UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended MARCH 31, 1996.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number: 000-24272
FLUSHING FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-3209278
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
144-51 NORTHERN BOULEVARD 11354
FLUSHING, NEW YORK
(Address of principal executive offices) (Zip Code)
(718) 961-5400
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
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.
(1) Yes /X/ No / /
(2) Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
AT MARCH 31, 1996 7,957,767 SHARES WERE OUTSTANDING.
<PAGE> 1
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
SEC FORM 10-Q
-------------
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
INDEX PAGE No.
- - ----- --------
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
as of March 31, 1996 and December 31, 1995
(unaudited). 3
Consolidated Statements of Operations for the three
months ended March 31, 1996 and 1995 (unaudited). 4
Consolidated Statements of Cash flows for the three
months ended March 31, 1996 and 1995 (unaudited). 5
Notes to Consolidated Financial Statements. 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 17
Item 2. Changes in Securities. 17
Item 3. Defaults Upon Senior Securities. 17
Item 4. Submission of Matters to a Vote of Security Holders. 17
Item 5. Other information. 17
Item 6. Exhibits and Reports on Form 8-K. 17
SIGNATURES 18
EXHIBITS 19
<PAGE> 2
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------- -------------
(Unaudited)
<C> <C>
<S>
ASSETS:
Cash and due from banks $ 10,217,765 $ 11,883,639
Federal funds sold and overnight
interest-earning deposits 4,200,000 7,438,000
Securities available for sale:
Mortgage-backed securities 169,067,704 179,300,164
Other securities 227,501,913 202,147,039
Loans:
1-4 Family residential mortgage loans 177,366,073 170,088,462
Multi-family mortgage loans 77,912,026 69,139,758
Commercial real estate loans 45,281,079 45,214,727
Consumer loans 2,121,368 2,328,365
Less: Unearned loan fees (1,306,375) (1,334,991)
Allowance for loan losses (5,349,613) (5,309,859)
------------- --------------
Net loans 296,024,558 280,126,462
Interest and dividends receivable 6,463,841 5,879,501
Real estate owned, net 1,667,767 1,869,431
Bank premises and equipment, net 5,960,010 6,114,033
Other assets 18,278,622 13,626,246
------------- --------------
Total assets $ 739,382,180 $ 708,384,515
============= ==============
LIABILITIES:
Due to depositors:
Non-interest bearing $ 10,093,010 $ 10,372,448
NOW and money market accounts 47,480,965 47,154,968
Savings accounts 216,227,551 215,577,540
Certificates of deposit 293,081,501 284,302,238
Mortgagors' escrow deposits 4,834,356 2,456,948
Borrowed funds 21,000,000 0
Other liabilities 8,248,336 7,190,167
----------- -----------
Total liabilities 600,965,719 567,054,309
----------- -----------
Committments and Contingencies (Note 3)
STOCKHOLDERS' EQUITY:
Preferred stock ($0.01 par value;
5,000,000 shares authorized) 0 0
Common stock ($0.01 par value; 20,000,000
shares authorized; 8,625,000 shares
issued: 7,957,767 and 7,957,100 shares
outstanding at March 31, 1996 and at
December 31, 1995, respectively) 86,250 86,250
Additional paid-in capital 96,517,087 96,514,628
Employee benefit trust - unearned
compensation (7,673,179) (7,680,850)
Retained earnings 52,440,333 50,777,543
Net unrealized (loss) gain on securities
available for sale, net of taxes (2,954,030) 1,632,635
------------ -----------
Total stockholders' equity 138,416,461 141,330,206
------------ -----------
Total liabilities and stockholders'
equity $ 739,382,180 $ 708,384,515
============ ============
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 6,535,855 $ 6,226,426
Interest and dividends on securities:
Taxable interest 6,067,452 4,376,698
Tax-exempt interest 13,739 30,273
Dividends 109,861 112,753
Other interest income 173,542 206,746
---------- ----------
Total interest and dividend income 12,900,449 10,952,896
---------- ----------
Interest expense:
Deposits 5,991,521 4,937,714
Other interest expense 150,209 221,654
---------- ----------
Total interest expense 6,141,730 5,159,368
---------- ----------
Net interest income 6,758,719 5,793,528
Provision for loan losses 151,946 110,171
---------- ----------
Net interest income after provision for
loan losses 6,606,773 5,683,357
---------- ----------
Non-interest income:
Other fee income 228,686 214,785
Net gain on sales of securities and loans 321,976 53,411
Amortization of deferred gain from sale
of real estate 0 368,918
Other income 191,283 284,404
---------- ----------
Total non-interest income 741,945 921,518
---------- ----------
Non-interest expense:
Salaries and employee benefits 2,016,092 1,812,066
Directors' pension expense 20,202 643,800
Occupancy and equipment 524,238 473,606
Professional services 501,061 359,965
Federal deposit insurance premiums 500 357,633
Data processing 255,005 196,626
Depreciation and amortization 195,425 173,359
Real estate owned 38,108 204,144
Conversion expenses 0 2,221,832
Other operating 691,485 666,313
---------- ----------
Total non-interest expense 4,242,116 7,109,344
---------- ----------
Income (loss) before income taxes 3,106,602 (504,469)
---------- ----------
Provision for income taxes:
Federal 879,727 323,191
State and local 564,085 230,739
---------- ----------
Total taxes 1,443,812 553,930
---------- ----------
Net income (loss) $ 1,662,790 $ (1,058,399)
========== ==========
Primary and fully diluted earnings per
share $ 0.21 NA
Weighted average shares outstanding 7,957,381 NA
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<PAGE> 4
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the three months ended
March 31,
-------------------------
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
Cash flows provided by operating activities:
Net income (loss) $ 1,662,790 $(1,058,399)
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 151,946 110,170
Provision for losses on real estate owned 9,096 103,025
Depreciation of bank premises and equipment 195,425 173,357
Net gain on sales of securities & loans (321,976) (53,412)
Net gain (loss) on sales of real estate owned (21,169) 28,244
Amortization of unearned premium, net of accretion
of unearned discount 342,517 463,026
Amortization of deferred income (179,212) (176,079)
Deferred income tax provision 52,008 392,270
Deferred compensation 40,835 16,567
Changes in operating assets and liabilities, net 2,289 1,467,942
----------- ---------
Net cash provided by operating activities 1,934,549 1,466,711
----------- ---------
Cash flows (used in) provided by investing activities:
Purchases of bank premises and equipment (41,402) ( 332,313)
Purchases of securities available for sale (90,128,000) (3,976,000)
Purchases of securities held to maturity 0 (2,751,000)
Proceeds from sales and calls of securities
available for sale 48,587,976 11,634,412
Proceeds from maturities and prepayments of
securities available for sale 17,607,698 3,643,892
Proceeds from calls of securities held to maturity 0 31,000
Proceeds from maturities and prepayments of
securities held to maturity 0 2,338,394
Net originations and repayments of loans (10,749,708) (2,601,256)
Purchases of loans (5,388,000) (8,007,000)
Proceeds from sales and operations of real estate
owned 409,642 427,675
Net cash (used in) provided by investing ------------ ----------
activities (39,701,794) 407,804
------------ ----------
Cash flows provided by financing activities:
Net (decrease) increase in non-interest bearing
deposits (279,438) 7,876,736
Net increase in interest bearing deposits 9,755,271 1,514,954
Net increase in mortgagors' escrow deposits 2,377,408 2,000,909
Repayment of securities sold with the agreement
to repurchase 0 (5,000,000)
Borrowed funds 21,000,000 0
Employee benefit trust 10,130 0
----------- ----------
Net cash provided by financing activities 32,863,371 6,392,599
----------- ----------
Net (decrease) increase in cash and cash equivalents (4,903,874) 8,267,114
Cash and cash equivalents, beginning of period 19,321,639 22,168,214
----------- -----------
Cash and cash equivalents, end of period $14,417,765 $30,435,328
=========== ===========
Supplemental cash flow disclosure:
Interest paid $ 6,129,041 $5,141,288
Income taxes paid 328,408 295,066
Noncash activities:
Loans originated as the result of real estate sales 146,525 150,292
Loans transferred through the foreclosure of a
related mortgage loan or through in-substance
foreclosure to real estate owned 341,169 29,782
Net change in unrealized gain (loss) on securities
available for sale (8,498,080) 5,390,611
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<PAGE> 5
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary for a fair presentation of the
financial condition of Flushing Financial Corporation and Subsidiaries (the
"Company") as of March 31, 1996, the results of operations and cash flow
statements for the three months ended March 31, 1996 and 1995. These
adjustments consists of items which are of a recurring nature. The results of
operations for the three months ended March 31, 1996 are not necessarily
indicative of the results of operations to be expected for the remainder of
the year.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principals ("GAAP") have been omitted pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). It is presumed that the users
of the accompanying unaudited financial statements have read or have access to
the Company's audited financial statements and the notes thereto included in
the Company's 1995 Annual Report to Shareholders and SEC Form 10-K for the
year ended December 31, 1995.
2. NATURE OF OPERATIONS
Flushing Financial Corporation is a newly formed holding company, formed for
the purpose of acquiring all of the common stock of Flushing Savings Bank, FSB
(the "Bank") concurrent with the Bank's conversion from mutual to stock form
of organization which was completed on November 21, 1995. Activities prior to
November 21, 1995 presented in the financial statements relate to the Bank
only. The acquisition was accounted for using the pooling of interest method.
3. COMMITMENTS AND CONTINGENCIES
On February 6, 1995, the Superintendent of Banks of the State of New York (the
"Superintendent") seized control of the business and property of Nationar, a
commercial bank and trust company wholly owned by savings institutions
("Nationar"), due to its alleged unsafe and unsound financial condition. The
Superintendent is currently in the process of winding up the affairs of
Nationar and liquidating assets. The company has deposits at Nationar
totaling $4,408,105 that have been frozen pending the completion of the
liquidation. The combined deposits are included in other assets. In
connection with the liquidation process, the Company has filed a claim for
these funds with the New York State Banking Department.
Uncertainties exist regarding amounts ultimately distributable to creditors of
Nationar. These uncertainties include (i) the legal process and results of
evaluation of claims, and resolution of contested claims; (ii) the amounts
realized on the assets of Nationar in its liquidation; and (iii) the legal and
administrative expenses that will be incurred during the course of
liquidation. The New York State Banking Department has given preliminary
indications that the assets may be inadequate to satisfy all claims of
creditors in full. The Company recorded a provision for estimated losses in
the amount of $660,000, representing approximately 15% of the Company's total
demand deposit claims against Nationar.
<PAGE> 6
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Flushing Financial Corporation (the "Holding Company") was formed in May 1994
to serve as the holding company for Flushing Savings Bank, FSB ("Bank"). On
November 21, 1995, the Bank completed its Conversion ("Conversion") from a
federally charted mutual savings bank to a federally chartered stock savings
bank. In connection with the Conversion, the Holding Company issued 8,625,000
shares of common stock at a price of $11.50 per share and utilized a portion
of the proceeds to acquire all of the issued shares of the Bank. Prior to the
Conversion, the Holding Company had no assets, liabilities or operations. The
following discussion of financial condition and results of operations include
the collective results of the Holding Company and the Bank (collectively the
"Company"), but reflects principally the Bank's activities. Unless otherwise
indicated, for the periods prior to November 21, 1995, reference to the
Company reflects only the Bank's activities.
The Company's principal business has been, and continues to be, attracting
retail deposits from the general public and investing those deposits, together
with funds generated from operations, primarily in originations and purchases
of one-to-four family residential mortgage loans (including condominium and
home equity loans), commercial real estate loans and multi-family
income-producing property loans. To a lesser extent, the Company originates
co-operative apartment loans, construction and consumer loans. The Company
also invests in U.S. government and federal agency securities, mortgage-backed
securities, corporate fixed-income securities and other marketable securities.
The Company's results of operations depend primarily on net interest income,
which is the difference between the interest income earned on its loan and
securities portfolios and its cost of funds, consisting primarily of interest
paid on deposit accounts. The Company's results of operations may also be
significantly affected by its periodic provision for loan losses and provision
for losses on real estate owned ("REO") as well as non-interest income,
general and administrative expenses, other non-interest expense and income tax
expense. In addition, such results may be significantly affected by general
economic and competitive conditions, including changes in market interest
rates, the strength of the local economy, government policies and actions of
regulatory authorities.
Statements contained in this Quarterly Report relating to plans, strategies,
objectives, economic performance and trends and other statements that are not
descriptions of historical facts may be foward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward looking information is inherently
subject to risks and uncertainties, and actual results could differ materially
from those currently anticipated due to a number of factors, which include,
but are not limited to, the factors set forth in the Company's 1995 Annual
Report to Shareholders and SEC Form 10-K for the year ended December 31, 1995
<PAGE> 7
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
under the captions "Management Strategy" and "Results of Operation-General"
and "Other Trends and Contingencies", and elsewhere in this Quarterly Report
and in other documents filed by the Company with the Securities and Exchange
Commission from time to time. The Company has no obligation to update these
forward-looking statements.
COMPARISION OF OPERATING RESULTS FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1995
General. Net income for the first quarter of 1996 was $1.7 million compared
to a net loss of $1.1 million for the first quarter of 1995. The first
quarter 1995 Statement of Operations includes certain non-recurring items,
which if excluded, net of tax effect, would have resulted in a net income of
$1.1 million for the first quarter of 1995. Excluding the non-recurring items
incurred in 1995, net income increased $587,000, or 54.56% from the three
months ended March 31, 1995 as compared to the three months ended March 31,
1996. This increase is primarily the result of a $965,000 increase in net
interest income and an increase of $189,000 in non-interest income, offset in
part by an $527,000 increase in provision for income taxes.
Interest Income. Interest income for the three months ended March 31, 1996
was $12.9 million, an increase of $1.9 million as compared to $11.0 million
for the three months ended March 31, 1995. This increase is due primarily to
a $1.7 million increase in interest income from securities as the average
securities balance increased $103.0 million from $281.7 million for the three
months ended March 31, 1995 to $384.7 million for the comparable 1996 period.
Interest income from mortgage loans also increased by $326,000 as the average
mortgage loan balances increased $31.3 million from $255.4 million for the
first quarter of 1995 to $286.7 million for the first quarter of 1996. The
increase in income due to the average yield of the mortgage loan balances was
partly offset by a 60 basis point decline in the average yield of the mortgage
loan portfolio.
Interest Expense. Interest expense increased $982,000 from $5.2 million for
the three months ended March 31, 1995 to $6.1 million for the three months
ended March 31, 1996. This increase resulted from a $1.1 million increase in
deposit expense, offset in part by $71,000 decline in borrowed funds expense.
Deposit expense increased as the average deposit balances increased $26.6
million from $524.7 million for the three months ended March 31, 1995 to
$551.3 million for the three months ended March 31, 1996. This increase in
average balances is primarily due to a $57.9 million increase in higher
costing certificates of deposit accounts, partly offset by a $32.3 million
decline in lower costing passbook and money market accounts. Furthering the
increase in deposit expense was a rise of 72 basis points in the average cost
of certificates of deposit accounts from 5.04% for the quarter ended March 31,
1995 to 5.76% for the quarter ended March 31, 1996. Interest expense for
borrowed funds declined as average cost of borrowed funds decreased 1.65
percentage points from 6.96% for the first quarter of 1995 to 5.31% for the
first quarter of 1996.
<PAGE> 8
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Provision for Loan Losses. The provision for loan losses during the three
months ended March 31, 1996 was $152,000 compared to $110,000 for the three
months ended March 31, 1995. The provision reflects, among other things, the
Bank's evaluation of current economic conditions, the overall trend of
non-performing loans in the loan portfolio, it's analysis of specific loan
situations, and the increase in the loan portfolio.
Non-Interest Income. Total non-interest income declined by $180,000 from
$922,000 for the first quarter of 1995 as compared to $742,000 for the first
quarter of 1996. This decline is primarily attributable to a non-recurring
item during 1995 for $369,000, offset in part by a $269,000 increase in gain
on sales of securities. The non-recurring item relates to the amortization of
deferred gain recognized on a prior period sale of real estate.
Non-Interest Expense. Non-Interest expense for three months ended March 31,
1996 totaled $4.2 million, representing a decrease of $2.9 million from the
comparable 1995 period. This decrease is due primarily to two non-recurring
items during the first quarter of 1995: the expensing of $2.2 million of
deferred costs that were associated with the Conversion through March 31, 1995
and the immediate recognition of $644,000 representing the projected benefit
obligation under the retirement plan for the Company's non-employee directors.
Excluding these two non-recurring items, total non-interst expense in the
first quarter of 1996 was essentially flat, as compared to the first quarter
of 1995, as a $357,000 decrease in federal deposit insurance premium was
largely offset by an increase in salaries and employee benefits, and the use
of professional services attributable to benefits and other costs associated
with the operation of a public company.
Income Before Income Taxes. Total income before provision for income taxes
increased $3.6 million for reasons stated above. Excluding the previously
described non-recurring items, total income before provision for income taxes
would have increased $1.1 million, or 55.93%.
Provision for Income Taxes. Income tax provision for the three months ended
March 31, 1995 was relatively higher than the three months ended March 31,
1996. This is primarily due to the write-off of certain non-deductible costs
that were associated with the Conversion through March 31, 1995. This
increase is partially offset by a decrease in the valuation allowance on a
deferred tax asset atributable to a deferred gain on on a deferred tax asset
attributable to a deferred gain on the sale of real estate.
<PAGE> 9
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CHANGES IN FINANCIAL CONDITION
Assets. From the year ended December 31, 1995, total assets increased $31.0
million to $739.4 million at March 31, 1996. The growth in assets is
primarily reflected in a $15.9 million increase in net loans and a net
increase of $15.1 million in investment securities. The investment securities
also reflects an $8.5 million unrealized loss on mark-to-market valuation of
securities, before tax effect, as a result of increases in prevailing interest
rates. An increasing interest rate environment may result in an increase in
unrealized loss on mark-to-market valuation of securities. The actual amount
of cash flows from investment securities does not change as a result of
mark-to-market valuation adjustments.
As part of the Company's continuing effort to manage non-performing assets,
real estate owned declined by $202,000, or 10.79%, from December 31, 1995
levels. Non-performing loans as a percentage of gross loans declined 10 basis
points from 1.74% at December 31, 1995 to 1.64% at March 31, 1996. Allowance
for loan losses to total non-performing loans also increased from 106.61% at
December 31, 1995 to 107.67% at March 31, 1996.
Liabilities. Deposit balances increased by $9.5 million from the end of 1995
to March 31, 1996, reflecting increases in certificates of deposit accounts.
During the first quarter of 1996, the Bank borrowed $21.0 million from the
Federal Home Loan Bank ("FHLB") at an average cost of 5.31% with maturities
ranging from two to three years. The Company initiated a borrowing program as
part of its strategy to leverage its balance sheet when rates are attractive
to management for financing investment opportunities.
Equity. Total equity decreased $2.9 million to $138.4 million at March 31,
1996, reflecting the $1.7 million net income for the first quarter of 1996,
offset by a decrease of $4.6 million, net of taxes, in unrealized market value
of securities available for sale from December 31, 1995 to March 31, 1996.
The decline in the market value of securities available for sale is related to
an increasing interest rate environment during the latter portion of the first
quarter of 1996. Due to the magnitude of the Company's securities available
for sale, changes in interest rates could produce significant changes in the
value of such securities and could produce fluctuations in the equity of the
Company.
<PAGE> 10
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity. The Bank, as a federal savings bank, is subject to Office of
Thrift Supervision ("OTS") guidelines regarding liquidity requirements.
Pursuant to these requirements, the Bank is required to maintain an average
daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances, specified U.S. government securities, state or federal agency
obligations, shares of certain mutual funds and certain corporate debt
securities and commercial paper) equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement may be changed from time to time by
the OTS to any amount within the range of 4% to 10% depending upon economic
conditions and the savings flows of member institutions, and is currently 5%.
OTS regulations also require the maintenance of an average daily balance of
short-term liquid assets at a specified percentage (currently 1%) of the total
net withdrawable deposit accounts and borrowings payable in one year or less.
Monetary penalties may be imposed by the OTS for failure to meet these
liquidity requirements. At March 31, 1996 and December 31, 1995, the Bank's
liquidity ratio, computed in accordance with the OTS requirement, was 16.15%
and 20.73%, respectively. Unlike the Bank, Flushing Financial Corporation is
not subject to OTS regulatory requirements on the maintenance of minimum
levels of liquid assets.
OTHER TRENDS AND CONTINGENCIES
Recent Legislative proposals would repeal the special bad debt reserve
deduction for federal income tax purposes that currently is available for
qualifying thrifts, such as the Bank, and would require recapture of a portion
of the previously deducted bad debt reserves into income over a period of six
to eight years, for tax years beginning after December 31, 1995. The Company
is unable to predict whether such legislation will be enacted and if so in
what form. The repeal of the bad debt reserve deduction could result in a
significant increase in the Bank's income tax liabilities. For a detailed
discussion of this proposed legislation, see the Company's 1995 Annual Report
to Shareholders and SEC Form 10-K for the year ended December 31, 1995, under
the captions "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Other Trends and Contingencies" and "Risk Factors-Pending
Legislation", respectively.
<PAGE> 11
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REGULATORY CAPITAL POSITION
- - ---------------------------
Under OTS capital regulations, the Bank is required to comply with each of
three separate capital adequacy standards. At March 31, 1996, the Bank
exceeded each of the three OTS capital requirements. Set forth below is a
summary of the Bank's compliance with OTS capital standards as of March 31,
1996:
<TABLE>
<CAPTION>
Percent of
Amount Assets
---------- -----------
(Dollars in thousands)
<S> <C> <C>
Flushing Savings Bank GAAP capital $ 97,888 14.01%
Tangible capital:
Capital level 100,328 14.31%
Requirement 10,518 1.50
Excess 89,810 12.81
Core capital:
Capital level 100,328 14.31%
Requirement 28,047 4.00
Excess 72,281 10.31
Risk-based capital:
Capital level 104,567 30.93%
Requirement 27,042 8.00
Excess 77,525 22.93
</TABLE>
<PAGE> 12
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AVERAGE BALANCES
- - ----------------
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon the relative amount of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them.
The following table sets forth certain information relating to the Company's
consolidated statements of financial condition and consolidated statements of
operations for the three months ended March 31, 1996 and 1995, and reflects
the average yield on assets and average costs 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 which are considered adjustments to yields.
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------------------------------
1996 1995
------------------------------- ---------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Mortgage loans, net $ 286,666 $ 6,477 9.04% $ 255,377 $ 6,151 9.63%
Other loans 2,261 59 10.44 3,163 77 9.74
Mortgage-backed securities 177,802 2,809 6.32 174,754 2,812 6.44
Interest-earning deposits 12,629 174 5.51 15,246 207 5.43
Other securities 206,892 3,382 6.54 106,931 1,706 6.38
--------- ------- ---- ------- ------ -----
Total interest-earning assets 686,250 12,901 7.52 555,471 10,953 7.89
------- ---- ------ -----
Non-interest earning assets 36,855 40,408
--------- --------
Total assets $ 723,105 $ 595,879
========= ========
LIABILITIES and NET WORTH
Interest-bearing liabilities:
Deposits:
Passbook accounts $ 215,853 1,535 2.84 $ 241,116 1,694 2.81
NOW accounts 18,920 89 1.88 17,937 83 1.85
Money market accounts 27,800 194 2.79 34,791 239 2.75
Certificates of deposit accounts 288,723 4,157 5.76 230,827 2,908 5.04
Mortgagors escrow deposits 4,047 16 1.58 3,788 13 1.37
Borrowed funds 10,395 138 5.31 11,544 201 6.96
Other interest-bearing liabilities 596 13 8.72 853 21 9.85
------ ----- ---- ------- ----- ----
Total interest-bearing liabilities 566,334 6,142 4.34 540,856 5,159 3.82
----- ---- ----- ----
Other liabilities 16,187 13,593
------- -------
Total liabilities 582,521 554,449
Equity 140,584 41,430
------- -------
Total liabilities and equity $ 723,105 $ 595,879
======= =======
Net interest income/expense spread $ 6,759 3.18% $ 5,794 4.07%
===== ==== ===== ====
Net interest-earning assets/
net interest margin $ 119,916 3.94% $14,615 4.17%
======= ==== ====== ====
Ratio of interest-earning asset to
interest-bearing liabilities 1.21x 1.03x
===== =====
</TABLE>
<PAGE> 13
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LOAN ACTIVITY
- - -------------
The following table sets forth the Company's loan originations (including the
net effect of refinancings) and the changes in the Company's portfolio of
loans, including purchases, sales and principal reductions for the period
indicated.
<TABLE>
<CAPTION>
For the three For the
months ended year ended
March 31, 1996 December 31, 1995
------------------ ----------------
(In thousands)
<S> <C> <C>
MORTGAGE LOANS:
At beginning of period $ 284,443 $ 255,596
Mortgage loans originated:
One-to-four family 5,857 19,298
Cooperative 0 140
Multi-family 10,892 19,162
Commercial 680 2,144
------- ------
Total mortgage loans originated 17,429 40,744
Acquired loans 5,388 18,766
Less:
Principal reductions 6,326 29,384
Mortgage loans sold 0 626
Mortgage loan foreclosures 375 653
------- -------
At end of period $ 300,559 $ 284,443
======= =======
OTHER LOANS:
At beginning of period $ 2,328 $ 3,231
Net activity (207) (903)
----- -----
At end of period $ 2,121 $ 2,328
====== ======
</TABLE>
<PAGE> 14
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NON-PERFORMING ASSETS
- - ---------------------
The Company reviews the problem loans in its portfolio on a monthly basis to
determine whether any loans require classification in accordance with internal
policies and applicable regulatory guidelines. The following table sets forth
information regarding all non-accrual loans, loans which are 90 days or more
delinquent, and real estate owned ("REO") at the dates indicated.
<TABLE>
<CAPTION>
March 31, December, 31
1996 1995
---------- ------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual mortgage loans $ 4,913 $ 4,697
Other non-accrual loans 51 50
------ -----
Total non-accrual loans 4,964 4,747
Mortgage loans 90 days or more delinquent and
still accruing 5 234
Other loans 90 days or more delinquent and
still accruing 0 0
------ -----
Total non-performing loans 4,969 4,981
Real estate owned (foreclosed real estate) 1,668 1,869
------ -----
Total non-performing assets $ 6,637 $ 6,850
====== =====
Non-performing loans to gross loans 1.64% 1.74%
Non-performing assets to total assets 0.90% 0.97%
</TABLE>
<PAGE> 15
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ALLOWANCE FOR LOAN LOSSES
- - -------------------------
The Company has established and maintains on its books an allowance for loan
losses that is designed to provide reserves for estimated losses inherent in
the Company's overall loan portfolio. The allowance is established through a
provision for loan losses based on management's evaluation of the risk
inherent in the various components of its loan portfolio and other factors,
including historical loan loss experience, changes in the composition and
volume of the portfolio, collection policies and experiences, trends in the
volume of non-accrual loans and regional and national economic conditions.
The determination of the amount of the allowance for loan losses includes
estimates that are susceptible to significant changes due to changes in
appraisal values of collateral, national and regional economic conditions and
other factors. In connection with the determination of the allowance, the
market value of collateral ordinarily is evaluated by the Company's staff
appraiser; however, the Company may from time to time obtain independent
appraisals for significant properties. Current year charge-offs, charge-off
trends, new loan production and current balance by particular loan categories
also are taken into account in determining the appropriate amount of
allowance.
The following table sets forth the Bank's allowance for loan losses at and for
the dates indicated.
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 5,310 $ 5,370
Provision for loan losses 152 496
Loans charged-off:
One-to-four family 70 312
Cooperative 51 183
Multi-family 11 251
Commercial 8 260
Other 11 46
-------- -------
Total loans charged-off 151 1,052
-------- -------
Recoveries:
Mortgage loans 39 496
Other 0 0
-------- -------
Total recoveries 39 496
-------- -------
Other adjustments 0 0
-------- -------
Balance at end of period $ 5,350 $ 5,310
======== =======
Ratio of net charge-offs during the year to
average loans outstanding during the period 0.04% 0.21%
Ratio of allowance for loan losses to gross
loans at end of period 1.77% 1.85%
Ratio of allowance for loan losses to
non-performing loans at end of period 107.67% 106.61%
Ratio of allowance for loan losses to
non-performing assets at end of period 80.61% 77.52%
</TABLE>
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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 effect on the Company's
consolidated financial condition and results of operations.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (SECTION 249.308 OF THIS CHAPTER).
a) EXHIBIT
27 Financial data schedules for electronic (EDGAR) filing.
b) REPORTS ON FORM 8-K
None
<PAGE> 17
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Flushing Financial Corporation
Dated: May 13, 1996 By: /s/ James F. McConnell
------------- ------------------------------------
James F. McConnell
President and Chief Executive
Officer
Dated: May 13, 1996 By: /s/ Monica C. Passick
------------- ------------------------------------
Monica C. Passick
Senior Vice President, Treasurer and
Chief Financial Officer
<PAGE> 18
EXHIBIT INDEX
Exhibit
No. Description
- - ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at March 31, 1996
(unaudited) and the Condensed Consolidated Statement of Operation for the
three months ended march 31, 1996 (unaudited) and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> 3-MOS
<CASH> 9,009
<INT-BEARING-DEPOSITS> 1,002
<FED-FUNDS-SOLD> 4,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 396,570
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 301,375
<ALLOWANCE> 5,350
<TOTAL-ASSETS> 739,382
<DEPOSITS> 571,718
<SHORT-TERM> 0
<LIABILITIES-OTHER> 8,248
<LONG-TERM> 21,000
0
0
<COMMON> 86
<OTHER-SE> 138,330
<TOTAL-LIABILITIES-AND-EQUITY> 739,382
<INTEREST-LOAN> 6,536
<INTEREST-INVEST> 6,191
<INTEREST-OTHER> 174
<INTEREST-TOTAL> 12,901
<INTEREST-DEPOSIT> 5,992
<INTEREST-EXPENSE> 6,142
<INTEREST-INCOME-NET> 6,759
<LOAN-LOSSES> 152
<SECURITIES-GAINS> 322
<EXPENSE-OTHER> 3,822
<INCOME-PRETAX> 3,107
<INCOME-PRE-EXTRAORDINARY> 3,107
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,663
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
<YIELD-ACTUAL> 7.52
<LOANS-NON> 4,964
<LOANS-PAST> 5
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,310
<CHARGE-OFFS> 151
<RECOVERIES> 39
<ALLOWANCE-CLOSE> 5,350
<ALLOWANCE-DOMESTIC> 5,350
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,350
<PAGE>
</TABLE>
