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 MARCH 31, 1997.
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 March
31, 1997 were 8,087,597.
<PAGE> 1
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
as of March 31, 1997 (unaudited) and
December 31, 1996 2
Consolidated Statements of Income for the three
months and three months ended March 31, 1997 and 1996
(unaudited). 3
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 (unaudited). 4
Consolidated Statement of Changes in Shareholders'
Equity for the three months ended March 31, 1997
(unaudited) 5
Notes to Consolidated Financial Statements. 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 20
Item 2. Changes in Securities. 20
Item 3. Defaults Upon Senior Securities. 20
Item 4. Submission of Matters to a Vote of Security Holders. 20
Item 5. Other information. 20
Item 6. Exhibits and Reports on Form 8-K. 20
SIGNATURES 21
EXHIBITS 22
<PAGE> 2
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- -------------
(Unaudited)
<C> <C>
<S>
ASSETS:
Cash and due from banks $ 9,037,791 $ 7,472,155
Federal funds sold and overnight
interest-earning deposits 28,800,000 26,953,000
Securities available for sale:
Mortgage-backed securities 158,599,024 141,038,177
Other securities 164,066,541 190,856,985
Loans:
1-4 Family residential mortgage loans 248,649,174 236,518,280
Multi-family mortgage loans 122,709,058 104,870,271
Commercial real estate loans 57,364,279 46,697,783
Consumer loans 1,565,360 1,679,403
Less: Unearned loan fees (1,272,218) (1,548,287)
Allowance for loan losses (5,508,470) (5,436,832)
------------- -------------
Net loans 423,507,183 382,780,618
Interest and dividends receivable 6,014,268 6,896,504
Real estate owned, net 279,896 1,218,296
Bank premises and equipment, net 6,136,208 5,796,166
Other assets 14,748,100 12,330,603
------------- -------------
Total assets $ 811,189,011 $ 775,342,504
============= =============
LIABILITIES:
Due to depositors:
Non-interest bearing $ 13,466,269 $ 10,292,645
NOW and money market accounts 46,006,533 46,589,109
Savings accounts 208,922,914 209,689,857
Certificates of deposit 322,665,309 314,482,971
Mortgagors' escrow deposits 6,871,690 3,424,764
Borrowed funds 76,000,000 51,000,000
Other liabilities 7,342,118 6,582,114
------------- -------------
Total liabilities 681,274,833 642,061,460
------------- -------------
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;
8,087,597 and 8,250,497 shares outstanding
at March 31, 1997 and at December 31, 1996,
respectively) 89,101 89,101
Additional paid-in capital 101,282,565 101,277,592
Treasury stock (822,503 and 659,603 shares
at March 31, 1997 and December 31, 1996,
respectively) (14,965,918) (12,065,068)
Unearned compensation - Employee Benefit
Trust (7,417,397) (7,443,267)
Unearned compensation - Restricted
Stock Awards (3,833,617) (4,216,873)
Retained earnings 58,461,789 56,869,884
Net unrealized loss on securities
available for sale, net of taxes (3,702,345) (1,230,325)
------------- -------------
Total stockholders' equity 129,914,178 133,281,044
------------- -------------
Total liabilities and stockholders'
equity $ 811,189,011 $ 775,342,504
============= =============
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 8,590,007 $ 6,535,855
Interest and dividends on securities:
Taxable interest 5,591,333 6,067,452
Tax-exempt interest 7,930 13,739
Dividends 72,930 109,861
Other interest income 395,282 173,542
----------- -----------
Total interest and dividend income 14,657,482 12,900,449
----------- -----------
Interest expense:
Deposits 6,249,455 5,991,521
Other interest expense 771,101 150,209
----------- -----------
Total interest expense 7,020,556 6,141,730
----------- -----------
Net interest income 7,636,926 6,758,719
Provision for loan losses 20,172 151,946
----------- -----------
Net interest income after provision
for loan losses 7,616,754 6,606,773
----------- -----------
Non-interest income:
Other fee income 344,972 228,686
Net gain (loss) on sales of securities
and loans 52,199 321,976
Other income 33,455 191,283
----------- -----------
Total non-interest income 430,626 741,945
----------- -----------
Non-interest expense:
Salaries and employee benefits 2,419,616 2,016,092
Occupancy and equipment 457,049 524,238
Professional services 400,798 501,061
Federal deposit insurance premiums 18,089 500
Data processing 278,423 255,005
Depreciation and amortization 193,917 195,425
Real estate owned, net 35,244 38,108
Other operating 750,694 711,687
----------- -----------
Total non-interest expense 4,553,830 4,242,116
----------- -----------
Income (loss) before income taxes 3,493,550 3,106,602
----------- -----------
Provision for income taxes:
Federal 1,001,745 879,727
State and local 602,266 564,085
----------- -----------
Total taxes 1,604,011 1,443,812
----------- -----------
Net income $ 1,889,539 $ 1,662,790
=========== ===========
Weighted average number of common
shares outstanding 7,468,091 7,957,381
Primary and fully diluted earnings
per share $0.25 $0.21
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</FN>
</TABLE>
<PAGE> 4
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the three months ended
March 31,
-------------------------
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 1,889,539 $ 1,662,790
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 20,172 151,946
Provision for losses on real estate owned 0 9,096
Depreciation of bank premises and equipment 193,917 195,425
Net (gain) loss on sales of securities & loans (52,199) (321,976)
Net loss (gain) on sales of real estate owned 15,081 (21,169)
Amortization of unearned premium, net of
accretion of unearned discount 128,816 342,517
Amortization of deferred income (303,630) (179,212)
Deferred income tax (benefit) provision (90,738) 52,008
Deferred compensation 22,035 40,835
Changes in operating assets and liabilities, net 1,443,213 2,289
Unearned compensation 414,099 10,130
----------- -----------
Net cash provided by operating activities 3,680,305 1,944,679
----------- -----------
Cash flows used in investing activities:
Purchases of bank premises and equipment (533,959) (41,402)
Purchases of securities available for sale (29,689,000) (90,128,000)
Proceeds from sales and calls of securities
available for sale 16,320,199 48,587,976
Proceeds from maturities and prepayments of
securities available for sale 17,933,422 17,607,698
Net originations and repayments of loans (30,825,635) (10,749,708)
Purchases of loans (9,154,000) (5,388,000)
Proceeds from sales and operations of
real estate owned 426,419 409,642
----------- -----------
Net cash used in investing activities (35,522,554) (39,701,794)
----------- -----------
Cash flows provided by financing activities:
Net increase (decrease) in non-interest
bearing deposits 3,173,624 (279,438)
Net increase in interest bearing deposits 6,832,819 9,755,271
Net increase in mortgagors' escrow deposits 3,446,926 2,377,408
Increase in borrowed funds 25,000,000 21,000,000
Repurchase of common stock (2,900,850) 0
Cash dividends paid (297,634) 0
----------- -----------
Net cash provided by financing activities 35,254,885 32,853,241
----------- -----------
Net increase(decrease) in cash and cash equivalents 3,412,636 (4,903,874)
Cash and cash equivalents, beginning of period 34,425,155 19,321,639
----------- -----------
Cash and cash equivalents, end of period $37,837,791 $14,417,765
=========== ===========
Supplemental cash flow disclosure:
Interest paid $ 7,020,556 $ 6,129,041
Income taxes paid 1,080,587 328,408
Non-cash activities:
Loans originated as the result of real estate sales 542,500 146,525
Loans transferred through the foreclosure of a
related mortgage loan foreclosure to
real estate owned 0 341,169
Net change in unrealized loss on securities
available for sale (4,590,220) (8,498,080)
<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>
Three months ended
March 31, 1997
------------------
(Unaudited)
<S> <C>
COMMON STOCK
($0.01 par value; 20,000,000 shares authorized;
8,910,100 shares issued; 8,087,597 shares outstanding)
Balance at beginning of period $ 89,101
No activity 0
------------
Balance at end of period $ 89,101
============
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period $101,277,592
401-k contribution 4,973
------------
Balance at end of period $101,282,565
============
TREASURY STOCK
Balance at beginning of period $(12,065,068)
Treasury shares repurchased at market (2,900,850)
------------
Balance at end of period $(14,965,918)
============
UNEARNED COMPENSATION - EMPLOYEE BENEFIT TRUST
Balance at beginning of period $ (7,443,267)
401-k contribution: book value 25,870
------------
Balance at end of period $ (7,417,397)
============
UNEARNED COMPENSATION - RESTRICTED STOCK AWARDS
Balance at beginning of period $ (4,216,873)
Restricted stock award expense ("RSA") 366,005
Permanent tax effect of vested RSA's 17,251
------------
Balance at end of period $ (3,833,617)
============
RETAINED EARNINGS
Balance at beginning of period $ 56,869,884
Net Income 1,889,539
Cash dividends (297,634)
------------
Balance at end of period $ 58,461,789
============
NET UNREALIZED (LOSS) GAIN ON SECURITIES AVAILABLE FOR
SALE, NET OF TAXES
Balance at beginning of period $ (1,230,325)
Mark-to-market adjustment (2,472,020)
------------
Balance at end of period $ (3,702,345)
============
<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 March 31, 1997, the results of operations for the three
months ended March 31, 1997 and 1996, the cash flow statements for the three
months ended March 31, 1997 and 1996, and the statement of changes in
stockholders'equity for the three months ended March 31, 1997. These
adjustments consist of items which are of a normal recurring nature. The
results of operations for the three months ended March 31, 1997 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 1996 Annual Report to Shareholders and SEC Form 10-K for the year
ended December 31, 1996.
2. BORROWED FUNDS
At March 31, 1997, advances from the Federal Home Loan Bank of New York
("FHLB-NY") totaled $76.0 million, with a composite interest rate of 6.07% 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, to fund increases in mortgage lending.
(continued)
<PAGE> 7
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. TREASURY STOCK
In June and December 1996, the Company announced its intention to repurchase
up to 716,350 and 409,688 shares of the Company's outstanding common stock,
respectively, totaling 1,126,038 shares. As of March 31, 1997, the Company
had purchased 830,550 shares at a cost of $15.1 million, an average of $18.21
per share, leaving 295,488 shares to be purchased under the Share Repurchase
Program. Total shares outstanding at March 31, 1997 were 8,087,597.
4. RECENT ACCOUNTING PRONOUNCEMENTS
FASB has issued SFAS 128, "Earnings per Share", effective for fiscal years
beginning after December 15, 1997. This Statement establishes standards for
computing and presenting earnings per share ("EPS") and applies to entities
with publicly held common stock or potential common stock. The objective of
this Statement is to simplify the computation of earnings per share and to
make the U.S. standard for computing earnings per share more comparable with
the EPS standards of other countries and with that of the International
Accounting Standards Committee. Adoption of this Pronouncement is not expected
to have a material impact on the Company's consolidated financial statements.
5. SUBSEQUENT EVENTS
Flushing Financial Corporation and New York Federal Savings Bank, a privately
held federal savings bank, announced on April 25, 1997 a signed definitive
merger agreement by which Flushing Financial Corporation will acquire New York
Federal Savings Bank in a cash transaction valued at approximately $13
million. New York Federal will continue its operations as a division of
Flushing Savings Bank under the New York Federal name.
The acquisition must be approved by New York Federal shareholders and by
federal regulatory authorities and is subject to various customary closing
conditions. The merger agreement has been approved unanimously by the Boards
of Directors of both Flushing Financial Corporation and New York Federal. The
acquisition is anticipated to close in the third quarter of 1997 and will be
accounted for as a purchase transaction.
<PAGE> 8
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, a Delaware corporation, was organized in May
1994 to serve as the holding company for Flushing Savings Bank, FSB, a
federally chartered, FDIC insured savings institution originally organized in
1929 (the "Bank"). The Bank is a consumer oriented savings institution and
conducts its business through seven banking offices located in Queens,
Brooklyn, Manhattan and Nassau County. Flushing Financial Corporation's
common stock is publicly traded on the Nasdaq National Market under the symbol
"FFIC". 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.
The Company's principal business is attracting retail deposits from the
general public and investing those deposits, together with borrowed funds and
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.
(continued)
<PAGE> 9
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 1996 Annual Report to Shareholders and the
SEC Report on Form 10-K for the year ended December 31, 1996. The Company has
no obligation to update these forward-looking statements.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996
GENERAL. Net income for the first quarter of 1997 was $1.9 million, an
increase of $227,000 from the net income of $1.7 million for the comparable
1995 period. This increase was primarily the result of a $878,000 increase
net interest income, offset by a $311,000 decline in non-interest income and a
$312,000 increase in non-interest expenses in the 1997 period as compared to
the 1996 period.
INTEREST INCOME. Total interest and dividend income increased $1.8 million
from $12.9 million for the three months ended March 31, 1996 to $14.7 million
for the three months ended March 31, 1997. This increase was primarily the
result of a $112.8 million increase in the average earning balances of
mortgage loans from the quarter ended March 31, 1996 as compared to the
quarter ended March 31, 1997, and a $14.9 million increase in the average
balances of federal funds sold and overnight interest-bearing deposits.
These increases were offset in part by a $54.3 million decline in the average
balances of investment securities available for sale from the first quarter
of 1996 as compared to the first quarter of 1997. This shift in assets
reflects the Company's planned growth in the mortgage loan market.
(continued)
<PAGE> 10
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTEREST EXPENSE. Interest expense increased $879,000 from $6.1 million for
the three months ended March 31, 1996 to $7.0 million for the three months
ended March 31, 1997, primarily due to a $633,000 increase in borrowed funds
expense as the average balance of borrowed funds increased. The Company has
increased its utilization of Federal Home Loan Bank ("FHLB") advances which
totaled $76.0 million at March 31, 1997, bearing a composite rate of 6.07%.
Interest paid on deposits also increased $258,000 resulting from an increase
of $34.8 million in the average balances of higher costing certificates of
deposit accounts and a decline of $8.0 million in the average balances of
lower costing regular savings and money market accounts from the quarter
ended March 31, 1996 as compared to the quarter ended March 31, 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses during the three
months ended March 31, 1997 was $20,000 compared to $152,000 for the three
months ended March 31, 1996. 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 the size and composition of the loan
portfolio.
NON-INTEREST INCOME. Total non-interest income declined by $311,000 from
$742,000 for the first quarter of 1996 to $431,000 for the first quarter of
1997. This decline is primarily attributable to a reduction of $270,000 in
net gain on sales of securities from $322,000 during the three months ended
March 31, 1996 to $52,000 during the three months ended March 31, 1997.
NON-INTEREST EXPENSE. Non-interest expense increased by $312,000 from $4.2
million for the three months ended March 31, 1996 to $4.6 million for the
three months ended March 31, 1997. Expenses attributable to salaries and
employee benefits rose $404,000, reflecting salary increases, contributions
to profit sharing plans, and the amortization of unearned compensation expense
associated with the Restricted Stock Awards made in May and December of 1996.
(continued)
<PAGE> 11
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INCOME BEFORE INCOME TAXES. Total income before provision for income taxes
increased $387,000 from $3.1 million for the three months ended March 31, 1996
to $3.5 million for the three months ended March 31, 1997 for the reasons
stated above.
PROVISION FOR INCOME TAXES. The provision for income taxes increased
$160,000 from $1.4 million for the three months ended March 31, 1996 to $1.6
million for the three months ended March 31, 1997 as a result of a
corresponding increase in income before income taxes.
FINANCIAL CONDITION
ASSETS. At March 31, 1997, total assets were $811.2 million, an increase of
$35.8 million, or 4.62%, from the December 31, 1996 balance of $775.3 million.
The growth in assets is primarily reflected in a $40.6 million increase in
mortgage loans, offset in part by a decline of $9.2 million in securities
available for sale. This shift in assets reflects the Company's planned
growth in the mortgage loan market. The increase in mortgage loans consisted
primarily of a $12.1 million, or 5.13% increase in the Bank's portfolio of 1-4
family residential loans and a $28.5 million, or 18.81% increase in
multi-family and commercial real estate mortgage loans.
From December 31, 1996 to March 31, 1997 total securities available for sale
declined $9.2 million. This reduction in total securities available for sale
includes a decline of $4.6 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 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 March 31, 1997, the Company had $4.0 million invested in one
collateralized mortgage obligation ("CMO"). The CMO in the Company's
portfolio is not considered high risk under regulations promulgated by the
Office of Thrift Supervision ("OTS"). At March 31, 1997, the Company had
$138.9 million in callable U.S. government securities.
(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-performing assets declined by $1.4 million from $3.6 million at December
31, 1996 to $2.2 million at March 31, 1997. Total non-performing assets as a
percentage of total assets declined to 0.27% at March 31, 1997 from 0.47% at
December 31, 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
225.79% at December 31, 1996 to 288.53% at March 31, 1997.
LIABILITIES. Deposit balances increased by $10.0 million during the first
three months of 1997 to $591.1 million at March 31, 1997 primarily due to an
$8.2 million increase in certificate of deposit accounts and a $3.2 increase
in non-interest bearing demand deposits, offset in part by a decrease of $1.3
million in regular savings accounts, NOW and money market accounts. As
described above, the Company also has continued its utilization of FHLB
advances which totaled $76.0 million at March 31, 1996 with a weighted average
interest rate of 6.07% and remaining maturity ranging from two months to two
years, and an average maturity of 13 months.
EQUITY. Total stockholders' equity decreased $3.4 million during the first
three months of 1997 to $129.9 million at March 31, 1997. This decrease is
due primarily to $2.9 million in treasury shares purchased through the
Company's stock repurchase plan, as noted below, $298,000 in dividends
declared as also noted below, and a decrease of $2.5 million, net of taxes,
in unrealized market value of securities available for sale from December 31,
1996 to March 31, 1997, offset by $1.9 million in net income for the first
three months of 1997. 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. 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> 13
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In June and December 1996, the Company announced its intention to repurchase
up to 716,350 and 409,688 shares of the Company's outstanding common stock,
respectively, totaling 1,126,038 shares. 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 March 31, 1997, the Company had purchased 830,550 shares at a cost of $15.1
million, an average of $18.21 per share, leaving 295,488 shares to be
purchased under the Share Repurchase Program. Total shares outstanding at
March 31, 1997 were 8,087,597.
In light of the Company's capital strength and earnings performance, the Board
of Directors declared a $0.04 per share dividend on February 18, 1997, to
common shareholders of record March 10, 1997, and payable on March 28, 1997.
Retained earnings was reduced by $298,000 to reflect this cash dividend.
LIQUIDITY. The Bank, as a federal savings bank, is subject to 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 March 31, 1997 and December
31, 1996, the Bank's liquidity ratio, computed in accordance with the OTS
requirement, was 8.35% and 10.91%, respectively. The decline in liquidity
ratio is due to the Bank's implementation of management's strategy to
increase mortgage loans, a long-term income producing asset. Management
anticipates that the Bank will continue to meet OTS liquidity requirements.
Unlike the Bank, Flushing Financial Corporation is not subject to OTS
regulatory requirements on the maintenance of minimum levels of liquid assets.
(continued)
<PAGE> 14
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 in the originations
and purchases of residential, multi-family and commercial real estate mortgage
loans. During the three months ended March 31, 1997, net originations and
repayments of loans totaled $30.8 million, and $9.2 million in residential
mortgage loans were purchased. During periods of low loan demand, the Company
also invests in other securities including mortgage loan surrogates such as
mortgage-backed securities. In the first three months of 1997, the Company
purchased a total of $29.7 million in securities available for sale. Cash
flow used in these investment activities were funded in part from an aggregate
$34.3 million in sales, calls, maturities and prepayments of securities
available for sale.
General funding for Company activities comes from cashflow provided by
operating and financing activities totaling $3.7 million and $35.3 million for
the three months ended March 31, 1997, respectively. For the three months
ended March 31, 1997, the Company borrowed $25.0 million in short-term FHLB
advances. In addition, the Bank's total deposit base increased by $13.5
million from December 31, 1996 to March 31, 1997.
<PAGE> 15
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 Office of Thrift Supervision ("OTS") capital regulations, the Bank is
required to comply with each of three separate capital adequacy standards. At
March 31, 1997, the Bank exceeded each of the three OTS capital requirements.
Set forth below is a summary of the Bank's compliance with OTS capital
standards as of March 31, 1997:
<TABLE>
<CAPTION>
Percent of
Amount Assets
------------ ------------
(Dollar in thousands)
<S> <C> <C>
Tangible capital:
Capital level $94,801 12.22%
Requirement 11,636 1.50
Excess 83,165 10.72
Core capital:
Capital level $94,801 12.22%
Requirement 31,031 4.00
Excess 63,770 8.22
Risk-based capital:
Capital level $99,404 27.06%
Requirement 29,388 8.00
Excess 70,016 19.06
</TABLE>
<PAGE> 16
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AVERAGE BALANCES
- ----------------
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon the relative amount of interest-earning assets
and interest-bearing liabilities and the interest rate earned or paid on
them. The following table sets forth certain information relating to the
Company's consolidated statements of financial condition and consolidated
statements of operations for the three months ended March 31, 1997 and 1996,
and reflects the average yield on assets and average costs of liabilities
for the periods indicated. Such yields and costs are derived by dividing
income or expense by the average balance of assets or liabilities,
respectively, for the periods shown. Average balances are derived from
average daily balances. The yields include amortization of fees which are
considered adjustments to yields.
<TABLE>
<CAPTION>
For the three months ended March 31,
-----------------------------------------------------------
1997 1996
---------------------------- -----------------------------
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 $399,500 $ 8,546 8.56% $286,666 $ 6,477 9.04%
Other loans 1,653 44 10.65 2,261 59 10.44
Mortgage-backed securities 150,078 2,567 6.84 177,802 2,809 6.32
Other securities 180,303 3,105 6.89 206,892 3,382 6.54
Interest-earning deposits 27,483 395 5.75 12,629 174 5.51
--------- -------- ---------- --------- -------- ----------
Total interest-earning assets 759,017 14,657 7.72 686,250 12,901 7.52
-------- ---------- -------- ----------
Non-interest earning assets 31,308 36,855
--------- ---------
Total assets $790,325 $723,105
========= =========
LIABILITIES and NET WORTH
Interest-bearing liabilities:
Deposits:
Regular savings accounts $209,947 1,485 2.83 $215,853 1,535 2.84
NOW accounts 21,457 100 1.86 18,920 89 1.88
Money market accounts 25,744 170 2.64 27,800 194 2.79
Certificates of deposit accounts 323,556 4,481 5.54 288,723 4,157 5.76
Mortgagors escrow deposits 5,242 13 1.00 4,047 16 1.58
Borrowed funds 60,611 771 5.09 10,395 138 5.31
Other interest-bearing liabilities 0 0 0 596 13 8.72
--------- -------- ---------- --------- -------- ----------
Total interest-bearing liabilities 646,557 7,020 4.34 566,334 6,142 4.34
-------- ---------- -------- ----------
Other liabilities 13,353 16,187
--------- ---------
Total liabilities 659,910 582,521
Equity 130,415 140,584
--------- ---------
Total liabilities and equity $790,325 $723,105
========= =========
Net interest income/expense spread $ 7,637 3.38% $ 6,759 3.18%
======== ========== ======== ==========
Net interest-earning assets/
net interest margin $112,460 4.02% $119,916 3.94%
========= ========== ========= ==========
Ratio of interest-earning asset to
interest-bearing liabilities 1.17x 1.21x
========== ==========
</TABLE>
<PAGE> 17
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 three For the
months ended year ended
March 31, 1997 December 31, 1996
------------------ -----------------
(In thousands)
<S> <C> <C>
MORTGAGE LOANS:
At beginning of period $ 388,086 $ 284,443
Mortgage loans originated:
One-to-four family 9,625 51,309
Cooperative 0 76
Multi-family 18,985 43,184
Commercial 10,934 7,501
Construction 605 0
--------- ---------
Total mortgage loans originated 40,149 102,070
Acquired loans 9,154 39,873
Less:
Principal reductions 8,666 37,150
Mortgage loans sold 0 0
Mortgage loan foreclosures 0 1,150
--------- ---------
At end of period $ 428,723 $ 388,086
========= =========
OTHER LOANS:
At beginning of period $ 1,680 $ 2,328
Net activity (115) (648)
--------- ---------
At end of period $ 1,565 $ 1,680
========= =========
</TABLE>
<PAGE> 18
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NON-PERFORMING ASSETS
- ---------------------
The Company reviews the problem loans in its portfolio on a monthly basis to
determine whether any loans require classification in accordance with internal
policies and applicable regulatory guidelines. The following table sets forth
information regarding all non-accrual loans, loans which are 90 days or more
delinquent, and real estate owned ("REO") at the dates indicated.
<TABLE>
<CAPTION>
March 31, December, 31
1997 1996
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual mortgage loans $ 1,859 $ 2,372
Other non-accrual loans 50 36
------- -------
Total non-accrual loans 1,909 2,408
Mortgage loans 90 days or more delinquent and
still accruing 0 0
Other loans 90 days or more delinquent and
still accruing 0 0
------- -------
Total non-performing loans 1,909 2,408
Real estate owned (foreclosed real estate) 280 1,218
------- -------
Total non-performing assets $ 2,189 $ 3,626
======= =======
Non-performing loans to gross loans 0.44% 0.62%
Non-performing assets to total assets 0.27% 0.47%
</TABLE>
<PAGE> 19
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>
March 31, December 31,
1997 1996
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 5,437 $ 5,310
Provision for loan losses 20 418
Loans charged-off:
One-to-four family 0 220
Cooperative 0 162
Multi-family 0 41
Commercial 0 68
Other 10 44
------- -------
Total loans charged-off 10 535
------- -------
Recoveries:
Mortgage loans 56 244
Other 5 0
------- -------
Total recoveries 61 244
------- -------
Other adjustments 0 0
------- -------
Balance at end of period $ 5,508 $ 5,437
======= =======
Ratio of net charge-offs during the year to
average loans outstanding during the period -0.01% 0.09%
Ratio of allowance for loans losses to gross
loans at end of period 1.28% 1.39%
Ratio of allowance for loans losses to
non-performing loans at end of period 288.53% 225.79%
Ratio of allowance for loans losses to
non-performing assets at end of period 251.62% 149.94%
</TABLE>
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is a defendant in various lawsuits. Management of the Company,
after consultation with outside legal counsel, believes that the resolution
of these various matters will not result in any material effect on the
Company's consolidated financial condition and results of operations.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (SECTION 249.308 OF THIS CHAPTER).
a) EXHIBIT
27 Financial data schedules for electronic (EDGAR) filing.
b) REPORTS ON FORM 8-K
None.
<PAGE> 21
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Flushing Financial Corporation
Dated: May 14, 1997 By: /s/ James F. McConnell
---------------- ------------------------------------
James F. McConnell
President and Chief Executive
Officer
Dated: May 14, 1997 By: /s/ Monica C. Passick
---------------- ------------------------------------
Monica C. Passick
Senior Vice President, Treasurer
and
Chief Financial Officer
<PAGE> 22
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at March 31, 1997
(unaudited) and the Condensed Consolidated Statement of Income for the three
months ended March 31, 1997 (unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<PERIOD-TYPE> 3-MOS
<CASH> 9,038
<INT-BEARING-DEPOSITS> 6,700
<FED-FUNDS-SOLD> 22,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 322,666
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 429,015
<ALLOWANCE> 5,508
<TOTAL-ASSETS> 811,189
<DEPOSITS> 597,933
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,342
<LONG-TERM> 76,000
0
0
<COMMON> 89
<OTHER-SE> 129,825
<TOTAL-LIABILITIES-AND-EQUITY> 811,189
<INTEREST-LOAN> 8,590
<INTEREST-INVEST> 5,672
<INTEREST-OTHER> 395
<INTEREST-TOTAL> 14,657
<INTEREST-DEPOSIT> 6,250
<INTEREST-EXPENSE> 771
<INTEREST-INCOME-NET> 7,636
<LOAN-LOSSES> 20
<SECURITIES-GAINS> 52
<EXPENSE-OTHER> 4,554
<INCOME-PRETAX> 3,494
<INCOME-PRE-EXTRAORDINARY> 3,494
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,890
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
<YIELD-ACTUAL> 7.72
<LOANS-NON> 1,909
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,437
<CHARGE-OFFS> 10
<RECOVERIES> 61
<ALLOWANCE-CLOSE> 5,508
<ALLOWANCE-DOMESTIC> 5,508
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,508
<PAGE>
</TABLE>
