
0.35
—
—
15,523
74,657
90,180
6.12
5.27
5.42
—
74,319
74,319
—
5.30
5.30
Junior subordinated debentures - adjustable rate Due in 2037
43,136
2.35
44,384
4.65
Total borrowings
$ 1,020,895
1.05 % $ 1,237,231
2.16 %
The FHLB-NY advances are fixed rate borrowings with no call provisions. The borrowings terms range from one
day to five years.
At December 31, 2020, the Company was able to borrow up to $3,568.0 million from the FHLB-NY in Federal
Home Loan Bank advances and letters of credit. As of December 31, 2020, the Bank had $1,652.6 million outstanding in
combined balances of FHLB-NY advances and letters of credit. At December 31, 2020, the Bank also has unsecured lines
of credit with other commercial banks totaling $618.0 million, with no outstanding balance.
Subordinated Debentures
During the year ended December 31, 2016, the Holding Company issued subordinated debt with an aggregated
principal amount of $75.0 million. The subordinated debt was issued at 5.25% fixed-to-floating rate maturing in 2026. The
109
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. In the acquisition of Empire, the Company acquired $15.3 million
in subordinated debentures. The subordinated debentures the Company hold qualify as Tier 2 capital for regulatory
purposes.
The following table shows the terms of the subordinated debt issued or acquired by the Holding Company:
Amount
Issue Date
Initial Rate
First Reset Date
First Call Date
Holding Type
Spread over 3-month
LIBOR
Maturity Date
Subordinated
Debentures
Subordinated
Debentures
(Dollars in thousands)
7,500 $
Subordinated
Debentures
7,750
$
December 12, 2016 December 17, 2015 December 17, 2015
75,000 $
5.25 %
7.38 %
December 15, 2021
N/A December 20, 2020
December 15, 2021 December 20, 2020 December 20, 2020
Variable
Variable
Fixed
6.50 %
3.44 %
N/A %
4.88 %
December 15, 2026 December 17, 2025 December 17, 2025
The subordinated debentures acquired through the acquisition of Empire are callable at any time through the
maturity date of December 17, 2025. The subordinated debt issued by the Company may not be redeemed 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.
Junior Subordinated Debentures
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.
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 Flushing Financial Flushing Financial
Capital Trust II
June 20, 2007
Capital Trust III
June 21, 2007
Capital Trust IV
July 3, 2007
September 01, 2012
June 15, 2012
July 30, 2012
7.14 %
6.89 %
6.85 %
1.41 %
1.44 %
1.42 %
September 01, 2037 September 15, 2037
July 30, 2037
The consolidated financial statements do not include the securities issued by the trusts, but rather include the
junior subordinated debentures of the Holding Company.
110
11. 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. The Bank also files
various other state tax returns. The Company is undergoing examinations of New York State income tax returns for 2014,
2015 and 2016. Additionally, the Company remains subject to examination for its Federal and various other states income
tax returns for the years ending on or after December 31, 2017. The Company believes it has accrued for all potential
amounts that may be due to all taxing authorities.
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 provision for income taxes
2020
2019
(In thousands)
2018
$ 14,178 $ 12,404 $
(4,990)
9,188
(1,965)
10,439
9,183
(609)
8,574
967
353
1,320
3,876
(2,055)
1,821
$ 10,508 $ 12,052 $ 10,395
3,543
(1,930)
1,613
The income tax provision in the Consolidated Statements of Income has been provided at effective rates of 23.3%,
22.7% and 15.9% for the years ended December 31, 2020, 2019 and 2018, 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 income tax benefit
Tax exempt
Nondeductible merger expense
Other
Taxes at effective rate
2020
2019
(Dollars in thousands)
2018
$
9,489
21.0 % $ 11,200
21.0 % $ 13,752
21.0 %
1,043
(875)
543
308
$ 10,508
2.3
(1.9)
1.2
0.7
1,274
(878)
328
128
23.3 % $ 12,052
2.4
(1.6)
0.6
0.3
1,439
(1,961)
—
(2,835)
22.7 % $ 10,395
2.2
(3.0)
—
(4.3)
15.9 %
111
The components of the net deferred tax assets are as follows at December 31:
2020
2019
(In thousands)
Deferred tax assets:
Postretirement benefits
Allowance for loan losses
Operating lease liabilities
Stock based compensation
Depreciation
Unrealized loss on securities available for sale
Fair value adjustment on financial assets carried at fair value
Fair value hedges
Adjustment required to recognize funded status of postretirement
pension plans
Cashflow hedges
Deferred loan income
Fair Value of Loans from Empire acquisition
Net operating loss (NYS)
Net operating loss (NYC)
Other
Deferred tax assets
Deferred tax liabilities:
$
7,600 $
13,886
18,175
2,845
2,002
—
23
2,726
837
7,780
2,000
3,465
23
1,395
3,412
66,169
7,188
6,782
12,863
2,950
1,875
1,812
95
1,669
447
2,668
1,367
—
—
880
1,690
42,286
FPFC deferred income
Right of Use Asset
Fair value adjustment on financial liabilities carried at fair value
Entity specific fair value
Unrealized gains on securities
Deferred loan cost
Other
Deferred tax liabilities
2,084
15,582
4,968
821
573
6,426
1,459
31,913
2,256
12,863
5,003
456
—
5,994
341
26,913
Net deferred tax asset included in other assets
$ 34,256 $ 15,373
The deferred tax asset 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 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 $31.9 million deferred tax liability can be used
to offset a portion of the deferred tax asset 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, 2020 and 2019.
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 tax expense. During the three years ended December 31, 2020, the
Company did not recognize any material amounts of interest or penalties on income taxes.
12. Stock-Based Compensation
For the years ended December 31, 2020, 2019 and 2018 the Company’s net income, as reported, includes $6.0
million, $7.9 million and $6.5 million, respectively, of stock-based compensation costs, including the benefit or expense
of phantom stock awards, and $1.4 million, $1.8 million and $1.4 million, respectively, of income tax benefits related to
the stock-based compensation plans.
112
No stock options have been granted by the Company since 2009. At December 31, 2020 and 2019, there are no
stock options outstanding.
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 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. On May 31, 2017, stockholders approved an
amendment to the 2014 Omnibus Plan (the “Amendment”) authorizing an additional 672,000 shares available for future
issuance. In addition, to increasing the number of shares for future grants, the Amendment eliminated, in the case of stock
options and SARs, the ability to recycle shares used to satisfy the exercise price or taxes for such awards. No other
amendments to the 2014 Omnibus Plan were made. Including the additional shares authorized from the Amendment,
324,738 shares are available for future issuance under the 2014 Omnibus Plan at December 31, 2020. To fund restricted
stock unit awards or option exercises, shares are issued from treasury stock, if available; otherwise new shares are issued.
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 Company has a long-term incentive compensation program for certain Company executive officers that
includes grants of performance-based restricted stock units (“PRSUs”) in addition to time-based restricted stock units
(“RSU”). Under the terms of the PRSU Agreement, the number of PRSUs that may be earned depends on the extent to
which performance goals for the award are achieved over a three-year performance period, as determined by the
Compensation Committee of the Board. The number of PRSUs that may be earned ranges from 0% to 150% of the target
award, with no PRSUs earned for below threshold-level performance, 50% of PRSUs earned for threshold-level
performance, 100% of PRSUs earned for target-level performance, and 150% of PRSUs earned for maximum-level
performance. As of December 31, 2020, PRSU’s granted in 2019 are being accrued at above target and PRSU’s granted
in 2020 are being accrued at target. The different levels of accrual are commensurate with the projected performance of
the respective 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. There were 173,528 RSU's, 263,574 RSU's and 280,590 RSU’s granted for the years ended December 31, 2020,
2019 and 2018, respectively and 72,143 and 67,352 PRSU’s granted for the year ended December 31, 2020 and 2019,
respectively.
113
The following table summarizes the Company’s RSU and PRSU awards under the 2014 Omnibus Plan for
the year ended December 31, 2020:
RSU Awards
PRSU Awards
Weighted-Average
Grant-Date
Fair Value
Weighted-Average
Grant-Date
Fair Value
Shares
Shares
Non-vested at
December 31, 2019
Granted
Vested
Forfeited
Non-vested at
December 31, 2020
Vested but unissued at
December 31, 2020
428,295 $
173,528
(258,745)
(6,180)
24.42
19.63
22.43
24.61
34,186 $
72,143
(39,749)
—
336,898 $
23.48
66,580 $
22.38
20.38
20.64
—
21.26
234,481 $
23.25
67,115 $
21.35
As of December 31, 2020, there was $5.4 million of total unrecognized compensation cost related to RSU and
PRSU awards granted under the 2014 Omnibus Plan. That cost is expected to be recognized over a weighted-average
period of 2.3 years. The total fair value of awards vested for the years ended December 31, 2020, 2019 and 2018 were
$5.7 million, $7.4 million and $7.1 million, respectively. The vested but unissued RSU awards consist of awards made to
employees and directors who are eligible for retirement. The vested but unissued PRSU awards consist of awards made to
employees 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, 2020 and 2019, there is no remaining unrecognized compensation cost
related to stock options granted.
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. 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 of 1986, as amended (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 their 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.
The following table summarizes the Company’s Phantom Stock Plan at or for the year ended December 31, 2020:
Phantom Stock Plan
Outstanding at December 31, 2019
Granted
Distributions
Outstanding at December 31, 2020
Vested at December 31, 2020
Shares
109,226
11,912
(890)
120,248 $
$
120,212
Fair Value
21.61
$
14.81
11.73
16.64
16.64
114
The Company recorded stock-based compensation (benefit) expense for the phantom stock plan of ($0.4) million,
$0.1 million and ($0.5) million for the years ended December 31, 2020, 2019 and 2018, respectively. The total fair value
of distributions from the phantom stock plan were $10,000, $31,000 and $12,000 for the years ended December 31, 2020,
2019 and 2018, respectively.
13. 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:
Net Actuarial
Loss (Gain)
2020
2019
2018
2020
Prior Service
Cost (Credit)
2019
(In thousands)
2018
2020
Total
2019
2018
$
1,775 $
2,273 $
3,238 $
— $
— $
— $
1,775
$
2,273 $ 3,238
1,333
(274)
2,834 $
(265)
(380)
1,628 $
35
(566)
2,707 $
(112)
—
(112) $
(198)
—
(198) $
(283)
—
(283) $
1,221
(274)
2,722
(248)
(463)
(380)
(566)
1,430 $ 2,424
$
$
Employee Retirement Plan
Other Postretirement Benefit
Plans
Outside Directors Plan
Total
Employee Retirement Plan:
The Company 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. At
December 31, 2020 and 2019, the Bank's Retirement Plan is invested 100% in fixed income funds. The Company did not
make a contribution to the Retirement Plan during the years ended December 31, 2020, 2019 and 2018. 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 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
2020
2019
(In thousands)
$
22,443 $
652
2,109
(977)
24,227
20,344
797
2,265
(963)
22,443
25,505
3,192
(977)
27,720
22,419
4,049
(963)
25,505
Accrued pension asset included in other assets
$
3,493 $
3,062
115
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
2020
2019
2.18 %
n/a
3.00 %
n/a
The mortality assumptions for 2020 were based on the Pri-2012 Total Dataset with Scale MP 2020 and the
mortality assumptions for 2019 were based on the Pri-2012 Total Dataset with Scale MP 2019.
The components of the net pension expense for the Retirement Plan are as follows for the years ended
December 31:
$
2020
2019
(In thousands)
2018
652 $
444
(1,028)
68
797 $
269
(1,088)
(22)
781
621
(1,452)
(50)
(54)
(444)
(498)
(430) $
(696)
(269)
(965)
(987) $
(2,307)
(621)
(2,928)
(2,978)
Interest cost
Amortization of unrecognized loss
Expected return on plan assets
Net pension (benefit) expense
Current year actuarial gain
Amortization of actuarial loss
Total recognized in other comprehensive income
Total recognized in net pension benefit and other comprehensive loss
$
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
2020 2019 2018
3.00 % 4.06 % 3.42 %
n/a
4.75 % 5.25 % 7.00 %
n/a
n/a
The following benefit payments are expected to be paid by the Retirement Plan for the years ending December 31:
2021
2022
2023
2024
2025
2026-2030
Future Benefit
Payments
(In thousands)
$
1,386
1,231
1,247
1,228
1,214
6,020
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 4.75% for 2020.
116
The Retirement Plan’s weighted average asset allocations by asset category at December 31:
Equity securities
Debt securities
2020
2019
— %
100 %
— %
100 %
At December 31, 2020, Plan assets are invested in a diversified mix of fixed income funds.
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. At December 31, 2020, the plan's assets were 100% invested in fixed income securities. 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 Company does not expect to make a contribution to the Retirement Plan in 2021.
The following table sets forth the Retirement Plan’s assets at the periods indicated:
Pooled Separate Accounts
Long duration bond fund (a)
Long corporate bond fund (b)
Prudential short term (c)
Mutual Fund
Investment grade bond fund (d)
Total
At December 31,
2019
2020
(In thousands)
$ 12,229 $ 11,242
5,069
403
5,587
286
9,618
8,791
$ 27,720 $ 25,505
a. Comprised of fixed income securities with durations of longer than six years that seek to maximize total return
consistent with the preservation of capital and prudent investment management.
b. Comprised of corporate bonds with an average duration within 0.25 years of the benchmark and its average credit
quality is no lower than BBB. The fund seeks to outperform the Bloomberg Barclays Long Corporate Bond Index.
c. Comprised of money market instruments with an emphasis on safety and liquidity.
d. Comprised of high quality corporate bonds diversified broadly across industries, issuers and regions. The funds
primary benchmark is the Bloomberg Barclays U.S. Credit Index.
The fair value of the mutual fund is determined daily using quoted market prices in an open market (level 1). 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, 2020 and 2019. 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 (“ASU”) No. 2015-07 “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share
(or Its Equivalent)”.
Other Postretirement Benefit Plans:
The Company sponsors two unfunded postretirement benefit plans (the “Postretirement Plans”) that cover all
retirees hired prior to January 1, 2011, who were full-time permanent employees with at least five years of service, and
117
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,
2020, the Company has not funded these plans. The Company used a December 31 measurement date for these plans.
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
2020
2019
(In thousands)
$
8,762 $
274
259
1,599
(95)
10,799
8,518
280
341
(301)
(76)
8,762
—
95
(95)
—
—
76
(76)
—
Accrued pension cost included in other liabilities
$ 10,799 $
8,762
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 2026)
Annual rate of salary increase for life insurance
2020
2019
2.18 %
3.00 %
7.50 %
5.00 %
n/a
7.50 %
5.00 %
n/a
118
The mortality assumptions for 2020 were based on the Pri-2012 with Scale MP 2020 and the mortality
assumptions for 2019 were based on the Pri-2012 with Scale MP 2019.
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 and other
comprehensive loss
2020 2019 2018
(In thousands)
$ 274 $ 280 $
259
—
(85)
448
341
—
(85)
536
350
307
33
(85)
605
1,599
—
85
1,684
(301)
—
85
(216)
(1,155)
(33)
85
(1,103)
$ 2,132 $ 320 $
(498)
Assumptions used to develop periodic postretirement expense for the Postretirement Plans for the years ended
December 31:
2020 2019 2018
Rate of return on plan assets
Discount rate
Rate of increase in health care costs
Initial
Ultimate (year 2026)
Annual rate of salary increase for life insurance
n/a
n/a
3.00 % 4.06 % 3.42 %
n/a
7.50 % 7.00 % 7.00 %
5.00 % 5.00 % 5.00 %
n/a
n/a
n/a
The following benefit payments under the Postretirement Plan, which reflect expected future service, are expected
to be paid for the years ending December 31:
2021
2022
2023
2024
2025
2026-2030
Defined Contribution Plans:
Future Benefit
Payments
(In thousands)
255
$
299
310
315
333
2,029
The Bank 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
119
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 $3.7 million, $3.0
million and $4.1 million for the years ended December 31, 2020, 2019 and 2018, 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. 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 $16.6 million and $14.4 million at December 31, 2020 and 2019, 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 $0.5 million, $0.5 million and $0.5 million for the years ended December 31, 2020, 2019 and 2018,
respectively.
Employee Benefit Trust:
An Employee Benefit Trust (“EBT”) has been established to assist the Company in funding its benefit plan
obligations. Dividend payments received 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, 2020, 2019 and 2018, the Company funded $2.6 million,
$3.4 million and $3.6 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
2020
181,611
3,697
(145,447)
39,861
2019
329,090
7,267
(154,746)
181,611
Market value of unallocated shares
$ 663,287 $ 3,924,614
120
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. 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, an eligible 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 and $4.3 million at December 31, 2020
and 2019, respectively. 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 loss
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
2020
2019
(In thousands)
$
2,290 $
15
64
51
(144)
2,276
2,265
39
86
44
(144)
2,290
—
144
(144)
—
—
144
(144)
—
Accrued pension cost included in other liabilities
$
2,276 $
2,290
The components of the net pension expense for the Directors’ Plan are as follows for the years ended
December 31:
$
2020
2018
2019
(In thousands)
39 $
86
(141)
—
(16)
15 $
64
(55)
—
24
42
78
(91)
12
41
51
55
—
106
44
141
—
185
(184)
91
(12)
(105)
$
130 $
169 $
(64)
Service cost
Interest cost
Amortization of unrecognized gain
Amortization of past service liability
Net pension expense
Current actuarial (gain) loss
Amortization of actuarial gain
Amortization of prior service cost
Total recognized in other comprehensive income
Total recognized in net pension expense and other
comprehensive income
121
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
2020
2019
2018
2.18 %
3.00 %
n/a
3.00 %
4.06 %
n/a
4.06 %
3.42 %
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:
2021
2022
2023
2024
2025
2026 - 2030
14. Stockholders’ Equity
Dividend Restrictions on the Bank:
Future Benefit
Payments
(In thousands)
288
$
288
256
220
192
736
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, 2020 and 2019, the Bank’s liquidation account was $0.4 million and $0.5
million, respectively, 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, 2020, the Bank had $10.7 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.
122
Treasury Stock Transactions:
The Holding Company repurchased 142,405 common shares at an average cost of $16.45 and 40,000 common
shares at an average cost of $19.28 during the years ended December 31, 2020 and 2019, respectively. At December 31,
2020, 284,806 shares remained subject to repurchase under the authorized stock repurchase program. Stock will be
purchased under the authorized 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.
Accumulated Other Comprehensive Loss:
The following are changes in accumulated other comprehensive loss by component, net of tax, for the years
ended:
December 31, 2020
Unrealized Gains Unrealized Gains
(Losses) on
Available for Sale
Securities
(Losses) on
Cash flow
Hedges
Fair Value
Defined Benefit Option Elected
Pension Items on Liabilities Total
(In thousands)
Beginning balance, net of tax
$
(3,982) $
(5,863) $
(983) $
1,021 $ (9,807)
Other comprehensive income before reclassifications, net
of tax
Amounts reclassified from accumulated other
comprehensive income (loss), net of tax
Net current period other comprehensive income, net of tax
Ending balance, net of tax
$
4,787
(14,924)
(1,112)
828
(10,421)
485
5,272
1,290 $
3,266
(11,658)
(17,521) $
211
(901)
(1,884) $
—
828
3,962
(6,459)
1,849 $ (16,266)
December 31, 2019
Unrealized Gains Unrealized Gains
(Losses) on
Available for Sale
Securities
(Losses) on
Cash flow
Hedges
Fair Value
Defined Benefit Option Elected
Pension Items on Liabilities Total
(In thousands)
Beginning balance, net of tax
$
(15,649) $
3,704 $
(1,673) $
866 $ (12,752)
Other comprehensive income before reclassifications, net
of tax
Amounts reclassified from accumulated other
comprehensive income (loss), net of tax
Net current period other comprehensive income, net of tax
Ending balance, net of tax
$
11,657
(8,606)
661
155
3,867
10
11,667
(3,982) $
(961)
(9,567)
(5,863) $
29
690
(983) $
—
155
(922)
2,945
1,021 $ (9,807)
December 31, 2018
Unrealized Gains Unrealized Gains
(Losses) on
Available for Sale
Securities
(Losses) on
Cash flow
Hedges
Fair Value
Defined Benefit Option Elected
Pension Items on Liabilities Total
(In thousands)
Beginning balance, net of tax
$
(5,522) $
231
$
(3,695) $
— $ (8,986)
Reclassification of the Income Tax Effects of the Tax
Cuts and Jobs Act to Retained Earnings
Impact of adoption of Accounting Standard Update 2016-
01
Other comprehensive income before reclassifications, net
of tax
Amounts reclassified from accumulated other
comprehensive income (loss), net of tax
Net current period other comprehensive income, net of tax
Ending balance, net of tax
$
(1,325)
—
(10,127)
1,325
(8,802)
(15,649) $
50
—
3,351
72
3,423
3,704
$
(798)
—
—
(2,073)
779
779
2,484
87
(4,205)
336
2,820
(1,673) $
—
87
1,733
(2,472)
866 $ (12,752)
123
The following tables set forth significant amounts reclassified out of accumulated other comprehensive loss by
component for the periods indicated:
Details about Accumulated Other
Comprehensive Income Components
Unrealized gains (losses) on available for sale securities:
Amounts Reclassified from
Accumulated Other
Comprehensive Income
(Dollars in thousands)
$
For the Year Ended December 31, 2020
Cash flow hedges:
Interest rate swaps
Amortization of defined benefit pension items:
Actuarial losses
Prior service credits
$
$
$
$
$
Cash flow hedges:
Interest rate swaps
Amortization of defined benefit pension items:
Actuarial losses
Prior service credits
$
$
$
$
$
(1) These accumulated other comprehensive loss components are included in the computation of net periodic pension
cost (see Note 13 of the Notes to Consolidated Financial Statements “Pension and Other Postretirement Benefit
Plans”).
Details about Accumulated Other
Comprehensive Income Components
Unrealized gains (losses) on available for sale securities:
Amounts Reclassified from
Accumulated Other
Comprehensive Income
(Dollars in thousands)
$
For the Year Ended December 31, 2019
Affected Line Item in the Statement
Where Net Income is Presented
(701) Net loss on sale of securities
216
(485) Net of tax
Tax expense
(4,732)
1,466
(3,266) Net of tax
Interest expense
Tax expense
(390) (1) Other operating expenses
85 (1) Other operating expenses
Total before tax
Tax expense
(305)
94
(211) Net of tax
Affected Line Item in the Statement
Where Net Income is Presented
(15) Net loss on sale of securities
5
Tax expense
(10) Net of tax
1,392
(431)
961 Net of tax
Interest expense
Tax expense
(128) (1) Other operating expenses
85 (1) Other operating expenses
Total before tax
Tax expense
(43)
14
(29) Net of tax
(1) These accumulated other comprehensive loss components are included in the computation of net periodic pension
cost (see Note 13 of the Notes to Consolidated Financial Statements “Pension and Other Postretirement Benefit
Plans”).
124
Details about Accumulated Other
Comprehensive Income Components
For the Year Ended December 31, 2018
Amounts Reclassified from
Accumulated Other
Comprehensive Income
Affected Line Item in the Statement
Where Net Income is Presented
Unrealized gains (losses) on available for sale securities:
(Dollars in thousands)
$
Cash flow hedges:
Interest rate swaps
Amortization of defined benefit pension items:
Actuarial losses
Prior service credits
$
$
$
$
$
(1,920) Net loss on sale of securities
595
Tax expense
(1,325) Net of tax
(104)
32
Interest expense
Tax expense
(72) Net of tax
(530) (1) Other operating expenses
39 (1) Other operating expenses
Total before tax
Tax expense
(491)
155
(336) Net of tax
(1) These accumulated other comprehensive loss components are included in the computation of net periodic pension
cost (see Note 13 of the Notes to Consolidated Financial Statements “Pension and Other Postretirement Benefit
Plans”).
15. Regulatory Capital
Under current capital regulations, the Bank is required to comply with four separate capital adequacy standards.
As of December 31, 2020, the Bank continued to be categorized as “well-capitalized” under the prompt corrective action
regulations and continued to exceed all regulatory capital requirements. The Bank is also required to comply with a Capital
Conservation Buffer (“CCB”). The CCB is designed to establish a capital range above minimum capital requirements and
impose constraints on dividends, share buybacks and discretionary bonus payments when capital levels fall below
prescribed levels. The minimum CCB is 2.5%. The CCB for the Bank at December 31, 2020 and 2019 was 4.30% and
5.43%, respectively.
Set forth below is a summary of the Bank’s compliance with banking regulatory capital standards.
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
December 31, 2020
December 31, 2019
Percent of
Percent of
Amount
Assets
Amount
Assets
$
$
$
$
733,010
395,510
337,500
733,010
408,929
324,081
733,010
503,297
229,713
773,807
629,121
144,686
(Dollars in thousands)
9.27 % $
5.00
4.27
680,749
352,581
328,168
11.65 % $
6.50
5.15
680,749
339,944
340,805
11.65 % $
8.00
3.65
680,749
418,393
262,356
12.30 % $
10.00
2.30
702,500
522,991
179,509
9.65 %
5.00
4.65
13.02 %
6.50
6.52
13.02 %
8.00
5.02
13.43 %
10.00
3.43
125
The Holding Company is subject to the same regulatory capital requirements as the Bank. As of December 31,
2020, 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 CCB for the Holding Company at
December 31, 2020 and 2019 was 4.54% and 5.62%, respectively.
Set forth below is a summary of the Holding Company’s compliance with banking regulatory capital standards.
December 31, 2020
December 31, 2019
Percent of
Percent of
Amount
Assets
Amount
Assets
$
$
$
$
662,987
395,439
267,548
621,247
408,694
212,553
662,987
503,008
159,979
794,034
628,760
165,274
(Dollars in thousands)
8.38 % $
5.00
3.38
615,500
352,581
262,919
9.88 % $
6.50
3.38
572,651
339,929
232,722
10.54 % $
8.00
2.54
615,500
418,374
197,126
12.63 % $
10.00
2.63
712,251
522,967
189,284
8.73 %
5.00
3.73
10.95 %
6.50
4.45
11.77 %
8.00
3.77
13.62 %
10.00
3.62
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
16. Leases
The following table summarizes the operating lease ROU assets and liabilities at and for the period indicated:
(Dollars in thousands)
Operating lease ROU assets
Operating lease liabilities
Lease Cost
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for new operating lease liabilities
Right-of-use assets obtained in acquisition
Weighted-average remaining lease term-operating leases
Weighted average discount rate-operating leases
126
At or for the
twelve months
ended
At or for the
twelve months
ended
December 31, 2020 December 31, 2019
$
$
$
$
$
$
$
50,743
$
41,254
59,100
$
49,367
$
$
$
$
$
7,725
139
1,128
8,992
8,316
5,484
9,993
8.3 years
3.2%
7,575
136
1,020
8,731
8,051
1,576
—
7.5 years
3.8%
The rental expense under legacy lease accounting totaled $6.1 million for the year ended 2018.
The Company’s minimum annual rental payments at December 31, 2020 for Bank facilities due under non-cancelable
leases are as follows:
Years ended December 31:
2021
2022
2023
2024
2025
Thereafter
Total minimum payments required
Less: implied interest
Total lease obligations
Minimum Rental
(In thousands)
$
$
8,757
8,871
9,006
8,847
8,212
23,547
67,240
8,140
59,100
The Company’s minimum annual rental payments at December 31, 2019 for Bank facilities due under non-cancelable
leases are as follows:
Years ended December 31:
2020
2021
2022
2023
2024
Thereafter
Total minimum payments required
Less: implied interest
Total lease obligations
17. Commitments and Contingencies
Commitments:
Minimum Rental
(In thousands)
$
$
8,113
7,675
7,260
7,397
7,425
19,148
57,018
7,651
49,367
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.
127
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 $62.4 million and $411.7 million, respectively, at December 31,
2020. Included in these commitments were $38.4 million of fixed-rate commitments at a weighted average rate of 3.82%
and $436.7 million of adjustable-rate commitments with a weighted average rate of 3.84%, as of December 31, 2020.
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. 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,
2020 and 2019, there were $855.4 million and $494.0 million, respectively, of letters of credit outstanding. The letters of
credit are collateralized by mortgage loans pledged by the Bank.
The Company had purchase obligations totaling $17.4 million and $22.0 million as of December 31, 2020 and
2019, which are primarily related to contracts with data processing, loan servicing and check processing services provided
by third-party vendors.
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.
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.
18. 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, 2020, the largest amount the Bank could lend to one borrower was approximately
$110.0 million, and at that date, the Bank’s largest aggregate amount of loans to one borrower was $87.8 million, all of
which were performing according to their terms.
19. Related Party Transactions
At December 31, 2020 and 2019, there were no outstanding loans to a related party. Deposits of related parties
totaled $13.4 million and $7.7 million at December 31, 2020 and 2019, respectively.
128
20. 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, 2020, the Company carried financial assets and financial liabilities under
the fair value option with fair values of $14.5 million and $43.1 million, respectively. At December 31, 2019, the Company
carried financial assets and financial liabilities under the fair value option with fair values of $14.3 million and $44.4
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, 2020 and 2019.
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, 2020 and 2019, and the changes in fair value included in the Consolidated Statement of Income –
Net loss from fair value adjustments:
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,
2020
Fair Value
Measurements
at December 31,
2019
Changes in Fair Values For Items Measured at Fair Value
Pursuant to Election of the Fair Value Option
For the year ended December 31,
2019
2018
2020
$
505 $
772 $
13,998
43,136
13,548
44,384
$
3
230
(50)
183
$
$
3
427
(2,802)
(2,372)
$
$
(19)
(109)
(4,913)
(5,041)
(1) The net loss from fair value adjustments presented in the above table does not include net (losses) gains of ($2.3)
million, ($3.0) million and $0.9 million from the change in fair value of derivative instruments during the years ended
December 31, 2020, 2019 and 2018, 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, 2020 and 2019. The
fair value of borrowed funds includes accrued interest payable of $0.1 million and $0.2 million at December 31, 2020 and
2019, respectively.
129
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.
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. At December 31, 2020 and 2019, Level
1 included one mutual fund.
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, 2020 and 2019, 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, 2020 and 2019, Level 3 included trust preferred securities owned and junior
subordinated debentures issued by the Company.
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.
130
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)
2020
2019
Significant Other
Observable Inputs
(Level 2)
2020
2019
Significant Other
Unobservable Inputs
(Level 3)
2020
2019
Total carried at fair value
on a recurring basis
2019
2020
(In thousands)
Assets:
Securities available for sale
Mortgage-backed
Securities
Other securities
Interest rate swaps
$
— $
— $ 404,460 $ 523,849 $
— $
12,703
—
12,216
—
229,516
1,319
235,103
2,352
1,295
—
— $ 404,460 $ 523,849
248,651
2,352
243,514
1,319
1,332
—
Total assets
$
12,703 $
12,216 $ 635,295 $ 761,304 $
1,295 $
1,332 $ 649,293 $ 774,852
Liabilities:
Borrowings
Interest rate swaps
$
— $
—
— $
—
— $
— $
60,987
19,653
43,136 $
—
44,384 $
—
43,136 $
60,987
44,384
19,653
Total liabilities
$
— $
— $
60,987 $
19,653 $
43,136 $
44,384 $ 104,123 $
64,037
There were no transfers between Levels 1, 2 and 3 during the years ended December 31, 2020 and 2019.
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:
For the year ended
December 31, 2020
December 31, 2019
Trust preferred Junior subordinated Trust preferred Junior subordinated
securities
debentures
securities
debentures
$
1,332
$
44,384 $
1,256 $
41,849
(In thousands)
(34)
—
(3)
—
50
(103)
78
—
(2)
$
—
1,295
$
(1,195)
43,136 $
—
1,332 $
—
2,803
(39)
(229)
44,384
$
—
$
2,670 $
— $
1,476
Beginning balance
Net (loss) gain from fair value
adjustment of financial assets (1)
Net loss from fair value adjustment of
financial liabilities (1)
Decrease in accrued interest
Change in unrealized losses included in
other comprehensive loss
Ending balance
Changes in unrealized gains held at
period end
(1) These totals in the table above are presented in the Consolidated Statement of Income under net loss from fair value
adjustments.
131
The following tables present the qualitative information about recurring Level 3 fair value of financial instruments
and the fair value measurements at the periods indicated:
December 31, 2020
Fair Value Valuation Technique Unobservable Input Range Weighted Average
(Dollars in thousands)
Assets:
Trust preferred securities
$
1,295 Discounted cash flows
Discount rate
n/a
4.2 %
Liabilities:
Junior subordinated
debentures
Assets:
$ 43,136 Discounted cash flows
Discount rate
n/a
4.2 %
December 31, 2019
Fair Value Valuation Technique Unobservable Input Range Weighted Average
(Dollars in thousands)
Trust preferred securities
$
1,332 Discounted cash flows
Discount rate
n/a
4.2 %
Liabilities:
Junior subordinated
debentures
$ 44,384 Discounted cash flows
Discount rate
n/a
4.2 %
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, 2020 and 2019, 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)
2020
2019
Significant Other
Observable Inputs
(Level 2)
2020
2019
Significant Other
Unobservable Inputs
(Level 3)
Total carried at fair value
on a non-recurring basis
2020
2019
2020
2019
(In thousands)
Assets:
Non-accrual loans
Other repossessed assets
$
— $
—
— $
—
— $
—
— $ 11,980 $
—
—
1,081 $ 11,980 $
239
—
1,081
239
Total assets
$
— $
— $
— $
— $ 11,980 $
1,320 $ 11,980 $
1,320
132
The following tables present the qualitative information about non-recurring Level 3 fair value measurements of
financial instruments at the periods indicated:
Assets:
Non-accrual loans
Fair Value
Valuation Technique
At December 31, 2020
Unobservable Input
(Dollars in thousands)
Range
Weighted Average
$
10,690
Sales approach
Reduction for planned expedited disposal
-100.0% to 15.0 %
6.8 %
Non-accrual loans
$
1,290 Discounted Cashflow
Discount Rate
Probability of Default
4.3% to 5.5 %
20.0% to 35.0 %
4.9 %
27.4 %
Assets:
Non-accrual loans
Non-accrual loans
Other repossessed assets
Fair Value
Valuation Technique
$
809 Discounted Cashflow
At December 31, 2019
Unobservable Input
(Dollars in thousands)
Discount Rate
Probability of Default
Range
Weighted Average
6.4 %
20.0 %
6.4 %
20.0 %
$
$
272
Blended income and
sales approach
Adjustment to sales comparison value to
reconcile differences between comparable sales
Capitalization rate
Reduction for planned expedited disposal
-10.0% to 15.0 %
9.5 %
15.0 %
239
Sales approach
Reduction for planned expedited disposal
0.5% to 12.5 %
3 %
9.5 %
15.0 %
6.5 %
The Company did not have any liabilities that were carried at fair value on a non-recurring basis at December 31,
2020 and 2019.
The methods and assumptions used to estimate fair value at December 31, 2020 and 2019 are as follows:
Securities:
The fair values of securities are contained in Note 7 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.
Non-accrual Loans:
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 and Other Repossessed Assets:
The fair value for OREO 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. The fair value for other repossessed assets are
based upon the most recently reported arm’s length sales transaction. When there is no recent sale activity, the fair value
is calculated using capitalization rates.
Junior Subordinated Debentures:
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
133
and time to maturity. The unrealized net gain/loss attributable to changes in our own credit risk was determined by
adjusting the fair value as determined in the proceeding sentence by the average rate of default on debt instruments with a
similar debt rating as our junior subordinated debentures, with the difference from the original calculation and this
calculation resulting in the instrument-specific unrealized gain/loss.
Interest Rate Swaps:
The fair value of interest rate swaps is based upon broker quotes.
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:
Assets:
Cash and due from banks
Securities held-to-maturity
Mortgage-backed securities
Other securities
Securities available for sale
Mortgage-backed securities
Other securities
Loans
FHLB-NY stock
Accrued interest receivable
Interest rate swaps
Liabilities:
Deposits
Borrowings
Accrued interest payable
Interest rate swaps
Assets:
Cash and due from banks
Securities held-to-maturity
Mortgage-backed securities
Other securities
Securities available for sale
Mortgage-backed securities
Other securities
Loans
FHLB-NY stock
Accrued interest receivable
Interest rate swaps
Liabilities:
Deposits
Borrowings
Accrued interest payable
Interest rate swaps
Carrying
Amount
Fair
Value
December 31, 2020
Level 1
Level 2
Level 3
(In thousands)
$ 157,388 $
157,388 $ 157,388 $
— $
—
7,914
49,918
8,991
54,538
—
—
8,991
—
—
54,538
404,460
243,514
6,704,674
43,439
44,041
1,319
404,460
243,514
6,793,985
43,439
44,041
1,319
—
12,703
—
—
2
—
404,460
229,516
—
43,439
1,389
1,319
—
1,295
6,793,985
—
42,650
—
$ 6,136,355 $ 6,141,775 $ 4,997,994 $ 1,143,781 $
1,020,895
4,755
60,987
1,017,573
4,755
60,987
—
—
—
974,437
4,755
60,987
—
43,136
—
—
Carrying
Amount
Fair
Value
December 31, 2019
Level 1
(In thousands)
Level 2
Level 3
$
49,787 $
49,787
$
49,787 $
— $
—
7,934
50,954
8,114
53,998
—
—
8,114
—
—
53,998
523,849
248,651
5,772,206
56,921
25,722
2,352
523,849
248,651
5,822,124
56,921
25,722
2,352
—
12,216
—
—
9
—
523,849
235,103
—
56,921
2,519
2,352
—
1,332
5,822,124
—
23,194
—
$ 5,066,424 $ 5,070,046
1,389,883
6,752
19,653
1,237,231
6,752
19,653
$ 3,628,534 $ 1,441,512 $
—
—
—
1,345,499
6,752
19,653
—
44,384
—
—
134
21. Derivative Financial Instruments
At December 31, 2020 and 2019, the Company’s derivative financial instruments consist of interest rate swaps.
The Company’s interest rate swaps are used for four purposes: 1) 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 December 31, 2020 and 2019; 2) to mitigate the Company’s exposure to rising interest rates on certain fixed
rate loans totaling $316.1 million and $326.0 million at December 31, 2020 and 2019 respectively; 3) to facilitate risk
management strategies for our loan customers with $125.6 million of swaps outstanding, which include $62.8 million with
customers and $62.8 million with bank counterparties at December 31, 2020 and 4) to mitigate exposure to rising interest
rates on certain short-term advances totaling $1,021.5 million and $541.5 million at December 31, 2020 and 2019,
respectively.
The Company’s derivative instruments are carried at fair value in the Company’s financial statements as part of
Other Assets for derivatives with positive fair values and Other Liabilities for derivatives with negative fair values. The
accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies and has
been designated as a hedge for accounting purposes, and further, by the type of hedging relationship.
At December 31, 2020 and 2019, we held derivatives designated as cash flow hedges, fair value hedges and
certain derivatives not designated as hedges.
At December 31, 2020 and 2019, derivatives with a combined notional amount of $143.6 million and $18.0
million, respectively, were not designated as hedges. At December 31, 2020 and 2019, derivatives with a combined
notional amount of $316.1 million and $326.0 million were designated as fair value hedges. At December 31, 2020 and
2019, derivatives with a combined notional amount of $1,021.5 million and $541.5 million, respectively, were designated
as cash flow hedges.
For cash flow hedges, the changes in the fair value of the derivative is reported in accumulated other
comprehensive income (loss), net of tax. Amounts in accumulated other comprehensive income (loss) are reclassified into
earnings in the same period during which the hedged forecasted transaction effects earnings. During the year ended
December 31, 2020, $4.7 million was reclassified from accumulated other comprehensive income (loss) to interest
expense. The estimated amount to be reclassified in next 12 months out of accumulated other comprehensive income (loss)
into earnings is $4.7 million.
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, 2020
December 31, 2019
Notional
Fair Value (1) Amount Fair Value (1)
Notional
Amount
Interest rate swaps (fair value hedge)
Interest rate swaps (non-hedge)
Interest rate swaps (fair value hedge)
Interest rate swaps (cash flow hedge)
Interest rate swaps (non-hedge)
Total derivatives
$
— $
62,779
316,051
1,021,500
80,779
$ 1,481,109 $
(In thousands)
— $ 139,960
—
1,319
186,009
(28,689)
541,500
(25,300)
(6,998)
18,000
(59,668) $ 885,469
$
$
2,352
—
(7,769)
(8,530)
(3,354)
(17,301)
(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.
135
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)
Affected Line Item in the
Statement Where Net
income is Presented
Other interest expense
Net gain (loss) from fair
value adjustments
For the years ended
December 31,
2020
2019
2018
$
(434) $
(140) $
(193)
(2,325)
(2,759)
(2,981)
(3,121)
919
726
43
156
Interest rate swaps (fair value hedge)
Interest and fees on loans
(5,226)
(837)
Interest rate swaps (cash flow hedge)
Other interest expense
(6,703)
1,232
Net (loss) income
$ (14,688) $
(2,726) $
925
The Company’s interest rate swaps are subject to master netting arrangements between the Company and its three
designated counterparties. 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, 2020
Gross Amount Offset in
Net Amount of Assets
Gross Amounts Not Offset in the
Consolidated Statement of
Condition
(In thousands)
Gross Amount of
Recognized Assets
the Statement of
Condition
Presented in the Statement of
Condition
Cash
Collateral
Instruments Received
Financial
Net Amount
Interest rate swaps
$
1,319 $
— $
1,319 $
— $
— $
1,319
Gross Amount of
Gross Amount Offset in Net Amount of Liabilities
Gross Amounts Not Offset in the
Consolidated Statement of
Condition
(In thousands)
Recognized
Liabilities
the Statement of
Condition
Presented in the Statement of
Condition
Financial
Instruments
Cash
Collateral
Pledged
Net Amount
Interest rate swaps
$
60,987 $
— $
60,987 $
99 $
63,517 $
(2,629)
136
December 31, 2019
Gross Amount Offset in
Net Amount of Assets
Gross Amounts Not Offset in the
Consolidated Statement of
Condition
(In thousands)
Gross Amount of
Recognized Assets
the Statement of
Condition
Presented in the Statement of
Condition
Financial
Instruments
Cash
Collateral
Received
Net Amount
Interest rate swaps
$
2,352
$
— $
2,352 $
— $
— $
2,352
Gross Amount of
Gross Amount Offset in Net Amount of Liabilities
Gross Amounts Not Offset in the
Consolidated Statement of
Condition
(In thousands)
Recognized
Liabilities
the Statement of
Condition
Presented in the Statement of
Condition
Financial
Instruments
Cash
Collateral
Pledged
Net Amount
Interest rate swaps
$
19,653
$
— $
19,653 $
19,265 $
— $
388
22. New Authoritative Accounting Pronouncements
Accounting Standards Adopted in 2020:
Effective January 1, 2020, the Company adopted Accounting Standards Topic 326, “Financial Instruments –
Credit Losses” which replaced the previously existing U.S. GAAP “incurred loss” approach to “expected credit losses”
approach, which is referred as Current Expected Credit Losses (“CECL”). CECL measures the credit loss associated with
financial assets carried at amortized cost, including loan receivables, held-to-maturity debt securities, off balance sheet
credit exposures and certain leases recognized by a lessor. CECL introduced the concept of purchased credit-deteriorated
(PCD) financial assets, in which it requires the estimate of expected credit losses embedded in the purchase price of PCD
assets to be estimated and separately recognized as an allowance as of the date of acquisition. It also modifies the
accounting of impairment on available-for-sale debt securities by recognizing a credit loss through an allowance for credit.
The Company adopted Topic 326 using the modified retrospective method for all financial assets measured at
amortized cost and off-balances sheet exposures. Results for reporting periods beginning after January 1, 2020 are
presented under Topic 326 while prior period amounts continue to be reported in accordance with previously applicable
GAAP. Upon adoption we recorded a cumulative-effect adjustment to retained earnings totaling $1.3 million, $0.9 million,
net of tax. The transition adjustment includes changes to the three applicable components of the ACL: increases of $0.4
million in the allowance for loan losses, $0.3 million in the allowance for held-to-maturity debt securities and $0.6 million
in the allowance for off-balance sheet items.
At January 1, 2020, the reasonable and supportable forecast indicated economic growth and low unemployment.
Effective January 1, 2020, the Company adopted ASU No. 2018-13, “Fair Value Measurement (Topic 820)”. The
Update modifies the disclosure requirements on fair value measurements in Topic 820. The guidance did not have a
significant impact on the Company’s financial positions, results of operations or disclosures.
Effective January 1, 2020, the Company adopted 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. Under this ASU, 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 guidance did not have a significant impact on the
Company’s financial positions, results of operations or disclosures.
Effective December 31, 2020, the Company adopted ASU No. 2018-14, “Compensation – Retirement Benefits –
Defined Benefit Plans – General (Subtopic 715-20).” The ASU provided targeted improvements to the disclosures required
137
for Defined Benefit Plans. The guidance did not have a significant impact on the Company’s financial positions, results
of operations or disclosures.
Accounting Standards Pending Adoption:
In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform” (Topic 848), which clarifies that
certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to
derivatives that are affected by the discounting transition. ASU 2021-01 also amends the expedients and exceptions in
ASC 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative
instruments affected by discounting transition. ASU 2021-01 was effective upon issuance and generally can be applied
through December 31, 2022.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform” (Topic 848), which provides
optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other
transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions
that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan
agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be
considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be
amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement
with no reassessments of the lease classification and the discount rate or re-measurements of lease payments that otherwise
would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional
expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity
may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an
interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available
to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must
be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We anticipate this ASU
will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022
that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather
than extinguishment of the old contract resulting in writing off unamortized fees/costs. We are evaluating the impacts of
this ASU and have not yet determined whether LIBOR transition and this ASU will have material effects on our business
operations and consolidated financial statements. The amendments in this Update apply to contract modifications that
replace a reference rate reform and contemporaneous modifications of other terms related to the replacement of the
reference rate.
138
23. Quarterly Financial Data (unaudited)
Selected unaudited quarterly financial data for the fiscal years ended December 31, 2020 and 2019 is presented
below:
4th
3rd
2nd
1st
4th
3rd
2nd
1st
2020
2019
(In thousands, except per share data)
$ 68,971 $ 63,914 $ 64,772 $ 66,670 $ 70,179 $ 69,389 $ 69,575 $ 69,813
28,010
41,803
972
943
32,419
29,000
41,179
(318)
5,038
29,647
29,566
40,009
1,474
2,451
27,158
25,844
40,826
7,178
(2,864)
32,380
30,440
38,949
683
1,039
26,045
16,055
48,717
9,619
13,737
28,755
13,990
49,924
2,470
1,351
29,985
13,239
55,732
3,862
(1,181)
46,811
Quarterly operating data:
Interest income
Interest expense
Net interest income
Provision (benefit) for credit losses
Other operating (loss) income
Other operating expense
Income (loss) before income tax
expense
Income tax expense
Net income (loss)
$
3,461 $ 14,331 $ 18,272 $
(1,390) $ 12,931 $ 10,724 $ 10,556 $
3,878
417
18,820
4,489
24,080
5,808
(1,596)
(206)
16,888
3,957
13,260
2,536
13,828
3,272
9,355
2,287
7,068
Basic earnings (loss) per common share $
Diluted earnings (loss) per common
share
Dividends per common share
$
$
Average common shares outstanding
for:
Basic earnings per share
Diluted earnings per share
0.11 $
0.50 $
0.63 $
(0.05) $
0.45 $
0.37 $
0.37 $
0.25
0.11 $
0.21 $
0.50 $
0.21 $
0.63 $
0.21 $
(0.05) $
0.21 $
0.45 $
0.21 $
0.37 $
0.21 $
0.37 $
0.21 $
0.25
0.21
30,603
30,603
28,874
28,874
28,867
28,867
28,853
28,853
28,723
28,723
28,730
28,730
28,761
28,761
28,621
28,621
24. 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.
139
The condensed financial statements for the Holding Company are presented below:
December 31,
December 31,
2020
2019
(Dollars in thousands)
$
28,033
$
14,401
$
$
$
$
1,295
726,802
2,185
839
759,154
90,180
43,136
6,841
140,157
341
261,533
(69,400)
442,789
(16,266)
618,997
1,332
684,643
2,185
1,897
704,458
74,319
44,384
6,083
124,786
315
226,691
(71,487)
433,960
(9,807)
579,672
$
759,154
$
704,458
For the years ended December 31,
2018
2020
2019
(In thousands)
$
78,833 $
466
(5,858)
(85)
(3,975)
69,381
2,274
71,655
(36,981)
34,674
(6,459)
28,215 $
32,000 $
250
(6,677)
(2,725)
(2,833)
20,015
3,173
23,188
18,091
41,279
2,945
44,224 $
34,000
275
(6,479)
(4,769)
(1,391)
21,636
3,907
25,543
29,547
55,090
(2,472)
52,618
$
Condensed Statements of Financial Condition
Assets:
Cash and due from banks
Securities available for sale:
Other securities
Investment in Bank
Goodwill
Other assets
Total assets
Liabilities:
Subordinated debentures
Junior subordinated debentures, at fair value
Other liabilities
Total liabilities
Stockholders' Equity:
Common stock
Additional paid-in capital
Treasury stock, at average cost (3,311,769 shares and 3,373,389 at December 31,
2020 and 2019, respectively)
Retained earnings
Accumulated other comprehensive loss, net of taxes
Total equity
Total liabilities and equity
Condensed Statements of Income
Dividends from the Bank
Interest income
Interest expense
Net 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 gain (loss), net of tax
Comprehensive net income
140
For the years ended December 31,
2018
2020
2019
(In thousands)
$
34,674 $
41,279 $
55,090
36,981
(291)
85
6,450
3,490
81,389
(18,091)
(769)
2,725
7,763
3,945
36,852
(29,547)
(1,915)
4,769
7,016
4,246
39,659
(54,836)
15,769
(39,067)
—
—
—
—
(3,877)
(24,813)
—
(28,690)
(2,656)
(24,149)
3
(26,802)
(22,585)
(22,927)
6
(45,506)
13,632
14,401
28,033 $
10,050
4,351
14,401 $
(5,847)
10,198
4,351
$
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
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:
Cash used in acquisition of Empire
Cash provided by acquisition of Empire
Net cash used in investing activities
Financing activities:
Purchase of treasury stock
Cash dividends paid
Stock options exercised
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
141
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
Flushing Financial Corporation
Uniondale, New York
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial condition of Flushing Financial
Corporation and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of
income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period
ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2020, 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) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020, 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 16, 2021 expressed an unqualified
opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the audit committee and
that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in
any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the
critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to
which they relate.
142
Allowance for Credit losses
As described in Notes 2 and 4 to the Company's consolidated financial statements, the Company had a gross loan
portfolio of $6.7 billion and related allowance for credit losses of $45.2 million as of December 31, 2020. The allowance
for credit losses consists of quantitative and qualitative components. The Company considers historical loss experience,
current economic and business conditions, as well as reasonable and supportable forecasts to develop the quantitative
component. This quantitative component is then adjusted for qualitative risk factors that involve significant estimates and
subjective assumptions that require a high degree of management’s judgment.
We identified management’s significant judgments used in the determination of the qualitative risk factors and
certain assumptions used to develop the quantitative component, including the reasonable and supportable forecast period
and reversion to historical loss period assumptions as a critical audit matter. Management’s determination of the qualitative
loss factors and these assumptions requires significant judgments and estimates. Auditing these complex judgments and
assumptions involved especially challenging auditor judgment due to the nature and extent of audit evidence and effort
required to address these matters, including the extent of specialized skill and knowledge needed.
The primary procedures we performed to address this critical audit matter included:
(cid:120) Assessing the design and testing the operating effectiveness of controls over management’s review of the
qualitative risk factors, as well as assumptions used to develop the quantitative component, including the
reasonable and supportable forecast period and reversion to historical loss period.
(cid:120) Verifying the relevance and reliability of inputs used in determining the qualitative risk factors and critical
assumptions through evaluating the sources of data used, considering contradictory evidence, and testing the
completeness and accuracy of data used.
(cid:120) Utilizing the engagement team’s specialized skills and knowledge of the banking industry and local and regional
economy to perform an independent assessment of the qualitative risk factors using similar and alternative source
data, and then comparing the results to management’s determination of the qualitative risk factors.
(cid:120) Utilizing personnel with specialized skill and knowledge in valuation to assist with evaluating the reasonableness
of the reasonable and supportable forecast period and reversion to historical loss period assumptions used to
develop the quantitative component
Goodwill
At December 31, 2020, the Company has goodwill of $17.6 million, which is allocated to the Company’s single
reporting unit. As described in Note 2 to the Company’s consolidated financial statements, goodwill is tested for
impairment at the reporting unit level annually or when events and circumstances indicate that an impairment may have
occurred. During each of the periods ended March 31, 2020, June 30, 2020, and September 30, 2020, the market volatility
resulting from the COVID-19 pandemic resulted in a decline in the Company’s stock price and market capitalization. The
Company determined that such decrease was a triggering event requiring interim goodwill impairment quantitative
analysis. At December 31, 2020, the Company performed its annual goodwill impairment test. The Company determined
that the Company’s goodwill was not impaired as of March 31, June 30, September 30 or December 31, 2020. The
quantitative impairment tests were performed by utilizing a discounted cash flow valuation methodology based on
projections of the Company’s financial performance.
We identified the estimate of the fair value of the Company’s reporting unit as part of the interim and annual
impairment assessments as a critical audit matter. The principal considerations for our determination are: (i) the fair value
estimate was sensitive to changes in the significant assumptions, including those used to develop the projected cash flows,
the discount rate and the terminal growth rate and (ii) the audit effort involved the use of professionals with specialized
skill and knowledge. The significant assumptions which reflect expectations about future economic conditions were
143
especially challenging to audit and required subjective auditor judgment due to the inherent uncertainties related to the
COVID-19 pandemic.
The primary procedures we performed to address this critical audit matter included:
(cid:120) Assessing the design and testing the operating effectiveness of controls over the Company’s estimate of the fair
value of its reporting unit, including controls over management’s review of the significant assumptions described
above.
(cid:120) Evaluating the reasonableness of the significant assumptions used in the projected cash flows by comparing them
to historical results and market data, while considering the effect of COVID-19.
(cid:120) Utilizing personnel with specialized knowledge and skill in (i) assessing the appropriateness of the valuation
method and implied control premium and (ii) evaluating the reasonableness of the discount rate and terminal
growth rate.
Acquisition of Empire Bancorp, Inc.
As described in Note 3 to the Company’s consolidated financial statements, the Company completed its
acquisition of Empire Bancorp, Inc. for a total purchase consideration of $87.5 million, with total assets
acquired of $982.7 million, liabilities assumed of $896.7 million and resulting goodwill of $1.5 million on
October 30, 2020. Determination of the acquisition date fair values of the assets acquired and liabilities assumed
requires the Company to make significant estimates and assumptions. The fair value determination of a loan
portfolio requires greater levels of estimates and assumptions than the remainder of purchased assets or
assumed liabilities. In determining the fair values of loans, the Company must determine projected credit losses
and discount rates, among other assumptions.
We identified the determination of the projected credit loss and discount rate assumptions in the valuation of
acquired loans as a critical audit matter, as changes in these assumptions could have a significant impact on the
fair values of the loans acquired. Auditing these significant assumptions involved especially challenging and
subjective auditor judgement due to the nature and extent of audit effort required to address these matters,
including specialized skill and knowledge needed.
The primary procedures we performed to address this critical audit matter included:
(cid:120) Assessing the design and testing the operating effectiveness of controls over the business combination,
specifically management’s review of the key assumptions used in the valuation of acquired loans.
(cid:120) Testing the completeness and accuracy of the loan level data utilized in the valuation of the acquisition date fair
value by confirming such data with the borrower on a sample basis.
(cid:120) Utilizing personnel with specialized skill and knowledge in valuation to assist with (i) assessing the
appropriateness of the valuation methodology and (ii) testing and evaluating the reasonableness of projected
credit loss and discount rate assumptions used in the valuation of the acquired loans. This includes utilizing
information obtained from market participants and recent market activity on other recent acquisitions to test the
Company’s assumptions and identify potential sources of contrary information.
/S/ BDO USA, LLP
We have served as the Company’s auditor since 2015.
New York, New York
March 16, 2021
144
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Flushing Financial Corporation
Uniondale, New York
Opinion on Internal Control over Financial Reporting
We have audited Flushing Financial Corporation and Subsidiaries’ (the “Company’s”) internal control over
financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (“PCAOB”), the consolidated statements of financial condition of the Company as of December 31, 2020
and 2019, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated
March 16, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
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 Item 9A,
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 are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the
PCAOB. 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 the 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
/S/ BDO USA, LLP
New York, New York
March 16, 2021
145
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, 2020, 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, 2020.
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, 2020 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, 2020 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, 2020, as stated in its report.
Item 9B. Other Information.
None.
146
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
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 18, 2021 (“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:
directors, officers and employees. This code
https://s26.q4cdn.com/191821158/files/doc_downloads/governance/Code-of-Business-Conduct-Ethics.pdf
is publicly available on
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.
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.
147
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, 2020 and 2019
(cid:120) Consolidated Statements of Income for each of the three years in the period ended December 31, 2020
(cid:120) Consolidated Statements of Comprehensive Income for each of the three years in the period ended
December 31, 2020
(cid:120) Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period ended
December 31, 2020
(cid:120) Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2020
(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.
148
3. Exhibits Required by Securities and Exchange Commission Regulation S-K
Exhibit
Number
Description
2.1
2.2
2.3
3.1 P
3.2
3.3
3.4
4.1
Agreement and Plan of Merger, dated as of October 24, 2019, by and among Flushing Financial
Corporation, Empire Bancorp, Inc. and Lighthouse Acquisition Co., Inc. † (18)
Amendment No. 1 to the Agreement and Plan of Merger by and among Empire Bancorp, Inc., Lighthouse
Acquisition Co., Inc. and Flushing Financial Corporation, dated as of December 6, 2019 (19)
Amendment No. 2 to the Agreement and Plan of Merger by and among Empire Bancorp, Inc., Lighthouse
Acquisition Co., Inc. and Flushing Financial Corporation, dated as of August 14, 2020 (20)
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 (11)
Amended and Restated By-Laws of Flushing Financial Corporation (13)
Subordinated Indenture, dated as of December 12, 2016, by and between the Company and Wilmington
Trust, National Association, as Trustee. (8)
4.2
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. (8)
4.3
10.1*
Description of Securities (20)
Form of Amended and Restated Employment Agreement between Flushing Bank and Certain Officers
(12)
10.2*
Form of Amended and Restated Employment Agreement between Flushing Financial Corporation and
Certain Officers (12)
10.3*
Amended and Restated Employment Agreement between Flushing Financial Corporation and John R.
10.4*
10.5*
10.6*
10.7*
10.8*
Buran (12)
Amended and Restated Employment Agreement between Flushing Bank and John R. Buran (12)
Amended and Restated Employment Agreement between Flushing Financial Corporation and Maria A.
Grasso (12)
Amended and Restated Employment Agreement between Flushing Bank and Maria A. Grasso (12)
Employment Agreement between Flushing Financial Corporation and Susan K. Cullen (16)
Flushing Bank Specified Officer Change in Control Severance Policy (as Amended Effective January 1,
2016) (15)
10.9*
Employee Severance Compensation Plan for Vice Presidents and Assistant Vice Presidents of Flushing
Bank (Effective as of January 1, 2016) (15)
10.10*
10.11*
10.12*
10.13*
Amended and Restated Outside Director Retirement Plan (7)
Amended and Restated Flushing Bank Outside Director Deferred Compensation Plan (4)
Amended and Restated Flushing Bank Supplemental Savings Incentive Plan (14)
Form of Indemnity Agreement among Flushing Bank, Flushing Financial Corporation, and each Director
(2)
10.14*
Form of Indemnity Agreement among Flushing Bank, Flushing Financial Corporation, and Certain
Officers (2)
10.15* P
10.16*
10.17* P
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25
Employee Benefit Trust Agreement (1)
Amendment to the Employee Benefit Trust Agreement (3)
Guarantee by Flushing Financial Corporation (1)
Form of Outside Director Restricted Stock Award Letter (6)
Form of Outside Director Restricted Stock Unit Award Letter (15)
Form of Employee Restricted Stock Award Letter (6)
Form of Employee Restricted Stock Unit Grant Letter Agreement (15)
Amended and Restated Flushing Financial Corporation 2005 Omnibus Incentive Plan (9)
Amendment to Flushing Financial Corporation 2005 Omnibus Incentive Plan (10)
Annual Incentive Plan for Executives and Senior Officers (11)
Lease agreement between Flushing Bank and Rexcorp Plaza SPE LLC (13)
149
10.26*
10.27*
10.28*
10.29*
10.30
10.31
21.1
23.1
31.1
Flushing Financial Corporation 2014 Omnibus Incentive Plan (16)
Form of Employee Performance Restricted Stock Unit Award Letter (17)
Form of Director Restricted Stock Unit Award Letter With One Year Vesting (17)
Flushing Bank Supplemental Savings Incentive Plan, Amended and Restated as of November 1, 2018 (17)
Employment Agreement between Flushing Financial Corporation and Thomas M. Buonaiuto (18)
Consulting Agreement between Flushing Bank and Douglas C. Manditch (18)
Subsidiaries information incorporated herein by reference to Part I – Subsidiary Activities
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)
31.2
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer
(filed herewith)
32.1
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)
32.2
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)
Inline XBRL Instance Document (filed herewith)
Inline XBRL Taxonomy Extension Schema Document (filed herewith)
Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
Inline XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
Inline XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive
Data File because its XBRL tags are embedded within the Inline XBRL document
Indicates compensatory plan or arrangement.
*
† Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Flushing Financial hereby undertakes to
furnish supplemental copies of any of the omitted schedules upon request by the U.S. Securities and Exchange
Commission.
(1) Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 filed September 1, 1995,
Registration No. 33-96488. (P: Indicates a filing submitted in paper)
(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-K for the year ended December 31, 2004.
(7) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended March 31, 2006.
(8) Incorporated by reference to Exhibits filed with Form 8-K filed December 12, 2016.
(9) Incorporated by reference to Appendices filed with Proxy Statement on Schedule 14A filed April 7, 2011.
(10) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended September 30, 2011.
(11) Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2011.
(12) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended June 30, 2013.
(13) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended June 30, 2014.
(14) Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2014.
(15) Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2015.
(16) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended March 31, 2016
(17) Incorporated by reference to Exhibits filed with Form 10-K for the year ended December 31, 2018.
(18) Incorporated by reference to Exhibit filed with Form 8-K filed October 28, 2019.
(19) Incorporated by reference to Exhibit filed with Form 8-K filed December 6, 2019.
(20) Incorporated by reference to Exhibit filed with Form 10-K filed December 31, 2019.
(21) Incorporated by reference to Exhibit filed with Form 8-K filed August 17, 2020.
150
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 16, 2021.
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
/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
/S/LOUIS C. GRASSI
Louis C. Grassi
/S/SAM S. HAN
Sam S. Han
/S/JOHN J. MCCABE
John J. McCabe
/S/DONNA M. O’BRIEN
Donna M. O’Brien
Title
Director, President (Principal Executive
Officer)
Date
March 16, 2021
Director, Chairman
March 16, 2021
Treasurer (Principal Financial and
Accounting Officer)
March 16, 2021
Director
Director
Director
Director
Director
Director
151
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
/S/MICHAEL J. RUSSO
Michael J. Russo
/S/MICHAEL A. AZARIAN
Michael A. Azarian
/S/CAREN C. YOH
Caren C. Yoh
/S/DOUGLAS C. MANDITCH
Douglas C. Manditch
Director
Director
Director
Director
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
152
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Corporate Information
Executive and Senior Management
John R. Buran
President,
Chief Executive Officer
Michael Bingold
Senior Executive Vice President,
Chief Retail & Client
Development Officer
Allen M. Brewer
Senior Executive Vice President,
Chief Information Officer
Thomas M. Buonaiuto
Senior Executive Vice President,
Chief of Staff & Deposit Channel
Executive
Susan K. Cullen
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
Astrid Burrowes
Executive Vice President,
Chief Accounting Officer
Ruth E. Filiberto
Executive Vice President,
Director of Human Resources
Vincent E. Giovinco*
Executive Vice President,
Director of Commercial
Real Estate Lending
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
Rosina Manzi
Executive Vice President,
Chief Audit Officer
Patricia Mezeul
Executive Vice President,
Director of Government Banking
Frank Akalski**
Senior Vice President,
Chief Investment Officer
William M. Gianakos
Senior Vice President,
Director of Retail Banking
Douglas Liang***
Senior Vice President,
Chief Investment Officer
Yan Nuriyev
Senior Vice President,
Chief Technology Officer
Albert H. Savastano
Senior Vice President,
Director of Investor Relations
Patricia Tiffany
Senior Vice President,
Director of Marketing
Richard White
Senior Vice President,
Chief Information Security Officer
*Effective April 2020
**Retired
***Effective July 2020
Board of Directors
Alfred A. DelliBovi
Chairman of the Board
Retired President & CEO of the
Federal Home Loan Bank of New York
John R. Buran
President & Chief Executive Officer
Michael A. Azarian
Retired Managing Director
Citigroup
James D. Bennett
Attorney in Nassau County, New York
Steven J. D’Iorio
Executive Managing Director
Cushman & Wakefield
Shareholder Information
Annual Meeting
The Annual Meeting of Shareholders of
Flushing Financial Corporation will be
held at 1:00 p.m., May 18, 2021. The
meeting will be hosted virtually at
www.virtualshareholdermeeting.com/
FFIC2021
On April 8, 2021, a Notice of Internet
Availability was mailed to shareholders
containing instructions on how to access
our proxy materials.
Louis C. Grassi
Managing Partner & Chief Executive
Officer of Grassi & Co.
Sam S. Han
Founder & President
The Korean Channel, Inc.
Douglas C. Manditch
Former Chairman and Chief Executive
Officer of Empire Bancorp, Inc.
John J. McCabe
Retired Chief Equity Strategist
Shay Assets Management
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
Stock Listing
NASDAQ Global Select MarketSM
Symbol: FFIC
Transfer Agent and Registrar
Computershare Trust Company NA
P.O. Box 30170
College Station, TX 77842-3170
800-426-5523
www.Computershare.com
Shareholder Relations
Susan K. Cullen
718-961-5400
Independent Registered
Public Accounting Firm
BDO USA, LLP
100 Park Avenue
New York, NY 10017
212-885-8000
Legal Counsel
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, NY 10004
212-837-6000
QUEENS
MANHATTAN
CHINATOWN
183 Canal Street
PARK AVENUE
99 Park Avenue
PARK AVENUE SOUTH
225 Park Avenue South
ASTORIA
31-16 30th Avenue
BAYSIDE
61-14 Springfield Boulevard
213-03 Northern Boulevard
FLUSHING
147-42 Northern Boulevard
164-20 Northern Boulevard
44-43 Kissena Boulevard
136-41 Roosevelt Avenue
FOREST HILLS
107-11 Continental Avenue
JAMAICA
89-12 Sutphin Boulevard
BROOKLYN
LONG ISLAND
AVENUE J
1402 Avenue J
BAY RIDGE
7102 Third Avenue
BOROUGH PARK
4616 13th Avenue
MONTAGUE
186 Montague Street
WILLIAMSBURG
217 Havemeyer Street
GARDEN CITY
1122 Franklin Avenue
HICKSVILLE
268 North Broadway
ISLANDIA
1707 Veterans Memorial Highway
MINEOLA
170 Old Country Road
NEW HYDE PARK
661 Hillside Avenue
PORT JEFFERSON STATION
4747 Nesconset Highway
SHIRLEY
1044 William Floyd Parkway
UNIONDALE
260E RXR Plaza
Flushing Bank
220 RXR Plaza, Uniondale, NY 11556
718-961-5400
FlushingBank.com
© 2021 Flushing Financial Corporation. All rights reserved. BRANR0321
Annual Report Design by Curran & Connors, Inc.