UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended SEPTEMBER 30, 1996.
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)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01
(Title of Class)
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 / /
The number of shares outstanding of the registrant's common stock, as of
September 30, 1996 were 8,574,997.
<PAGE> 1
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
as of September 30, 1996 and December 31, 1995
(unaudited). 3
Consolidated Statements of Income for the three
months and nine months ended September 30, 1996 and 1995
(unaudited). 4
Consolidated Statements of Cash flows for the nine
months ended September 30, 1996 and 1995 (unaudited). 5
Consolidated Statement of Changes in Stockholders' Equity
for the nine months ended September 30, 1996
(unaudited) 6
Notes to Consolidated Financial Statements. 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 25
Item 2. Changes in Securities. 25
Item 3. Defaults Upon Senior Securities. 25
Item 4. Submission of Matters to a Vote of Security Holders. 25
Item 5. Other information. 25
Item 6. Exhibits and Reports on Form 8-K. 25
SIGNATURES 26
EXHIBITS 27
<PAGE> 2
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------
(Unaudited)
<C> <C>
<S>
ASSETS:
Cash and due from banks $ 8,678,327 $ 11,883,639
Federal funds sold and overnight
interest-earning deposits 200,000 7,438,000
Securities available for sale:
Mortgage-backed securities 147,620,681 179,300,164
Other securities 230,783,851 202,147,039
Loans:
1-4 Family residential mortgage loans 220,460,106 170,088,462
Multi-family mortgage loans 95,279,543 69,139,758
Commercial real estate loans 42,920,978 45,214,727
Consumer loans 1,723,870 2,328,365
Less: Unearned loan fees (1,384,825) (1,334,991)
Allowance for loan losses (5,230,670) (5,309,859)
--------------- --------------
Net loans 353,769,002 280,126,462
Interest and dividends receivable 6,670,889 5,879,501
Real estate owned, net 1,929,097 1,869,431
Bank premises and equipment, net 5,763,380 6,114,033
Other assets 14,686,846 13,626,246
------------ --------------
Total assets $ 770,102,073 $ 708,384,515
============== ==============
LIABILITIES:
Due to depositors:
Non-interest bearing $ 9,464,607 $ 10,372,448
NOW and money market accounts 45,018,954 47,154,968
Savings accounts 212,657,918 215,577,540
Certificates of deposit 303,253,571 284,302,238
Mortgagors' escrow deposits 4,828,852 2,456,948
Borrowed funds 51,000,000 0
Other liabilities 8,959,146 7,190,167
------------ --------------
Total liabilities 635,183,048 567,054,309
------------ --------------
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; 8,910,100 shares issued;
8,574,997 and 8,625,000 shares outstanding
at September 30, 1996 and at December 31, 1995,
respectively) 89,101 86,250
Additional paid-in capital 101,154,756 96,514,628
Treasury stock (335,103 shares at
September 30, 1996) (6,166,010) 0
Unearned compensation - employee benefit
trust (7,656,792) (7,680,850)
Unearned compensation - Restricted
Stock Award (4,258,950) 0
Retained earnings 55,442,577 50,777,543
Net unrealized (loss) gain on securities
available for sale, net of taxes (3,685,657) 1,632,635
------------- --------------
Total stockholders' equity 134,919,025 141,330,206
------------- --------------
Total liabilities and stockholders'
equity $ 770,102,073 $ 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 For the nine months ended
September 30, September 30,
------------------------ -------------------------
1996 1995 1996 1995
--------- ---------- -------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 7,549,507 $ 6,095,647 $ 20,955,987 $ 18,336,834
Interest and dividends on securities:
Taxable interest 6,470,660 4,628,221 18,926,438 13,527,127
Tax-exempt interest 16,368 24,755 48,352 83,852
Dividends 76,249 109,610 272,542 335,879
Other interest income 106,860 100,282 430,502 532,964
---------- ---------- ----------- ----------
Total interest and dividend income 14,219,644 10,958,515 40,633,821 32,816,656
---------- ---------- ----------- ----------
Interest expense:
Deposits 6,038,044 5,877,136 17,957,999 16,346,907
Borrowed funds 750,574 0 1,350,117 369,108
Other interest expense 8,378 17,220 31,298 50,098
---------- ---------- ----------- ----------
Total interest expense 6,796,996 5,894,356 19,339,414 16,766,133
---------- ---------- ----------- ----------
Net interest income 7,422,648 5,064,159 21,294,407 16,050,543
Provision for loan losses 20,010 232,369 321,956 418,942
---------- ---------- ----------- ----------
Net interest income after provision for
loan losses 7,402,638 4,831,790 20,972,451 15,631,601
---------- ---------- ----------- ----------
Non-interest income:
Other fee income 164,295 160,953 586,928 544,531
Net gain (loss) on sales of securities
and loans (45,402) (251,219) 430,935 (395,858)
Amortization of deferred gain from sale
of real estate 0 1,836,504 0 2,784,422
New York State gains tax refund 0 0 0 386,912
Other income 190,011 197,987 578,869 892,337
---------- ---------- ----------- ----------
Total non-interest income 308,904 1,944,225 1,596,732 4,212,344
---------- ---------- ----------- ----------
Non-interest expense:
Salaries and employee benefits 2,206,730 1,890,379 6,352,054 5,478,281
Directors' pension expense 20,203 20,202 60,608 697,674
Occupancy and equipment 524,944 523,968 1,551,036 1,506,840
Professional services 522,066 340,652 1,587,395 1,113,230
Federal deposit insurance premiums 500 60,038 1,500 775,304
Data processing 250,026 261,200 1,131,655 742,689
Depreciation and amortization 253,657 195,595 730,030 547,216
Real estate owned 102,251 55,952 232,157 403,351
(Recovery) Provision for deposits
at Nationar 0 0 (449,392) 660,096
Conversion expenses 0 0 0 2,221,832
Other operating 756,906 555,577 2,194,260 1,767,591
---------- ---------- ----------- ----------
Total non-interest expense 4,637,283 3,903,563 13,391,303 15,914,104
---------- ---------- ----------- ----------
Income (loss) before income taxes 3,074,259 2,872,452 9,177,880 3,929,841
---------- ---------- ----------- ----------
Provision for income taxes:
Federal 843,608 484,676 2,543,975 1,054,668
State and local 560,780 297,218 1,649,924 656,856
---------- ---------- ----------- ----------
Total taxes 1,404,388 781,894 4,193,899 1,711,524
---------- ---------- ----------- ----------
Net income $ 1,669,871 $ 2,090,558 $ 4,983,981 $ 2,218,317
========== ========== =========== ==========
Weighted average number of common
shares outstanding 8,180,777 NA 8,074,946 NA
Primary and fully diluted earnings per
share $ 0.20 NA $ 0.62 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 nine months ended
September 30,
-------------------------
1996 1995
----------- ----------
(Unaudited)
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 4,983,981 $ 2,218,317
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 321,956 418,942
Provision for losses on real estate owned 92,217 220,032
(Recovery) provision for deposits at Nationar (449,392) 660,096
Depreciation of bank premises and equipment 730,030 547,216
Net (gain) loss on sales of securities & loans (430,935) 395,858
Net (gain) loss on sales of real estate owned (45,947) (60,115)
Amortization of unearned premium, net of accretion
of unearned discount 939,670 1,323,340
Amortization of deferred income (640,452) (459,596)
Deferred income tax provision (257,748) (779,407)
Deferred compensation 128,401 47,786
Originations of mortgage loans available for sale 0 (415,992)
Deferred gain from sale of real estate 0 (2,784,422)
Changes in operating assets and liabilities, net 5,836,363 (1,783,611)
Unearned compensation 408,087 0
----------- -----------
Net cash provided by (used) in operating
activities 11,616,231 (451,556)
----------- -----------
Cash flows used in investing activities:
Purchases of bank premises and equipment (379,377) (1,100,510)
Purchases of securities available for sale (128,096,000) (46,360,000)
Purchases of securities held to maturity 0 (13,578,000)
Proceeds from sales and calls of securities
available for sale 74,078,935 31,869,142
Proceeds from maturities and prepayments of
securities available for sale 45,773,011 10,115,124
Proceeds from calls of securities held to maturity 0 249,000
Proceeds from maturities and prepayments of
securities held to maturity 0 10,436,338
Net originations and repayments of loans (44,722,993) (2,779,491)
Purchases of loans (29,641,000) (9,513,000)
Proceeds from sales and operations of real estate
owned 734,131 1,627,652
Net cash used in investing ----------- -----------
activities (82,253,293) (19,033,745)
----------- ------------
Cash flows provided by financing activities:
Net decrease in non-interest bearing
deposits (907,841) (119,825)
Net increase in interest bearing deposits 13,895,697 24,878,392
Net increase in mortgagors' escrow deposits 2,371,904 1,137,601
Repayment of securities sold with the agreement
to repurchase 0 (5,000,000)
Increase (decrease)in borrowed funds 51,000,000 (10,000,000)
Repurchase of common stock (6,166,010) 0
----------- ------------
Net cash provided by financing activities 60,193,750 10,896,168
----------- ------------
Net decrease (increase) in cash and cash equivalents (10,443,312) (8,589,133)
Cash and cash equivalents, beginning of period 19,321,639 22,168,214
----------- -----------
Cash and cash equivalents, end of period $ 8,878,327 $ 13,579,081
=========== ===========
Supplemental cash flow disclosure:
Interest paid $19,308,116 $ 16,716,017
Income taxes paid 3,753,933 1,425,066
Noncash activities:
Loans originated as the result of real estate sales 252,193 492,292
Loans transferred through the foreclosure of a
related mortgage loan or through in-substance
foreclosure to real estate owned 1,120,123 526,152
Net change in unrealized gain (loss) on securities
available for sale (9,855,367) 11,703,680
Transfer of deposits at Nationar to other assets 0 4,408,105
Dividends payable 318,947 0
<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
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Nine months ended
September 30, 1996
------------------
(Unaudited)
<S> <C>
COMMON STOCK
($0.01 par value; 20,000,000 shares authorized:
8,574,997 shares outstanding)
Balance at beginning of period $ 86,250
Restricted stock award of 285,100 shares on
May 21, 1996 2,851
-----------
Balance at end of period $ 89,101
===========
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period $ 96,514,628
Restricted stock award of 285,100 shares on
May 21, 1996 4,630,024
401-k contribution 10,104
------------
Balance at end of period $101,154,756
============
TREASURY STOCK
Balance at beginning of period 0
Treasury shares repurchased at market $ 6,129,447
Restricted stock award forfeitures 36,563
------------
Balance at end of period $ 6,166,010
============
UNEARNED COMPENSATION - EMPLOYEE BENEFIT TRUST
Balance at beginning of period $ (7,680,850)
401-k contribution: book value 24,058
------------
Balance at end of period $ (7,656,792)
============
UNEARNED COMPENSATION - RESTRICTED STOCK AWARDS
Balance at beginning of period 0
Restricted stock award on May 21, 1996 $ (4,632,875)
Restricted stock award forfeitures 36,563
Restricted stock award expense 337,362
------------
Balance at end of period $ (4,258,950)
============
RETAINED EARNINGS
Balance at beginning of period $ 50,777,543
Net Income 4,983,981
Dividends payable (318,947)
------------
Balance at end of period $ 55,442,577
============
NET UNREALIZED (LOSS) GAIN ON SECURITIES AVAILABLE FOR
SALE, NET OF TAXES
Balance at beginning of period $ 1,632,635
Mark-to-market adjustment (5,318,292)
------------
Balance at end of period $ (3,685,657)
============
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE> 6
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 September 30, 1996, the results of operations for the three
months and nine months ended September 30, 1996 and 1995, the cash flow
statements for the nine months ended September 30, 1996 and 1995, and the
statement of changes in stockholders' equity for the nine months ended
September 30, 1996. These adjustments consist of items which are of a normal
recurring nature. The results of operations for the three months and nine
months ended September 30, 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 condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). The
accompanying unaudited financial statements should be read in conjunction with
the 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.
Flushing Financial Corporation was 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 accompanying unaudited financial statements relate to the
Bank only. The acquisition was accounted for using the pooling of interest
method.
2. BORROWED FUNDS
At September 30, 1996, advances from the Federal Home Loan Bank of New York
("FHLB-NY") totaled $51.0 million, with a composite interest rate of 5.85% and
terms ranging from one to three years. During the first quarter of 1996, the
Company initiated a borrowing program with the FHLB-NY to seek to leverage the
Company's highly capitalized position when interest rates on FHLB advances are
attractive, as compared to alternative funding sources, to finance investment
opportunities.
(continued)
<PAGE> 7
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. 1996 RESTRICTED STOCK INCENTIVE PLAN
At the Company's 1996 Annual Meeting of Shareholders held on May 21, 1996 (the
"Annual Meeting"), the Company's shareholders approved the 1996 Restricted
Stock Incentive Plan, in which 345,000 shares of restricted stock were
authorized, and an aggregate of 285,100 shares of restricted stock were
awarded to directors and employees. This award of restricted stock increased
shares outstanding by 285,100 on May 21, 1996. The value of the awards at the
grant date was $16.25 per share, equal to the average between the high and the
low market prices of the Company's common stock on May 20, 1996. For the
three and nine months ended September 30, 1996, accrued restricted stock
expense amounted to $234,000 and $337,000, respectively. The restricted stock
awards will vest at a rate of 20% per year, commencing on the first
anniversary of the date of the award. As of September 30, 1996, 2,250 shares
of the restricted stock award were forfeited.
4. 1996 STOCK OPTION INCENTIVE PLAN
At the Annual Meeting, the Company's shareholders approved the Company's 1996
Stock Option Incentive Plan and thereby authorized the issuance of options to
purchase 862,500 shares of the Company's common stock. On May 21, 1996,
options to purchase 735,750 shares were issued to directors and employees with
an exercise price of $16.25 per share. The exercise price is equal to the
average between the high and the low market prices of the Company's common
stock on May 20, 1996. The stock options will vest and become exercisable at
a rate of 20% per year, commencing on the first anniversary of the date of the
grant, and expire ten years from the anniversary of the date of the grant.
5. TREASURY STOCK
In June 1996, the Company announced its intention to repurchase up to 716,350
shares of the Company's outstanding common stock. As of September 30, 1996,
the Company had purchased 332,850 shares at a cost of $6.1 million, an average
of $18.41 per share, leaving 383,500 shares to be purchased under the Share
Repurchase Program. Total shares outstanding at September 30, 1996 were
8,574,997.
(continued)
<PAGE> 8
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. RECENT ACCOUNTING PRONOUNCEMENTS
FASB has issued SFAS 123, "Accounting for Stock-Based Compensation", effective
for fiscal years beginning after December 15, 1995. The Company has elected
to measure compensation cost using APB Opinion No. 25 as per SFAS 123. Pro
forma disclosures required for entities that elect to continue to measure
compensation cost using APB Opinion No. 25 must include the effects of all
awards granted in fiscal years that begin after December 15, 1994. Management
will implement the pro forma disclosure requirements with the preparation of
the annual financial statement for 1996.
SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", was issued by FASB. This Statement is
effective for transfers and servicing of financial assets and extinguishment
of liabilities occurring after December 31, 1996. Earlier or retroactive
application of this Pronouncement is not permitted. Adoption of this
Pronouncement is not expected to have a material impact on the Company's
consolidated financial statements.
<PAGE> 9
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 was formed in May 1994 to serve as the holding
company for Flushing Savings Bank, FSB (the "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, Flushing Financial Corporation 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, Flushing Financial Corporation had no assets,
liabilities or operations. The following discussion of financial condition
and results of operations include the collective results of Flushing Financial
Corporation 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.
On June 28, 1996, the Company received approval to repurchase up to 431,250
shares of the Company's outstanding common stock, or 5% of the 8,625,000
shares issued in connection with the Conversion. The Company also intends to
repurchase an additional 285,100 shares, representing the number of shares
awarded under the Restricted Stock Plan on May 21, 1996. All stock
repurchases are expected to be made in open market transactions and are
subject to market conditions, the trading price of the stock, and the
Company's financial performance. As of September 30, 1996, the Company had
purchased 332,850 shares at a cost of $6.1 million, leaving 383,500 shares to
be purchased under the Share Repurchase Program.
In light of the Company's capital strength and earnings performance, the Board
of Directors declared a $0.04 per share dividend to common shareholders of
record at the close of business on September 30, 1996, and payable on October
15, 1996. Retained earnings was reduced by $319,000 to reflect this cash
dividend. At the same time, the Company adopted a Stockholder Rights Plan
("Rights Plan") designed to preserve long-term values and protect stockholders
against stock accumulations and other abusive tactics to acquire control of
the Company. Under the Rights Plan, each stockholder of record at the close
of business on September 30, 1996 received a dividend distribution of one
right for each share of common stock held. The rights become exercisable only
under very limited circumstances and expire on September 30, 2006.
(continued)
<PAGE> 10
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's principal business is attracting retail deposits from the
general public and investing those deposits, together with funds generated
from operations, primarily in (i) originations and purchases of one-to-four
family residential mortgage loans, multi-family income-producing property
loans and commercial real estate loans; (ii) mortgage loan surrogates such as
mortgage-backed securities and; (iii) U.S. government and federal agency
securities, corporate fixed-income securities and other marketable securities.
To a lesser extent, the Company originates co-operative apartment loans,
construction and consumer loans.
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 and borrowed funds. 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 forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward looking information is inherently
subject to risks and uncertainties, and actual results could differ materially
from those currently anticipated due to a number of factors, which include,
but are not limited to, the factors set forth in the preceding paragraph and
elsewhere in this Quarterly Report and in other documents filed by the Company
with the Securities and Exchange Commission from time to time, including,
without limitation, the Company's 1995 Annual Report to Shareholders and the
SEC Report on Form 10-K for the year ended December 31, 1995. The Company has
no obligation to update these forward-looking statements.
(continued)
<PAGE> 11
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995
GENERAL. Net income for the third quarter of 1996 was $1.7 million, a
decrease of $421,000 from the net income of $2.1 million for the third quarter
of 1995. This decrease was primarily the result of a $1.6 million reduction in
non-interest income, a $734,000 increase in non-interest expense, and a higher
income tax provision during the third quarter of 1996 of $1.4 million as
compared to $782,000 for the third quarter 1995, offset by a $2.4 million
increase in net interest income from the 1995 period to the period in 1996.
INTEREST INCOME. Total interest and dividend income increased $3.3 million
from $11.0 million for the three months ended September 30, 1995 to $14.2
million for the three months ended September 30, 1996. This increase was
primarily the result of increases in the average earning balances of mortgage
loans and securities of $75.7 million and $84.3 million, respectively, from
the quarter ended September 30, 1995 to the quarter ended September 30, 1996.
INTEREST EXPENSE. Interest expense increased $903,000 from $5.9 million for
the three months ended September 30, 1995 to $6.8 million for the three months
ended September 30, 1996, primarily due to a $750,000 increase in borrowed
funds expense as the average balance of borrowed funds increased. The Company
had increased its utilization of Federal Home Loan Bank ("FHLB") advances
which totaled $51.0 million at September 30, 1996, bearing a composite rate of
5.85% with terms ranging from one to three years. The Company's borrowing
program seeks to leverage the Company's highly capitalized position when
interest rates on FHLB advances are attractive, as compared to alternative
funding sources, to finance investment opportunities. Interest expense also
increased $161,000 in interest paid on deposits resulting from an increase of
$25.1 million in the average balances of higher costing certificates of
deposit accounts and a decrease of $29.7 million in the average balances of
lower costing regular savings and money market accounts from the quarter ended
September 30, 1995 to the quarter ended September 30, 1996.
PROVISION FOR LOAN LOSSES. The provision for loan losses during the three
months ended September 30, 1996 was $20,000 compared to $232,000 for the three
months ended September 30, 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 (see Asset Section), it's analysis
of specific loan situations, and increase in the size of the loan portfolio.
(continued)
<PAGE> 12
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NON-INTEREST INCOME. Total non-interest income declined by $1.6 million from
$1.9 million for the third quarter of 1995 to $309,000 for the third quarter
of 1996. This decline is primarily attributable to non-recurring income
during the third quarter of 1995 of $1.8 million in amortization of deferred
gain from the sale of real estate, offset by a $206,000 decline in net loss on
sales of securities from the 1995 period to the period in 1996.
NON-INTEREST EXPENSE. Non-interest expense increased by $734,000 from $3.9
million for the three months ended September 30, 1995 to $4.6 million for the
three months ended September 30, 1996. Expenses attributable to salaries and
employee benefits rose $316,000, reflecting salary increases, profit sharing
plans, and the amortization of unearned compensation expense associated with
the Restricted Stock Plan, which was implemented in May of 1996. A net loss
of $4,000 on sales of real estate owned was recorded for the third quarter of
1996, as compared to a net gain of $73,000 for the third quarter of 1995.
Additional professional fees and operating expenses associated with being a
publicly-held company also increased non-interest expense from the 1995
period as compared to the period in 1996. Partially off-setting the increases
to non-interest expense was a reduction in federal deposit insurance premiums
from $60,000 for the quarter ended September 30, 1995 to $500 for the quarter
ended September 30,1996. Expenses associated with real estate owned also
declined by $20,000 from the third quarter of 1995 to the third quarter of
1996.
INCOME BEFORE INCOME TAXES. Total income before provision for income taxes
increased $202,000 from $2.9 million for the three months ended September 30,
1995 to $3.1 million for the three months ended September 30, 1996 for the
reasons stated above.
PROVISION FOR INCOME TAXES. The effective income tax rate for the three
months ended September 30, 1996 was higher than the three months ended
September 30, 1995. This was primarily the result of a tax benefit in 1995
due to a decrease in the valuation allowance on the deferred tax asset
attributable to the gain from sale of real estate for the three months ended
September 30, 1995.
(continued)
<PAGE> 13
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995
GENERAL. Net income increased $2.8 million from $2.2 million for the nine
months ended September 30, 1995 to $5.0 million for the nine months ended
September 30, 1996. This was primarily due to an increase of $5.2 million in
net interest income from the 1995 period to the 1996 period, offset by a $2.5
million increase in the provision for income taxes during 1996. Absent in the
1996 period were certain one-time income and expense items as had been
recorded in the 1995 period.
INTEREST INCOME. Total interest and dividend income increased $7.8 million
from the $32.8 million for the nine months ended September 30, 1995 to $40.6
million for the nine months ended September 30, 1996. This increase was
primarily the result of increases in the average earning balances of mortgage
loans and securities of $49.7 million and $95.5 million, respectively, from
the nine months ended September 30, 1995 as compared to the nine months ended
September 30, 1996. This increase was offset in part by a 7 basis point
decline in the average yield of interest-earning assets, from 7.71% for the
first nine months of 1995 to 7.64% for the first nine months of 1996.
INTEREST EXPENSE. Interest expense increased $2.5 million from $16.8 million
for the nine months ended September 30, 1995 to $19.3 million for the nine
months ended September 30, 1996. This increase is due primarily to a $1.6
million increase in interest paid on deposits resulting from an increase of
$39.3 million in the average balances of higher costing certificates of
deposit accounts and a decline of $19.2 million in the average balances of
lower costing regular savings and money market deposit accounts from the first
nine months of 1995 to the first nine months of 1996. The average cost of
certificates of deposit accounts also increased 16 basis points from 5.51% for
the nine months ended September 30, 1995 to 5.67% for the nine months ended
September 30, 1996. Interest expense on borrowed funds increased by $981,000
due to an increase in the average balance of borrowed funds of $24.6 million,
offset in part by a 1.47% decline in the average cost of borrowed funds from
7.19% for the nine months ended September 30, 1995 to 5.72% for the nine
months ended September 30, 1996.
(continued)
<PAGE> 14
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PROVISION FOR LOAN LOSSES. The provision for loan losses during the nine
months ended September 30, 1996 was $322,000 as compared to $419,000 for the
nine months ended September 30, 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 (see Asset Section), it's
analysis of specific loan situations, and increases in the size of the loan
portfolio.
NON-INTEREST INCOME. Total non-interest income declined by $2.6 million from
$4.2 million for the nine months ended September 30, 1995 to $1.6 million for
the nine months ended September 30, 1996. This decline is primarily
attributable to one-time income items recorded in the 1995 period of $2.8
million in amortization of deferred gain recognized on a prior period sale of
real estate, and a $387,000 gains tax refund from New York State. Offsetting
these declines was a change in gain/(loss) on sales of securities of $827,000
from a loss of $396,000 in the 1995 period as compared to a gain of $431,000
in the period in 1996.
NON-INTEREST EXPENSE. Non-interest expense declined $2.5 million from $15.9
million for the nine months ended September 30, 1995 to $13.4 million for the
nine months ended September 30, 1996. The higher non-interest expense for the
first nine months of 1995 as compared to the current period is primarily a
result of certain one-time items incurred during 1995 consisting of: the
expensing of $2.2 million of deferred costs that were incurred in connection
with the Conversion through March 31, 1995; the immediate recognition of
expenses of $677,000 representing the projected benefit obligation under the
retirement plan for the Company's non-employee directors; and the $660,000
loss provision on deposits at Nationar. Also contributing to the lower
non-interest expense in the current period is the recovery of $449,000 of the
$660,000 loss provision on deposits at Nationar, made possible by the receipt
of the Company of $4.2 million of its $4.4 million of deposits previously
frozen by the New York State Banking Department in connection with its
supervisory liquidation of Nationar. Further contributing to the reduction in
non-interest expense was a decrease in federal deposit insurance premiums from
$775,000 for the nine months ended September 30, 1995 to $2,000 for the nine
months ended September 30, 1996. The combined effect that the recovery of the
$449,000 loss provision and the decrease in federal deposit insurance premium
had on reducing the current period's non-interest expense below that of the
year ago period was offset in part by
(continued)
<PAGE> 15
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
additional professional fees and operating expenses associated with being a
publicly-held company and costs associated with implementing improved data
processing systems as part of the Company's strategy to enhance its systems to
improve efficiencies. Additionally, expenses attributable to salaries and
employee benefits rose $874,000, reflecting salary increases, profit sharing
plans, and the amortization of unearned compensation expense associated with
the Restricted Stock Plan, which was implemented in May of 1996.
INCOME BEFORE INCOME TAXES. Total income before provision for income taxes
increased $5.3 million from $3.9 million for the nine months ended September
30, 1995 to $9.2 for the nine months ended September 30, 1996, for reasons
stated above.
PROVISION FOR INCOME TAXES. The effective income tax rate for the nine months
ended September 30, 1996 was higher than the nine months ended September 30,
1995, with an effective tax rate of 45.70% and 43.55% for the nine months
ended September 30, 1996 and 1995, respectively. This was primarily the
result of a tax benefit in 1995 due to a decrease in the valuation allowance
on the deferred tax asset attributable to the gain from sale of real estate
for the nine months ended September 30, 1995.
FINANCIAL CONDITION
ASSETS. From December 31, 1995, total assets increased $61.7 million to
$770.1 million at September 30, 1996. During the nine months ended September
30, 1996, mortgage loans increased by $74.2 million, securities available for
sale declined by $3.0 million, and cash and federal funds sold and overnight
interest-earning deposits decreased by $10.4 million. The increase in
mortgage loans consisted primarily of a $50.4 million increase in the Bank's
portfolio of 1-4 family residential mortgage loans and a $26.1 million
increase in multi-family real estate mortgage loans.
From December 31, 1995 to September 30, 1996, mortgage-backed securities had
declined $31.7 million and the proceeds were used to fund loan originations
and a $28.6 million increase in other securities. The reduction in total
securities available for sale takes into account a decline of $9.9 million in
unrealized 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
(continued)
<PAGE> 16
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, assuming the securities are
held to maturity. At September 30, 1996, the Company had $4.8 million
invested in collateralized mortgage obligations ("CMOs"). The CMOs in the
Company's portfolio were not considered high risk under regulations
promulgated by the Office of Thrift Supervision. At September 30, 1996, the
Company had $180.4 million in callable U.S. government securities.
Non-performing assets declined by $1.4 million from $6.9 million at December
31, 1995 to $5.5 million at September 30, 1996. Total non-performing assets
as a percentage of total assets has consistently declined quarterly from 0.97%
at December 31, 1995 to 0.71% at September 30, 1996. By adherence to its
strict underwriting standards and aggressive charge-offs of possible losses
from impaired loans, the Company has continued to strengthen its loan
portfolio, evidenced by the increase in the Company's ratio of the allowance
for loan losses to non-performing loans from 106.61% at December 31, 1995 to
148.19% at September 30, 1996.
LIABILITIES. Deposit balances increased by $13.0 million during the first
nine months of 1996 to $570.4 million at September 30, 1996 primarily due to a
$19.0 million increase in certificate of deposit accounts, offset in part by a
decrease of $2.9 million in regular savings accounts and a decrease of $3.0
million in demand, NOW and money market accounts. As described above, the
Company also has increased its utilization of FHLB advances which totaled
$51.0 million at September 30, 1996 with a weighted average interest rate of
5.85% and terms ranging from one to three years. The borrowing program is
part of the Company's strategy to leverage its balance sheet when rates are
attractive, as compared to alternative funding sources, to finance investment
opportunities.
EQUITY. Total stockholders' equity decreased $6.4 million during the first
nine months of 1996 to $134.9 million at September 30, 1996. This decrease is
due primarily to $6.1 million in treasury shares purchased through the
Company's stock repurchase plan, as noted below, $319,000 in dividends
declared as also noted below, and a decrease of $5.3 million, net of taxes,
in unrealized market value of securities available for sale from December 31,
1995 to September 30, 1996, offset by $5.0 million in net income for the first
nine months of 1996. The decline in the market value of the Company's
portfolio of securities available for sale is due primarily to an increasing
interest rate environment beginning in the latter portion of the first quarter
of 1996. Due to the size of the Company's portfolio of securities available
for sale, changes in interest rates could produce significant changes in the
value of such securities and could produce significant fluctuations in the
equity of the Company.
(continued)
<PAGE> 17
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total shares outstanding at September 30, 1996 were 8,574,997. On June 28,
1996, the Company announced the intention to repurchase an aggregate of
716,350 shares, representing (i) 5.00% of the 8,625,000 shares issued in
connection with the Conversion, plus (ii) 285,100 shares which equals the
amount of restricted stock that was granted by the Company on May 21, 1996
pursuant to the Restricted Stock Plan. As of September 30, 1996, the Company
had purchased 332,850 shares at a cost of $6.1 million, leaving 383,500 shares
to be purchased under the Share Repurchase Program.
In light of the Company's capital strength and earnings performance, the Board
of Directors declared a $0.04 per share dividend on September 17, 1996, to
common shareholders of record September 30, 1996, and payable on October 15,
1996. Retained earnings was reduced by $319,000 to reflect this cash
dividend.
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, banker's
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 net
withdrawable deposit accounts plus short-term borrowings. Monetary penalties
may be imposed by the OTS for failure to meet these liquidity requirements.
At September 30, 1996 and December 31, 1995, the Bank's liquidity ratio,
computed in accordance with the OTS requirement, was 13.57% 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.
Due to its strength in capital position, the Company has the ability to
leverage its capital base and consider alternative funding sources to finance
its growth strategy.
(continued)
<PAGE> 18
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CASHFLOW. The Company's primary business objective is the origination
and purchase of residential, multi-family and commercial real estate mortgage
loans. During the nine months ended September 30, 1996, net originations and
repayments of loans totaled $44.7 million, and $29.6 million in residential
mortgage loans were purchased. The Company also invests in other securities
including mortgage loan surrogates such as mortgage-backed securities. In the
first nine months of 1996, the Company purchased a total of $128.1 million in
securities available for sale, funded partially from $119.9 million in sales,
calls, maturities and prepayments of securities available for sale. General
funding for these assets comes from cashflow generated by operating and
financing activities totaling $11.6 million and $60.2 million for the nine
months ended September 30, 1996, respectively. For the nine months ended
September 30, 1996, the Company borrowed $51.0 million in low cost, short-term
FHLB advances. In addition, the Bank's deposit base increased by $13.0
million from December 31, 1995 to September 30, 1996. During a favorable
interest rate environment, management may use low cost borrowing to leverage
the Company's balance sheet.
OTHER TRENDS
From December 31, 1995 to September 30, 1996, total deposits increased $13.0
million, with the increase occurring in certificate of deposit accounts,
amounting to $19.0 million, offset by a decrease of $2.9 million in savings
accounts, and a decrease of $3.0 million in demand, NOW and money market
accounts. This trend of increasing balances in higher costing certificates of
deposit is due largely to increases in the prevailing rates paid in the
Company's market area. Interest rates offered on the Company's passbook
accounts, and certificates of deposit are at competitive rates. These trends
contributed to the increase in the Company's average cost of funds from 4.10%
for the nine months ended September 30, 1995 to 4.36% for the nine months
ended September 30, 1996. A continuation of these trends could further
increase the Company's cost of funds and a narrowing of the Company's net
interest spread. It is management's strategy to maintain deposit growth
within reasonable limits, and to utilize various low cost funding venues to
finance investment opportunities.
<PAGE> 19
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 September 30, 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 September
30, 1996:
<TABLE>
<CAPTION>
Percent of
Amount Assets
---------- -----------
(Dollars in thousands)
<S> <C> <C>
Tangible capital:
Capital level $91,654 12.52%
Requirement 10,982 1.50
Excess 80,672 11.02
Core capital:
Capital level $91,654 12.52%
Requirement 29,284 4.00
Excess 62,370 8.52
Risk-based capital:
Capital level $96,249 26.22%
Requirement 29,362 8.00
Excess 66,887 18.22
</TABLE>
<PAGE> 20
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 nine months ended September 30, 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 nine months ended September 30,
---------------------------------------------------------
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 $ 309,675 $ 20,776 8.95% $ 259,939 $ 18,109 9.29%
Other loans 2,067 180 11.61 2,919 228 10.41
Mortgage-backed securities 165,493 7,995 6.44 180,578 8,750 6.46
Interest-earning deposits 10,732 431 5.35 13,806 533 5.15
Other securities 220,900 11,252 6.79 110,269 5,197 6.28
--------- ------- ---- -------- ------ -----
Total interest-earning assets 708,867 40,634 7.64 567,511 32,817 7.71
------- ---- ------ -----
Non-interest earning assets 38,453 36,674
--------- --------
Total assets $ 747,320 $ 604,185
========= ========
LIABILITIES and NET WORTH
Interest-bearing liabilities:
Deposits:
Regular savings accounts $ 215,978 4,622 2.85 $ 230,025 4,905 2.84
NOW accounts 19,228 273 1.89 18,330 259 1.88
Money market accounts 26,917 564 2.79 32,077 670 2.78
Certificates of deposit accounts 292,772 12,452 5.67 253,482 10,470 5.51
Mortgagors escrow deposits 4,209 47 1.49 4,108 43 1.40
Borrowed funds 31,492 1,350 5.72 6,846 369 7.19
Other interest-bearing liabilities 498 32 8.57 789 50 8.45
--------- ------- ---- -------- ------ ----
Total interest-bearing liabilities 591,094 19,340 4.36 545,657 16,766 4.10
------- ---- ------ ----
Other liabilities 17,947 14,741
--------- --------
Total liabilities 609,041 560,398
Equity 138,279 43,787
--------- --------
Total liabilities and equity $ 747,320 $ 604,185
========= ========
Net interest income/expense spread $ 21,294 3.28% $ 16,051 3.61%
======== ===== ====== ====
Net interest-earning assets/
net interest margin $ 117,773 4.01% $ 21,854 3.77%
========= ===== ======== ====
Ratio of interest-earning asset to
interest-bearing liabilities 1.20x 1.04x
===== ====
</TABLE>
<PAGE> 21
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LOANS
- -----
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 nine For the
months ended year ended
September 30, 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 38,496 19,298
Cooperative 20 140
Multi-family 31,380 19,162
Commercial 2,402 2,144
------- ------
Total mortgage loans originated 72,298 40,744
Acquired loans 29,641 18,766
Less:
Principal reductions 26,718 29,384
Mortgage loans sold 0 626
Mortgage loan foreclosures 1,003 653
------- -------
At end of period $ 358,661 $ 284,443
======= =======
OTHER LOANS:
At beginning of period $ 2,328 $ 3,231
Net activity (605) (903)
------- -------
At end of period $ 1,723 $ 2,328
======= =======
</TABLE>
<PAGE> 22
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>
September 30, December, 31
1996 1995
---------- ------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual mortgage loans $ 3,494 $ 4,697
Other non-accrual loans 36 50
------ ------
Total non-accrual loans 3,530 4,747
Mortgage loans 90 days or more delinquent and
still accruing 0 234
Other loans 90 days or more delinquent and
still accruing 0 0
------ ------
Total non-performing loans 3,530 4,981
Real estate owned (foreclosed real estate) 1,929 1,869
------ ------
Total non-performing assets $ 5,459 $ 6,850
====== ======
Non-performing loans to gross loans 0.98% 1.74%
Non-performing assets to total assets 0.71% 0.97%
</TABLE>
<PAGE> 23
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 Board of Directors reviews and approves the adequacy of the
loan loss reserves on a quarterly basis.
The following table sets forth the Bank's allowance for loan losses at and for
the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 5,310 $ 5,370
Provision for loan losses 322 496
Loans charged-off:
One-to-four family 180 312
Cooperative 162 183
Multi-family 29 251
Commercial 58 260
Other 34 46
------- -------
Total loans charged-off 463 1,052
------- -------
Recoveries:
Mortgage loans 62 496
Other 0 0
------- -------
Total recoveries 62 496
------- -------
Other adjustments 0 0
------- -------
Balance at end of period $ 5,231 $ 5,310
======= =======
Ratio of net charge-offs during the year to
average loans outstanding during the period 0.13% 0.21%
Ratio of allowance for loans losses to gross
loans at end of period 1.45% 1.85%
Ratio of allowance for loans losses to
non-performing loans at end of period 148.19% 106.61%
Ratio of allowance for loans losses to
non-performing assets at end of period 95.82% 77.52%
</TABLE>
<PAGE> 24
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.
Flushing Financial Corporation rights Plan (see item 6A and 6B).
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
4.1 Flushing Financial Corporation Rights Plan (incorporated by
reference to Form 8-K filed on September 30, 1996)
10.3(a) Amendment to Employment Agreement between Flushing Financial
Corporation and Michael J. Hegarty.
10.3(b) Amendment to Employment Agreements between Flushing Financial
Corporation and Certain Officers.
10.8(a) Indemnity Agreement among Flushing Savings Bank, FSB, Flushing
Financial Corporation, and each Director.
10.8(b) Indemnity Agreement among Flushing Savings Bank, FSB, Flushing
Financial Corporation, and Certain Officers.
27 Financial data schedules for electronic (EDGAR) filing.
b) REPORTS ON FORM 8-K
On September 30, 1996, the Company filed a Form 8-k reporting the Board of
Director's declaration on September 17, 1996 of a dividend distribution of one
Right for each outstanding share of Common Stock, par value $0.01 per share,
of the Company to stockholders of record on September 30, 1996.
<PAGE> 25
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: November 13, 1996 By: /s/ James F. McConnell
------------------ ------------------------------------
James F. McConnell
President and Chief Executive
Officer
Dated: November 13, 1996 By: /s/ Monica C. Passick
------------------ -----------------------------------
Monica C. Passick
Senior Vice President, Treasurer and
Chief Financial Officer
<PAGE> 26
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
10.3(a) Employment Agreement Amendment No. 1
10.3(b) Employment Agreement Amendment No. 2
10.8(a) Indemnity Agreement Amendment No. 1
10.8(b) Indemnity Agreement Amendment No. 2
27 Financial Data Schedule
Exhibit 10.3(a)
Amendment to Employment Agreement between Flushing Financial Corporation
and Michael J. Hegarty.
AMENDMENT AGREEMENT
This AMENDMENT AGREEMENT ("Agreement") is made and entered into as of the 18th
day of June 1996, by and between Flushing Financial Corporation, a Delaware
Corporation having its executive offices at 144-51 Northern Boulevard,
Flushing, New York 11354 (the "Holding Company") and Michael J. Hegarty,
residing at Two Central Drive, Glen Head, New York 11545 ("Officer").
The Holding Company and the Officer agree that, effective as of the date
hereof, the employment agreement entered into between the Holding Company and
the Officer as of November 21, 1995 (the "Employment Agreement"), is hereby
amended as provided herein.
1. The second sentence of Section 2(a) of the Employment Agreement is amended
to read as follows:
"The Employment Period shall be for a term commencing on the day on which the
conversion of Flushing Savings Bank, FSB ("Bank") from the mutual to stock
form of ownership becomes effective (the "Effective Date of the Conversion")
and ending on the third anniversary of such date, plus such extensions as are
provided pursuant to section 2(b) of this Agreement."
2. Section 7(b)(iii) of the Employment Agreement is amended to read as
follows:
"continued group life, disability, health (including medical and major
medical) and accident insurance benefits, in addition to that provided
pursuant to section 7(b)(ii), to the extent necessary to provide coverage for
the Officer for a period of 36 month ("Severance Period"). Such coverage
shall be equivalent to that to which the Officer would have been entitled if
he had continued working for the Bank and the Holding Company during the
Severance Period at the highest annual rate of Current Salary achieved during
the Employment Period; and"
3. Except as it may be amended as provided herein, the Employment Agreement
shall continue in full force and effect in accordance with its original terms.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date and
year first above written.
FLUSHING FINANCIAL CORPORATION
/s/ Michael J. Hegarty By: /s/ James F. McConnell
- ---------------------- ----------------------
Officer
Michael J. Hegarty Name: James F. McConnell
Title: President and CEO
Exhibit 10.3(b)
Amendment to Employment Agreements between Flushing Financial Corporation and
Certain Officers
AMENDMENT AGREEMENT
This AMENDMENT AGREEMENT ("Agreement") is made and entered into as of the 20th
day of August, 1996, by and between Flushing Financial Corporation, a Delaware
corporation having its executive offices at 144-51 Northern Boulevard,
Flushing, New York 11354 (the "Holding Company") and Michael J. Hegarty,
residing at Two Central Drive, Glen Head, New York 11545 ("Officer").
The Holding Company and the Officer agree that, effective as of the date
hereof, the employment agreement entered into between the Holding Company and
the Officer as of November 21, 1995 (the "Employment Agreement"), is hereby be
amended as provided herein.
1. Sections 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, and 23 are hereby
renumbered 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23 and 24,
respectively.
2. A new Section 11 of the Employment Agreement is added to read as follows:
Section 11. Excise Tax Gross-up
In the event that the Officer becomes entitled to one or more payments (with a
"payment" including, without limitation, the vesting of an option or other
non-cash benefit or property, whether pursuant to the terms of this Agreement
or any other plan, arrangement or agreement with the Bank or the Holding
Company or any affiliated company) (the "Total Payments"), which are or become
subject to the tax imposed by Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code") (or any similar tax that may hereafter be
imposed) (the"Excise Tax"), the Holding Company shall pay to the Officer at
the time specified below an additional amount (the "Gross-up Payment") (which
shall include, without limitation, reimbursement for any penalties and
interest that may accrue in respect of such Excise Tax (including any
penalties or interest thereon) on the Total Payments and any federal, state
and local income or employment tax and Excise Tax on the Gross-up Payment
provided for by this section 11, but before reduction for any federal, state
or local income or employment tax on the Total Payments shall be equal to the
sum of (a) the Total Payments, and (b) an amount equal to the product of any
deductions disallowed for federal, state or local income tax purposes because
of the inclusion of the Gross-up Payment in the Officer's adjusted gross
income multiplied by the highest applicable marginal rate of federal, state or
local income taxation, respectively, for the calendar year in which the
Gross-up Payment is to be made.
For purposes of determining whether any of the Total payments will be subject
to the Excise Tax and the amount of such Excise Tax,
(i) the Total Payments shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code and all "excess parachute payments"
within the meaning of Section 280G(b)(1) of the Code shall be treated as
subject to the Excise Tax, unless, and except to the extent that, in the
written opinion of independent compensation consultants or auditors of
nationally recognized standing selected by the Holding Company and reasonably
acceptable to the Officer ("Independent Auditors"), the Total Payments (in
whole or in part) do not constitute parachute payments, or such excess
parachute payments (in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4) of the
Code in excess of the base amount within the meaning of Section 280G(b)(3) of
the Code or are otherwise not subject to the Excise Tax,
(ii) the amount of the Total Payments which shall be treated as subject to
the Excise Tax shall be equal to the lesser of (A) the total amount of the
Total Payments or (B) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying clause (i) above),
and
(iii) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Holding Company's Independent Auditors appointed
pursuant to clause (i) above in accordance with the principles of Sections
280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-up Payment, the Officer
shall be deemed (A) to pay federal income taxes at the highest marginal rate
of federal income taxation for the calendar year in which the Gross-up Payment
is to be made; (B) to pay any applicable state and local income taxes at the
highest marginal rate of taxation for the calendar year in which the Gross-up
Payment is to be made, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes if paid
in such year (determined without regard to limitations on deductions based
upon the amount of the Officer's adjusted gross income); and (C) to have
otherwise allowable deductions for federal, state and local income tax
purposes at least equal to those disallowed because of the inclusion of the
Gross-up Payment in the Officer's adjusted gross income. In the event that
the Excise Tax is subsequently determined to be less than the amount taken
into account hereunder at the time the Gross-up Payment is made, the Officer
shall repay to the Holding Company at the time that the amount of such
reduction in Excise Tax is finally determined (but, if previously paid to the
taxing authorities, not prior to the time the amount of such reduction is
refunded to the Officer or otherwise realized as a benefit by the Officer)
the portion of the Gross-up Payment that would not have been paid if such
Excise Tax had been applied in initially calculating the Gross-up Payment,
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time the Gross-up
Payment is made (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-up Payment), the Holding
Company shall make an additional Gross-up Payment in respect of such excess
(plus any interest and penalties payable with respect to such excess) at
the time that the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the thirtieth day (or
such earlier date as the Excise Tax becomes due and payable to the taxing
authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, the Holding Company shall pay to the Officer
on such day an estimate, as determined by the Holding Company Independent
Auditors appointed pursuant to clause (i) above, of the minimum amount of such
payments and shall pay the remainder of such payments (together with interest
at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as the
amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Holding Company to the
Officer, payable on the fifth day after demand by the Holding Company
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code). If more than one Gross-up Payment is made, the amount of each Gross-up
Payment shall be computed so as not to duplicate any prior Gross-up Payment.
The Holding Company shall have the right to control all proceedings with the
Internal Revenue Service that may arise in connection with the determination
and assessment of any Excise Tax and, at its sole option, the Holding Company
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with any taxing authority in respect of such Excise Tax
(including any interest or penalties thereon); PROVIDED, HOWEVER, that the
Holding Company's control over any such proceedings shall be limited to issues
with respect to which a Gross-up Payment would be payable hereunder and the
Officer shall be entitled to settle or contest any other issue raised by the
Internal Revenue Service or any other taxing authority. The Officer shall
cooperate with the Holding Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-up Payment
hereunder.
3. Except as it may be amended as provided herein, the Employment Agreement
shall continue in full force and effect in accordance with its original terms.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date and
year first above written.
FLUSHING FINANCIAL
CORPORATION
/s/ Michael J. Hegarty By: /s/ James F. McConnell
- ---------------------- ----------------------
Officer
Michael J. Hegarty
- ---------------------- Name: James F. McConnell
(See Schedule A)
Title: President and CEO
<PAGE>
Schedule A
On August 20, 1996, an amendment agreement substantially identical in all
material respects to the amendment agreement to which this Schedule A is
attached was also entered into with each of the following individuals:
James F. McConnell
Monica C. Passick
Henry A. Braun
Anna M. Piacentini
The foregoing agreements were omitted from this filing pursuant to Reg.
Section 229.601(a)(4)2.
Exhibit 10.8(a)
Indemnity Agreement among Flushing Savings Bank, FSB, Flushing Financial
Corporation, and each Director.
INDEMNITY AGREEMENT
AGREEMENT, dated as of August 20, 1996, by and among Flushing Savings Bank,
FSB (the "Bank"), Flushing Financial Corporation ("FFC") and the undersigned
Director of the Bank and FFC (the "Director").
The Director is rendering valuable services to the Bank and desires to
continue to provide such services provided he receives assurance that the Bank
and FFC will indemnify him to the full extent permitted by law against claims
arising out of such services.
The Bank and FFC desire to retain the services of the Director and are willing
to provide such assurances.
NOW THEREFORE, the Bank and FFC hereby agree with the Director as follows:
GENERAL RIGHT TO INDEMNIFICATION.
Notwithstanding any other provision of this Agreement, the Bank and FCC,
jointly and severally, shall indemnify the Director, his heirs, executors and
personal or legal representatives (collectively, an "Indemnified Party") to
the full extent permitted by applicable law as now or hereafter in effect,
against judgments, fines, amounts paid in settlement, and Expenses (as
hereinafter defined) actually incurred in connection with any pending,
threatened or completed claim, action or proceeding, or in connection with
an appeal therein, whether civil, criminal or administrative, including any
action by or in the right of the Bank to procure a judgment in its favor (a
"Claim") arising out of, based upon, or related to the fact that the Director
is or was a Trustee or Director of the Bank or FFC, or serves or served any
other corporation, partnership, association, trust, conference, group,
employee benefit plan or other enterprise, of any type of kind, domestic or
foreign, in any capacity at the request of the Bank (an "Indemnifiable
Event").
As used in this Agreement, the term "Expenses" includes attorneys' fees and
all other costs, expenses and obligations paid or incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in any Claim
relating to an Indemnifiable Event.
Without limiting the generality of the foregoing, the Bank shall indemnify the
Indemnified Party in accordance with the provisions set forth below, provided
that no indemnification may be made to or on the behalf of the Director if a
judgment or other final adjudication adverse to the Director establishes that
his acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he personally gained in fact a financial profit or other advantage to
which he was not legally entitled.
Notwithstanding anything to the contrary contained in this Agreement neither
the Bank, nor FFC shall indemnify the Director in connection with any
proceeding initiated by the Director against any other person or entity other
than FFC or any subsidiary of FFC unless such proceeding was authorized by the
Board of Directors of the Bank and FFC (collectively, the "Boards").
ACTIONS INVOLVING EMPLOYEE BENEFIT PLANS.
For the purpose of this Agreement, the Bank and FFC shall be deemed to have
requested the Director to serve an employee benefit plan where the Director
is a fiduciary with respect to such plan or where the performance by the
Director of his duties to the Bank or FFC also imposes duties on, or otherwise
involves services by, the Director to the plan or participants or
beneficiaries of the plan. Excise taxes assessed on the Director with respect
to an employee benefit plan pursuant to applicable law shall be considered
fines. Action taken or omitted by the Director with respect to an employee
benefit plan in the performance of his duties for a purpose reasonably
believed by him to be in the interest of the participants and beneficiaries of
the plan shall be deemed to be for a purpose which is not opposed to the best
interests of the Bank or FFC.
NO PRESUMPTIONS.
The termination of any Claim by judgment, settlement, conviction or upon a
plea of nolo contendere, or its equivalent, shall not in itself for any
purpose create a presumption that the Director did not act in good faith, for
a purpose which he reasonably believed to be in, or, in the case of service to
any other corporation, not opposed to, the best interests of the Bank or that
he had reasonable cause to believe that his conduct was unlawful.
ADVANCEMENT OF EXPENSES.
Expenses incurred by or on behalf of the Director in connection with any Claim
shall be paid by the Bank or FFC in advance of the final disposition of such
action not later than 45 days after receipt by the Bank and FFC of a written
undertaking by or on behalf of the Indemnified Party agreeing to repay such
amount as and to the extent required by this Section 4. All expenses incurred
in defending a Claim which are advanced by the Bank or FFC under this Section
4 shall be repaid in case the Indemnified Party receiving such advancement or
allowance is ultimately found, under the procedure set forth in this
Agreement, not to be entitled to indemnification or, where indemnification is
granted, to the extent the expenses so advanced by the Bank or FFC exceed the
indemnification to which the Indemnified Party is entitled.
NOTICE TO COMPANY.
Promptly after receipt by an Indemnified Party of notice of any claim for
which indemnification will or could reasonably be sought hereunder, the
Indemnified Party shall, if a claim in respect thereof is to be made against
the Bank or FFC under this Agreement, notify the Bank and FFC in writing of
the existence of such claim, but the failure to promptly notify the Bank and
FFC shall not affect the obligations of the Bank and FFC or the rights of the
Indemnified Party under this Agreement, unless such failure materially
prejudices the rights of the Bank or FFC referred to in the following
sentence. If any such claim shall be asserted against the Director, the Bank
and FFC shall be entitled to participate in any proceeding involving such
claim and, to the extent that the Bank or FFC wishes, to assume the defense
thereof with counsel reasonably satisfactory to the Director.
PROCEDURE FOR INDEMNIFICATION.
Promptly following receipt by the Bank and FFC of notice from the Indemnified
Party of a Claim against which the Indemnified Party asserts a right to be
indemnified hereunder, the Bank and FFC shall cause all necessary actions to
be taken to consider and act in good faith upon any findings required to be
made under applicable law, or otherwise, in order to authorize the
indemnification hereunder in the specific case.
The Indemnified Party's entitlement to indemnification shall be determined in
one of the following ways: (1) By the Boards acting by a quorum consisting of
Directors who are not parties to such Claim; or (2) If a quorum of
disinterested Directors is not obtainable or, even if obtainable, a quorum of
disinterested Directors so directs, by an opinion in writing of independent
legal counsel. In addition, if required by applicable law, the Indemnified
Party's entitlement to indemnification shall be subject to the Boards having
determined that such indemnification will not materially and adversely affect
the safety and soundness of the Bank or FFC.
After the final disposition of any action or proceeding covered by this
Agreement, the Indemnified Party shall send to the Bank and FFC a written
request for any indemnification sought under this Agreement. Not later than
45 days following receipt by the Bank and FFC of such request, the Bank or FFC
shall cause the indemnification provided hereunder to be authorized and paid.
The Indemnified Party shall be given an opportunity to be heard and to present
facts and evidence on his behalf in connection with consideration by the
Boards, independent legal counsel, or others of any findings required by
applicable law.
If the Bank or FFC does not pay the indemnification requested by the
Indemnified Party, whether pursuant to final disposition, for advancement of
expenses, or otherwise, within 45 days after the receipt of such request, the
Director's right to indemnification shall be enforceable in any court of
competent jurisdiction, including but not limited to the Supreme Court of the
State of New York, or, at the option of either party, an arbitration to be
conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association. In any such action, neither the making of, nor
failure to make, any finding by the Bank or FFC (including their respective
Boards of Directors and independent legal counsel that indemnification is
proper or not proper in the circumstances, shall be a defense to the action or
create a presumption that the Director has not met the applicable standard of
conduct. The Indemnified Party's reasonable Expenses incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such action shall also be indemnified jointly and severally by
the Bank and FFC.
CHARTER AND BY-LAWS.
Except as may be required in order to conform the charter or By-Laws of the
Bank or FFC to the requirements of applicable law or regulation, the Bank and
FFC (i) will not take any action with respect to their respective charter or
By-Laws or otherwise which would adversely affect an Indemnified Party's
rights of indemnification as to matters occurring prior to the termination of
the Director's services to the Bank or FFC as a Director and (ii) will
maintain By-Law indemnification provisions which will not materially reduce
the coverage currently afforded to an Indemnified Party pursuant to the
indemnification provisions of the Bank's and FFC's By-Laws as in effect on the
date hereof. The Indemnified Party acknowledges and agrees that,
notwithstanding the provisions of the charter or By-Laws of the Bank or FFC,
as in effect from time to time, no payment in respect of indemnification shall
be made by the Bank or FCC, if such payment would result in a violation of law
by the Bank or FFC.
SURVIVAL.
The Bank and FFC acknowledge that in continuing to provide services to the
Bank and FFC the Director is relying on this Agreement. Accordingly, each of
the Bank and FFC agree that its obligations hereunder will survive (i) any
actual or purported termination of this Agreement by the Bank or FFC or their
respective successors or assigns whether by operation of law, or otherwise,
and (ii) termination of the Director's services to the Bank or FFC,
whether such services were terminated by the Bank, FCC or the Director, with
respect to any Claim described in paragraph 1 hereof whether or not such Claim
arises or is commenced before or after the actual or purported termination of
this Agreement or the termination of the Director's services to the Bank or
FFC.
PARTIAL INDEMNITY.
If an Indemnified Party is entitled under any provision of this Agreement to
indemnification by the Bank and FFC for some or a portion of the expenses,
judgments, fines, penalties and amounts paid in settlement of a Claim but not,
however, for all of the total amount thereof, the Bank and FFC jointly and
severally agree nevertheless to indemnify the Indemnified Party for the
portion thereof to which the Indemnified Party is entitled. Moreover,
notwithstanding any other provision of this Agreement, to the extent that the
Indemnified Party has been successful on the merits or otherwise in defense of
any or all Claims relating in whole or in part to an Indemnifiable Event or in
defense of any issue or matter therein, including dismissal without prejudice,
the Indemnified Party shall be indemnified against all Expenses incurred in
connection therewith.
BURDEN OF PROOF.
In connection with any determination by a court of competent jurisdiction, an
arbitrator or otherwise as to whether an Indemnified Party is entitled to be
indemnified hereunder, the burden of proof shall be on the Bank and FFC to
establish that the Indemnified Party is not so entitled.
NONEXCLUSIVITY.
The rights of the Indemnified Party hereunder shall be in addition to and not
exclusive of any other rights or remedies such Indemnified Party may have
under applicable law, the Bank's or FFC's Charter or By-laws, or otherwise.
To the extent that a change in applicable law (whether by statute or judicial
decision) permits greater indemnification by agreement than would be afforded
currently under the respective By-laws of the Bank and FFC and this Agreement,
it is the intent of the parties hereto that the Indemnified Party shall enjoy
by this Agreement the greater benefits so afforded by such change.
LIABILITY INSURANCE.
To the extent the Bank or FFC maintains an insurance policy or policies
providing Trustee's or Director's liability, the Director shall be covered by
such policy or policies, in accordance with its or their terms, to the maximum
extent of the coverage available for any Director of the Bank or FFC.
PERIOD OF LIMITATIONS.
No legal action shall be brought and no cause of action shall be asserted by
or in the right of the Bank or FFC against the Director's spouse, heirs,
executors or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, and any claim or cause
of action of the Bank or FFC shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action such shorter period shall govern.
WAIVER, AMENDMENTS.
No supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by both of the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
SUBROGATION.
In the event of payment under this Agreement, the Bank or FFC, as the case may
be, shall be subrogated to the extent of such payment to all of the rights of
recovery of the Indemnified Party, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Bank or FFC effectively to
bring suit to enforce such rights.
NO DUPLICATION OF PAYMENTS.
Neither the Bank nor FFC shall be liable under this Agreement to make any
payment in connection with any Claim made against the Indemnified Party to the
extent the Indemnified Party has otherwise actually received payment (under
any insurance policy, the By-laws of the Bank or FFC or otherwise) of the
amounts otherwise indemnifiable hereunder.
SUCCESSORS, ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and the (i) successors and assigns of the
Bank and FFC, including any direct or indirect successor by purchase, merger,
consolidation, conservatorship or receivership, or otherwise to all or
substantially all of the business or assets of the Bank or FFC, and (ii) the
spouses, heirs, executors and personal and legal representatives of the
Director.
SEVERABILITY.
The provisions of this Agreement shall be severable in the event that any of
the provisions hereof is held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable in any respect, and the validity and
enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired and shall remain
enforceable to the full extent permitted by law. In the event that any of the
provisions hereof is held by a court of competent jurisdiction to be invalid,
void or otherwise unenforceable in any respect against either the Bank or FFC,
but not the other, then the enforceability of any such provision in every
respect and of the remaining provisions hereof against the other shall not be
in any way impaired and shall remain enforceable to the full extent permitted
by law.
GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in accordance
with the laws of the (i) United States with respect to indemnification
obligations of the Bank hereunder as a federal association, and of FFC, to the
extent required by applicable federal law, (ii) State of New York and (iii)
State of Delaware with respect to indemnification obligations of FFC
hereunder, in each case without giving effect to the principles of conflicts
of laws.
NOTICES.
All notices or other communications required or permitted hereunder shall be
given in writing and shall be delivered against receipt, transmitted by
telecopy or similar facsimile system (with receipt acknowledged) or mailed by
registered or certified mail, postage prepaid, as follows:
If to the Bank, to:
Flushing Savings Bank, FSB
144-51 Northern Boulevard
Flushing, New York 11354
Attention: President
If to FFC, to:
Flushing Financial Corporation
144-51 Northern Boulevard
Flushing, New York 11354
Attention: President
If to the Director, to:
John M. Gleason
145-16 Bayside Avenue
Flushing, New York 11354
or to such other address as shall be furnished in writing by such party in
accordance with this Section 20, and any such notice or other communication
shall be effective and be deemed to have been given as of the date so
delivered or transmitted or three days after the date so mailed; provided,
however, that any notice or other communication changing any of the addresses
set forth above shall be effective and deemed given only upon its receipt.
<PAGE>
EFFECT ON PREVIOUS AGREEMENT.
The Indemnity Agreement dated as of November 21, 1995, among the Bank, FFC and
the Director shall be of no further force and effect and is superseded in its
entirety by this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the parties thereto,
in the case of the Bank and FFC, by a duly authorized officer thereof on its
behalf.
FLUSHING SAVINGS BANK, FSB
By: /s/ Michael J. Hegarty
/s/ John M. Gleason -----------------------
- ----------------------- Michael J. Hegarty
Director -----------------------
John M. Gleason
- -----------------------
(See Schedule A)
FLUSHING FINANCIAL CORPORATION
By /s/ James F. McConnell
------------------------
James F. McConnell
<PAGE>
Schedule A
On August 20, 1996, an agreement substantially identical in all material
respects to the agreement to which this Schedule A is attached was also
entered into with each of the following individuals:
Michael J. Hegarty
Robert A. Marani
James F. McConnell
John O. Mead
Vincent F. Nicolosi
Franklin F. Regan, Jr.
John E. Roe, Sr.
Michael J. Russo
Thomas R. Trent
Gerard P. Tully, Sr.
The foregoing agreements were omitted from this filing pursuant to Reg.
Section 229.601(a)(4)2.
Exhibit 10.8(b)
Indemnity Agreement among Flushing Savings Bank, FSB, Flushing Financial
Corporation, and Certain Officers.
INDEMNITY AGREEMENT
AGREEMENT, dated as of August 20,1996, by and among Flushing Savings Bank, FSB
(the "Bank"), Flushing Financial Corporation ("FFC") and the undersigned
Officer of the Bank and FFC (the "Officer").
The Officer is rendering valuable services to the Bank and desires to continue
to provide such services provided he receives assurance that the Bank and FFC
will indemnify him to the full extent permitted by law against claims arising
out of such services.
The Bank and FFC desire to retain the services of the Officer and are willing
to provide such assurances.
NOW THEREFORE, the Bank and FFC hereby agree with the Officer as follows:
GENERAL RIGHT TO INDEMNIFICATION.
Notwithstanding any other provision of this Agreement, the Bank and FCC,
jointly and severally, shall indemnify the Officer, his heirs, executors and
personal or legal representatives (collectively, an "Indemnified Party") to
the full extent permitted by applicable law as now or hereafter in effect,
against judgments, fines, amounts paid in settlement, and Expenses (as
hereinafter defined) actually incurred in connection with any pending,
threatened or completed claim, action or proceeding, or in connection with an
appeal therein, whether civil, criminal or administrative, including any
action by or in the right of the Bank to procure a judgment in its favor (a
"Claim") arising out of, based upon, or related to the fact that the Officer
is or was an Officer of the Bank or FFC, or serves or served any other
corporation, partnership, association, trust, conference, group, employee
benefit plan or other enterprise, of any type of kind, domestic or foreign, in
any capacity at the request of the Bank (an "Indemnifiable Event").
As used in this Agreement, the term "Expenses" includes attorneys' fees and
all other costs, expenses and obligations paid or incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in any Claim
relating to an Indemnifiable Event.
Without limiting the generality of the foregoing, the Bank shall indemnify the
Indemnified Party in accordance with the provisions set forth below, provided
that no indemnification may be made to or on the behalf of the Officer if a
judgment or other final adjudication adverse to the Officer establishes that
his acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he personally gained in fact a financial profit or other advantage to
which he was not legally entitled.
Notwithstanding anything to the contrary contained in this Agreement neither
the Bank, nor FFC shall indemnify the Officer in connection with any
proceeding initiated by the Officer against any other person or entity other
than FFC or any subsidiary of FFC unless such proceeding was authorized by the
Board of Directors of the Bank and FFC (collectively, the "Boards").
ACTIONS INVOLVING EMPLOYEE BENEFIT PLANS.
For the purpose of this Agreement, the Bank and FFC shall be deemed to have
requested the Officer to serve an employee benefit plan where the Officer is a
fiduciary with respect to such plan or where the performance by the Officer of
his duties to the Bank or FFC also imposes duties on, or otherwise involves
services by, the Officer to the plan or participants or beneficiaries of the
plan. Excise taxes assessed on the Officer with respect to an employee
benefit plan pursuant to applicable law shall be considered fines. Action
taken or omitted by the Officer with respect to an employee benefit plan in
the performance of his duties for a purpose reasonably believed by him to be
in the interest of the participants and beneficiaries of the plan shall be
deemed to be for a purpose which is not opposed to the best interests of the
Bank or FFC.
NO PRESUMPTIONS.
The termination of any Claim by judgment, settlement, conviction or upon a
plea of nolo contendere, or its equivalent, shall not in itself for any
purpose create a presumption that the Officer did not act in good faith, for a
purpose which he reasonably believed to be in, or, in the case of service to
any other corporation, not opposed to, the best interests of the Bank or that
he had reasonable cause to believe that his conduct was unlawful.
ADVANCEMENT OF EXPENSES.
Expenses incurred by or on behalf of the Officer in connection with any Claim
shall be paid by the Bank or FFC in advance of the final disposition of such
action not later than 45 days after receipt by the Bank and FFC of a written
undertaking by or on behalf of the Indemnified Party agreeing to repay such
amount as and to the extent required by this Section 4. All expenses incurred
in defending a Claim which are advanced by the Bank or FFC under this Section
4 shall be repaid in case the Indemnified Party receiving such advancement or
allowance is ultimately found, under the procedure set forth in this
Agreement, not to be entitled to indemnification or, where indemnification is
granted, to the extent the expenses so advanced by the Bank or FFC exceed the
indemnification to which the Indemnified Party is entitled.
NOTICE TO COMPANY.
Promptly after receipt by an Indemnified Party of notice of any claim for
which indemnification will or could reasonably be sought hereunder, the
Indemnified Party shall, if a claim in respect thereof is to be made against
the Bank or FFC under this Agreement, notify the Bank and FFC in writing of
the existence of such claim, but the failure to promptly notify the Bank and
FFC shall not affect the obligations of the Bank and FFC or the rights of the
Indemnified Party under this Agreement, unless such failure materially
prejudices the rights of the Bank or FFC referred to in the following
sentence. If any such claim shall be asserted against the Officer, the Bank
and FFC shall be entitled to participate in any proceeding involving such
claim and, to the extent that the Bank or FFC wishes, to assume the defense
thereof with counsel reasonably satisfactory to the Officer.
PROCEDURE FOR INDEMNIFICATION.
Promptly following receipt by the Bank and FFC of notice from the Indemnified
Party of a Claim against which the Indemnified Party asserts a right to be
indemnified hereunder, the Bank and FFC shall cause all necessary actions to
be taken to consider and act in good faith upon any findings required to be
made under applicable law, or otherwise, in order to authorize the
indemnification hereunder in the specific case.
The Indemnified Party's entitlement to indemnification shall be determined in
one of the following ways: (1) By the Boards acting by a quorum consisting of
Directors who are not parties to such Claim; or (2) If a quorum of
disinterested Directors is not obtainable or, even if obtainable, a quorum of
disinterested Directors so directs, by an opinion in writing of independent
legal counsel. In addition, if required by applicable law, the Indemnified
Party's entitlement to indemnification shall be subject to the Boards having
determined that such indemnification will not materially and adversely affect
the safety and soundness of the Bank or FFC.
After the final disposition of any action or proceeding covered by this
Agreement, the Indemnified Party shall send to the Bank and FFC a written
request for any indemnification sought under this Agreement. Not later than
45 days following receipt by the Bank and FFC of such request, the Bank or FFC
shall cause the indemnification provided hereunder to be authorized and paid.
The Indemnified Party shall be given an opportunity to be heard and to present
facts and evidence on his behalf in connection with consideration by the
Boards, independent legal counsel, or others of any findings required by
applicable law.
If the Bank or FFC does not pay the indemnification requested by the
Indemnified Party, whether pursuant to final disposition, for advancement of
expenses, or otherwise, within 45 days after the receipt of such request, the
Officer's right to indemnification shall be enforceable in any court of
competent jurisdiction, including but not limited to the Supreme Court of the
State of New York, or, at the option of either party, an arbitration to be
conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association. In any such action, neither the making of, nor
failure to make, any finding by the Bank or FFC (including their respective
Boards of Directors and independent legal counsel that indemnification is
proper or not proper in the circumstances, shall be a defense to the action or
create a presumption that the Officer has not met the applicable standard of
conduct. The Indemnified Party's reasonable Expenses incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such action shall also be indemnified jointly and severally by
the Bank and FFC.
CHARTER AND BY-LAWS.
Except as may be required in order to conform the charter or By-Laws of the
Bank or FFC to the requirements of applicable law or regulation, the Bank and
FFC (i) will not take any action with respect to their respective charter or
By-Laws or otherwise which would adversely affect an Indemnified Party's
rights of indemnification as to matters occurring prior to the termination of
the Officer's services to the Bank or FFC as an Officer and (ii) will maintain
By-Law indemnification provisions which will not materially reduce the
coverage currently afforded to an Indemnified Party pursuant to the
indemnification provisions of the Bank's and FFC's By-Laws as in effect on the
date hereof. The Indemnified Party acknowledges and agrees that,
notwithstanding the provisions of the charter or By-Laws of the Bank or FFC,
as in effect from time to time, no payment in respect of indemnification shall
be made by the Bank or FCC, if such payment would result in a violation of law
by the Bank or FFC.
SURVIVAL.
The Bank and FFC acknowledge that in continuing to provide services to the
Bank and FFC the Officer is relying on this Agreement. Accordingly, each of
the Bank and FFC agree that its obligations hereunder will survive (i) any
actual or purported termination of this Agreement by the Bank or FFC or their
respective successors or assigns whether by operation of law, or otherwise,
and (ii) termination of the Officer's services to the Bank or FFC, whether
such services were terminated by the Bank, FCC or the Officer, with respect to
any Claim described in paragraph 1 hereof whether or not such Claim arises or
is commenced before or after the actual or purported termination of this
Agreement or the termination of the Officer's services to the Bank or FFC.
PARTIAL INDEMNITY.
If an Indemnified Party is entitled under any provision of this Agreement to
indemnification by the Bank and FFC for some or a portion of the expenses,
judgments, fines, penalties and amounts paid in settlement of a Claim but not,
however, for all of the total amount thereof, the Bank and FFC jointly and
severally agree nevertheless to indemnify the Indemnified Party for the
portion thereof to which the Indemnified Party is entitled. Moreover,
notwithstanding any other provision of this Agreement, to the extent that the
Indemnified Party has been successful on the merits or otherwise in defense of
any or all Claims relating in whole or in part to an Indemnifiable Event or
in defense of any issue or matter therein, including dismissal without
prejudice, the Indemnified Party shall be indemnified against all Expenses
incurred in connection therewith.
BURDEN OF PROOF.
In connection with any determination by a court of competent jurisdiction, an
arbitrator or otherwise as to whether an Indemnified Party is entitled to be
indemnified hereunder, the burden of proof shall be on the Bank and FFC to
establish that the Indemnified Party is not so entitled.
NONEXCLUSIVITY.
The rights of the Indemnified Party hereunder shall be in addition to and not
exclusive of any other rights or remedies such Indemnified Party may have
under applicable law, the Bank's or FFC's Charter or By-laws, or otherwise.
To the extent that a change in applicable law (whether by statute or judicial
decision) permits greater indemnification by agreement than would be afforded
currently under the respective By-laws of the Bank and FFC and this Agreement,
it is the intent of the parties hereto that the Indemnified Party shall enjoy
by this Agreement the greater benefits so afforded by such change.
LIABILITY INSURANCE.
To the extent the Bank or FFC maintains an insurance policy or policies
providing Trustee's or Officer's liability, the Officer shall be covered by
such policy or policies, in accordance with its or their terms, to the maximum
extent of the coverage available for any Officer of the Bank or FFC.
PERIOD OF LIMITATIONS.
No legal action shall be brought and no cause of action shall be asserted by
or in the right of the Bank or FFC against the Officer's spouse, heirs,
executors or personal or legal representatives after the expiration of two
years from the date of accrual of such cause of action, and any claim or cause
of action of the Bank or FFC shall be extinguished and deemed released unless
asserted by the timely filing of a legal action within such two-year period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action such shorter period shall govern.
WAIVER, AMENDMENTS.
No supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by both of the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
SUBROGATION.
In the event of payment under this Agreement, the Bank or FFC, as the case may
be, shall be subrogated to the extent of such payment to all of the rights of
recovery of the Indemnified Party, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Bank or FFC effectively to
bring suit to enforce such rights.
NO DUPLICATION OF PAYMENTS.
Neither the Bank nor FFC shall be liable under this Agreement to make any
payment in connection with any Claim made against the Indemnified Party to the
extent the Indemnified Party has otherwise actually received
payment (under any insurance policy, the By-laws of the Bank or FFC or
otherwise) of the amounts otherwise indemnifiable hereunder.
SUCCESSORS, ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and the (i) successors and assigns of the
Bank and FFC, including any direct or indirect successor by purchase, merger,
consolidation, conservatorship or receivership, or otherwise to all or
substantially all of the business or assets of the Bank or FFC, and (ii) the
spouses, heirs, executors and personal and legal representatives of the
Officer.
SEVERABILITY.
The provisions of this Agreement shall be severable in the event that any of
the provisions hereof is held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable in any respect, and the validity and
enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired and shall remain
enforceable to the full extent permitted by law. In the event that any of the
provisions hereof is held by a court of competent jurisdiction to be invalid,
void or otherwise unenforceable in any respect against either the Bank or FFC,
but not the other, then the enforceability of any such provision in every
respect and of the remaining provisions hereof against the other shall not be
in any way impaired and shall remain enforceable to the full extent permitted
by law.
GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in accordance
with the laws of the (i) United States with respect to indemnification
obligations of the Bank hereunder as a federal association, and of FFC, to the
extent required by applicable federal law, (ii) State of New York and (iii)
State of Delaware with respect to indemnification obligations of FFC
hereunder, in each case without giving effect to the principles of conflicts
of laws.
NOTICES.
All notices or other communications required or permitted hereunder shall be
given in writing and shall be delivered against receipt, transmitted by
telecopy or similar facsimile system (with receipt acknowledged) or mailed by
registered or certified mail, postage prepaid, as follows:
If to the Bank, to:
Flushing Savings Bank, FSB
144-51 Northern Boulevard
Flushing, New York 11354
Attention: President
If to FFC, to:
Flushing Financial Corporation
144-51 Northern Boulevard
Flushing, New York 11354
Attention: President
If to the Officer, to:
Henry A. Braun
24 Spinnaker Lane
East Patchogue, New York 11772
or to such other address as shall be furnished in writing by such party in
accordance with this Section 20, and any such notice or other communication
shall be effective and be deemed to have been given as of the date so
delivered or transmitted or three days after the date so mailed; provided,
however, that any notice or other communication changing any of the addresses
set forth above shall be effective and deemed given only upon its receipt.
IN WITNESS WHEREOF, this Agreement has been executed by the parties thereto,
in the case of the Bank and FFC, by a duly authorized officer thereof on its
behalf.
FLUSHING SAVINGS BANK, FSB
/s/ Henry A. Braun By /s/ Michael J. Hegarty
- -------------------- -----------------------
Officer Michael J. Hegarty
Henry A. Braun -----------------------
- --------------------
FLUSHING FINANCIAL CORPORATION
By /s/ James F. McConnell
-------------------------
James F. McConnell
-------------------------
<PAGE>
Schedule A
On August 20, 1996, an agreement substantially identical in all material
respects to of agreement to which this Schedule A is attached was also entered
into with each of the following individuals:
Monica C. Passick
Anna M. Piacentini
The foregoing agreements were omitted from this filing pursuant to Reg.
Section 229.601(a)(4)2.
<TABLE> <S> <C>
<ARTICLE> 9
<PAGE>
<LEGEND>
This schedule contains summary financial information extracted
from the Condensed Consolidated Statement of Financial Condition at
September 30, 1996 (unaudited) and the Condensed Consolidated Statement of
Income for the nine months ended September 30, 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> SEP-30-1996
<PERIOD-TYPE> 9-MOS
<CASH> 8,173
<INT-BEARING-DEPOSITS> 505
<FED-FUNDS-SOLD> 200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 378,405
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 359,000
<ALLOWANCE> 5,231
<TOTAL-ASSETS> 770,102
<DEPOSITS> 575,224
<SHORT-TERM> 0
<LIABILITIES-OTHER> 8,959
<LONG-TERM> 51,000
0
0
<COMMON> 89
<OTHER-SE> 134,830
<TOTAL-LIABILITIES-AND-EQUITY> 770,102
<INTEREST-LOAN> 20,956
<INTEREST-INVEST> 19,247
<INTEREST-OTHER> 431
<INTEREST-TOTAL> 40,634
<INTEREST-DEPOSIT> 17,958
<INTEREST-EXPENSE> 19,339
<INTEREST-INCOME-NET> 21,294
<LOAN-LOSSES> 322
<SECURITIES-GAINS> 431
<EXPENSE-OTHER> 12,226
<INCOME-PRETAX> 9,178
<INCOME-PRE-EXTRAORDINARY> 9,178
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,984
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
<YIELD-ACTUAL> 7.64
<LOANS-NON> 3,530
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,310
<CHARGE-OFFS> 463
<RECOVERIES> 62
<ALLOWANCE-CLOSE> 5,231
<ALLOWANCE-DOMESTIC> 5,231
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,231
<PAGE>
</TABLE>
