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, 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,
FLUSHING, NEW YORK 11354
(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, 1997 were 7,983,423.
<PAGE> 1
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition
as of September 30, 1997 (unaudited) and
December 31, 1996. 2
Consolidated Statements of Operations for the three
months and nine months ended September 30, 1997 and
1996 (unaudited). 3
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1997 and 1996 (unaudited). 4
Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended September 30, 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 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
EXHIBITS 23
<PAGE> 2
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 11,048,485 $ 7,472,155
Federal funds sold and overnight
interest-earning deposits 30,140,917 26,953,000
Securities available for sale:
Mortgage-backed securities 183,442,123 141,038,177
Other securities 131,126,896 190,856,985
Loans:
1-4 Family residential mortgage loans 289,150,352 236,518,280
Multi-family mortgage loans 213,970,709 104,870,271
Commercial real estate loans 70,861,329 46,697,783
Small Business Administration loans 2,003,430 0
Consumer loans 1,683,579 1,679,403
Less: Unearned loan fees (1,724,468) (1,548,287)
Allowance for loan losses (6,467,920) (5,436,832)
-------------- --------------
Net loans 569,477,011 382,780,618
Interest and dividends receivable 6,636,324 6,896,504
Real estate owned, net 332,970 1,218,296
Bank premises and equipment, net 6,298,548 5,796,166
Goodwill 5,457,862 0
Other assets 16,168,378 12,330,603
-------------- --------------
Total assets $ 960,129,514 $ 775,342,504
============== ==============
LIABILITIES
Due to depositors:
Non-interest bearing $ 19,169,077 $ 10,292,645
NOW and money market accounts 40,821,178 46,589,109
Savings accounts 202,343,745 209,689,857
Certificates of deposit 381,104,259 314,482,971
Mortgagors' escrow deposits 7,205,803 3,424,764
Borrowed funds 165,062,594 51,000,000
Other liabilities 8,033,562 6,582,114
-------------- --------------
Total liabilities 823,740,218 642,061,460
-------------- --------------
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;
7,983,423 and 8,250,497 shares outstanding
at September 30, 1997 and December 31, 1996,
respectively) 89,101 89,101
Additional paid-in capital 101,490,501 101,277,592
Treasury stock (926,677 and 659,603 shares
at September 30, 1997 and December 31, 1996,
respectively) (17,008,387) (12,065,068)
Unearned compensation (11,331,391) (11,660,140)
Retained earnings 61,898,907 56,869,884
Net unrealized gain (loss) on securities
available for sale, net of taxes 1,250,565 (1,230,325)
-------------- --------------
Total stockholders' equity 136,389,296 133,281,044
-------------- --------------
Total liabilities and
stockholders' equity $ 960,129,514 $ 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 For the nine months ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 11,151,914 $ 7,549,507 $ 29,500,105 $ 20,955,987
Interest and dividends on securities:
Taxable interest 5,540,792 6,470,660 16,980,303 18,926,438
Tax-exempt interest 7,869 16,368 23,743 48,352
Dividends 56,573 76,249 192,571 272,542
Other interest income 608,836 106,860 1,266,355 430,502
------------- ------------- ------------- -------------
Total interest and dividend income 17,365,984 14,219,644 47,963,077 40,633,821
------------- ------------- ------------- -------------
INTEREST EXPENSE
Deposits 6,723,322 6,038,044 19,267,015 17,957,999
Other interest expense 2,409,164 758,952 4,879,570 1,381,415
------------- ------------- ------------- -------------
Total interest expense 9,132,486 6,796,996 24,146,585 19,339,414
------------- ------------- ------------- -------------
NET INTEREST INCOME 8,233,498 7,422,648 23,816,492 21,294,407
Provision for loan losses 0 20,010 66,792 321,956
------------- ------------- ------------- -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 8,233,498 7,402,638 23,749,700 20,972,451
------------- ------------- ------------- -------------
NON-INTEREST INCOME
Other fee income 215,297 164,295 702,698 586,928
Net (loss)gain on sales of
securities and loans (36,628) (45,402) 12,391 430,935
Other income 595,742 190,011 934,035 578,869
------------- ------------- ------------- -------------
Total non-interest income 774,411 308,904 1,649,124 1,596,732
------------- ------------- ------------- -------------
NON-INTEREST EXPENSE
Salaries and employee benefits 2,626,316 2,206,730 7,399,528 6,352,054
Occupancy and equipment 494,895 524,944 1,433,310 1,551,036
Professional services 388,280 522,066 1,168,868 1,587,395
Federal deposit insurance premiums 21,956 500 58,991 1,500
Data processing 261,695 250,026 724,519 1,131,655
Depreciation and amortization 205,059 253,657 585,231 730,030
Real estate owned, net 49,583 102,251 74,926 232,157
Recovery of provision for deposits
at Nationar 0 0 0 (449,392)
Other operating 965,184 777,109 2,555,101 2,254,868
------------- ------------- ------------- -------------
Total non-interest expense 5,012,968 4,637,283 14,000,474 13,391,303
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 3,994,941 3,074,259 11,398,350 9,177,880
------------- ------------- ------------- -------------
PROVISION FOR INCOME TAXES
Federal 1,096,948 843,608 3,202,291 2,543,975
State and local 705,425 560,780 1,990,479 1,649,924
------------- ------------- ------------- -------------
Total taxes 1,802,373 1,404,388 5,192,770 4,193,899
------------- ------------- ------------- -------------
NET INCOME $ 2,192,568 $ 1,669,871 $ 6,205,580 $ 4,983,981
============= ============= ============= =============
Weighted average number of common
shares outstanding 7,324,998 8,180,777 7,392,849 8,074,946
Primary and fully diluted earnings
per share $0.30 $0.20 $0.84 $0.62
<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,
------------------------------
1997 1996
-------------- --------------
(Unaudited)
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net income $ 6,205,580 $ 4,983,981
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 66,792 321,956
Provision for losses on real estate owned 0 92,217
Recovery of provision for deposits at Nationar 0 (449,392)
Depreciation of bank premises and equipment 585,231 730,030
Amortization of goodwill 30,491 0
Net gain on sales of securities and loans (12,391) (430,935)
Net loss (gain) on sales of real estate owned 9,000 (45,947)
Amortization of unearned premium, net of
accretion of unearned discount 301,648 939,670
Amortization of deferred income (643,291) (640,452)
Deferred income tax provision 979,530 (257,748)
Deferred compensation 127,798 128,401
Changes in operating assets and liabilities, net (2,421,597) 5,836,363
Unearned compensation 541,658 408,087
-------------- --------------
Net cash provided by operating activities 5,770,449 11,616,231
-------------- --------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of bank premises and equipment (1,087,613) (379,377)
Purchases of securities available for sale (114,105,000) (128,096,000)
Proceeds from sales and calls of securities
available for sale 102,268,391 74,078,935
Proceeds from maturities and prepayments of
securities available for sale 31,943,979 45,773,011
Net originations and repayments of loans (80,050,900) (44,722,993)
Purchases of loans (107,518,000) (29,641,000)
Proceeds from sales and operations of
real estate owned 588,400 734,131
Acquisitions, net of cash and cash equivalents (5,152,893) 0
-------------- --------------
Net cash used in investing activities (173,113,636) (82,253,293)
-------------- --------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Net increase(decrease) in non-interest
bearing deposits 8,876,432 (907,841)
Net increase in interest-bearing deposits 53,507,245 13,895,697
Net increase in mortgagors' escrow deposits 3,781,039 2,371,904
Net increase in borrowed funds 114,062,594 51,000,000
Net repurchase of common stock (4,943,319) (6,166,010)
Cash dividends paid (1,176,557) 0
-------------- --------------
Net cash provided by financing activities 174,107,434 60,193,750
-------------- --------------
Net increase (decrease) in cash and
cash equivalents 6,764,247 (10,443,312)
Cash and cash equivalents, beginning of period 34,425,155 19,321,639
-------------- --------------
Cash and cash equivalents, end of period $ 41,189,402 $ 8,878,327
============== ==============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid $ 23,106,711 $ 19,308,116
Income taxes paid 5,056,589 3,753,933
Non-cash activities:
Loans originating as the result of
real estate sales 637,100 252,193
Loans transferred through the foreclosure of
a real estate owned 273,970 1,120,123
Net change in unrealized loss on securities
available for sale 4,597,190 (9,855,367)
Dividends payable 0 318,947
<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 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Nine months ended
September 30, 1997
------------------
(Unaudited)
<S> <C>
COMMON STOCK
($0.01 par value; 20,000,000 shares authorized;
8,910,100 shares issued; 7,983,423 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
Release and allocation of shares from Employee
Benefit Trust 16,830
Stock options exercised (19,706)
Restricted Stock Award of 29,500 shares 100,011
Tax benefit of stock plans 115,774
--------------
Balance at end of period $ 101,490,501
==============
TREASURY STOCK
Balance at beginning of period $ (12,065,068)
Stock Buyback of 288,700 common shares outstanding (5,335,225)
Repurchase of 13,974 shares from Restricted Stock Award (267,560)
Restricted Stock Award forfeitures (22,105)
Restricted Stock Award of 29,500 shares 541,614
Options exercised 139,957
--------------
Balance at end of period $ (17,008,387)
==============
UNEARNED COMPENSATION
Balance at beginning of period $ (11,660,140)
Release of shares from Employee Benefit Trust 103,375
Restricted Stock Award expense 844,894
Restricted Stock Award forfeitures 22,105
Restricted Stock Award of 29,500 shares (641,625)
--------------
Balance at end of period $ (11,331,391)
==============
RETAINED EARNINGS
Balance at beginning of period $ 56,869,884
Net income 6,205,580
Cash dividends (1,176,557)
--------------
Balance at end of period $ 61,898,907
==============
NET UNREALIZED GAIN(LOSS) ON SECURITIES AVAILABLE FOR SALE, NET OF TAXES
Balance at beginning of period $ (1,230,325)
Mark-to-market adjustment 2,480,890
--------------
Balance at end of period $ 1,250,565
==============
<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 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, 1997, the statements of operations for the
three months and nine months ended September 30, 1997 and 1996, the statement
of cash flow for the nine months ended September 30, 1997 and 1996, and the
statement of changes in stockholders' equity for the nine months ended
September 30, 1997. These adjustments consist of items which are of a normal
recurring nature. The results of operations for the nine months ended
September 30, 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 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 September 30, 1997, advances from the Federal Home Loan Bank of New York
("FHLB-NY") totaled $165.1 million, with a composite interest rate of 6.29%
and an average maturity of 1.7 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.
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 September 30, 1997, the
Company had purchased 956,350 shares at a cost of $17.6 million, an average
of $18.36 per share, leaving 169,688 shares to be purchased under the share
repurchase programs. Total shares outstanding at September 30, 1997 were
7,983,423.
<PAGE> 7
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 eight 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.
On September 9, 1997, The Company acquired New York Federal Savings Bank, a
privately held federal savings bank ("New York Federal"), and merged New York
Federal with and into the Bank. New York Federal will continue its operations
as a division of the Bank, under the New York Federal name. The cash
transaction is valued at approximately $13 million and will be accounted for
under the purchase method of accounting.
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> 8
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As part of management's continuing review of the Company's operations,
management has discussed the possibilities of problems relating to the year
2000 with its outside data processing vendors. These vendors are in the
process ofreviewing their systems in regards to this potential problem. The
Company does not maintain a data processing center.
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
SEPTEMBER 30, 1997 AND 1996
GENERAL. Net income for the third quarter of 1997 was $2.2 million, an
increase of $523,000 as compared to the 1996 third quarter net income of $1.7
million. This increase was primarily the result of an $811,000 increase in
net interest income and a $466,000 increase in non-interest income, offset in
part by a $376,000 increase in non-interest expense.
INTEREST INCOME. Total interest and dividend income increased $3.2 million
from $14.2 million for the three months ended September 30, 1996 to $17.4
million for the comparable 1997 period. This increase was primarily the
result of a $160.1 million increase in the average earning balances of
mortgage loans from the quarter ended September 30, 1996 as compared to the
quarter ended September 30, 1997, and a $33.6 million increase in the
average balances of federal funds sold and overnight interest-earning
deposits. These were offset in part by a $60.3 million decline in the
average balances of investment securities available for sale from the third
quarter of 1996 as compared to the third quarter of 1997. This shift in
assets reflects the Company's planned growth in the mortgage loan market.
Interest income also was positively affected during the month of
September 1997 with the acquisition of New York Federal and the incorporation
of $77.1 million of gross loans from New York Federal into the Bank's loan
portfolio.
(continued)
<PAGE> 9
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 $2.3 million from $6.8
million for the three months ended September 30, 1996 as compared to $9.1
million for the three months ended September 30, 1997. This increase is
primarily due to a $99.5 million increase in the average balances of
borrowed funds as the Company increased its utilization of Federal Home Loan
Bank ("FHLB") advances. FHLB advances totaled $165.1 million at September
30, 1997, bearing a composite rate of 6.29%, as compared to $51.0 million at
September 30, 1996 with a composite rate of 5.85%. Interest paid on deposits
also increased $685,000, resulting from an increase of $46.2 million in the
average balance of higher costing certificates of deposit accounts and a
decline of $12.6 million in the average balances of lower costing regular
savings and money market accounts from the quarter ended September 30, 1996
as compared to the quarter ended September 30, 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses 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), its analysis of specific loan situations, and the size and
composition of the loan portfolio. Based on these factors, management
determined that no additional provision for loan losses was required during
the three months ended September 30, 1997. The provision for loan losses for
the three months ended September 30, 1996 was $20,000.
NON-INTEREST INCOME. Total non-interest income increased by $466,000 from
$309,000 for the third quarter of 1996 as compared to $774,000 for the three
months ended September 30, 1997. This increase is primarily attributable to
receipt of $361,000 associated with a construction project that was completed
in prior years and a general increase of $51,000 in other fee income during
the three months ended September 30, 1997, as compared to the third quarter of
1996.
(continued)
<PAGE> 10
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NON-INTEREST EXPENSE. Non-interest expense increased by $376,000 from $4.6
million for the three months ended September 30, 1996 as compared to $5.0
million for the three months ended September 30, 1997. This increase is due
primarily to a $420,000 increase in expenses attributable to salaries and
employee benefits, which reflects salary increases, contributions to profit
sharing plans, the amortization of unearned compensation expense associated
with the Restricted Stock Awards made in December of 1996, and the inclusion
of New York Federal employees that were retained by the Bank after the merger
of New York Federal with and into the Bank. Other operating expenses also
increased as a result of $45,000 in non-recurring provision for contingencies
relating to a prior sale of property and $30,000 in amortization of goodwill.
Contributing to the increase was a general rise in other operating expenses
and federal deposit insurance premiums. These increases were offset in part
by a $134,000 decline in professional services, a $49,000 decline in
depreciation expense resulting from accelerated depreciation of old equipment
in 1996 during our electronic data processor conversion, and a $53,000
decrease in real estate owned expenses.
INCOME BEFORE INCOME TAXES. Total income before provision for income taxes
increased $921,000, or 29.95%, from $3.1 million for the three months ended
September 30, 1996 as compared to $4.0 million for the three months ended
September 30, 1997 for the reasons stated above.
PROVISION FOR INCOME TAXES. The provision for income taxes increased
$398,000 from $1.4 million for the three months ended September 30, 1996 as
compared to $1.8 million for the three months ended September 30, 1997 as a
result of a corresponding increase in income before income taxes.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
GENERAL. Net income for the nine months ended September 30, 1997 was $6.2
million, an increase of $1.2 million as compared to $5.0 million for the nine
months ended September 30, 1996. This increase was primarily the result of a
$2.5 million increase in net interest income, offset in part by an increase of
$609,000 in non-interest expense.
(continued)
<PAGE> 11
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTEREST INCOME. Total interest and dividend income increased $7.3 million
from $40.6 million for the nine months ended September 30, 1996 as compared to
$47.9 million for the nine months ended September 30, 1997. This increase was
primarily the result of a $138.2 million increase in the average earning
balances of mortgage loans from the nine months ended September 30, 1996 as
compared to the nine months ended September 30, 1997, and a $19.2 million
increase in the average balances of federal funds sold and overnight
interest-earning deposits. These were offset in part by a $56.4 million
decline in the average balances of investment securities available for sale
from the nine months ended September 30, 1996 as compared to the comparable
1997 period. This shift in assets reflects the Company's planned growth in
the mortgage loan market. Interest income also was positively affected
during the month of September 1997 with the acquisition of New York Federal
and the incorporation of $77.1 million of gross loans from New York Federal
into the Bank's loan portfolio.
INTEREST EXPENSE. Interest expense increased $4.8 million from $19.3
million for the nine months ended September 30, 1996 as compared to $24.1
million for the nine months ended September 30, 1997. This increase is
primarily due to a $75.9 million increase in the average balances of borrowed
funds as the Company increased its utilization of Federal Home Loan Bank
("FHLB") advances. FHLB advances totaled $165.1 million at September 30,
1997, bearing a composite rate of 6.29%, as compared to $51.0 million at
September 30, 1996 with a composite rate of 5.85%. Interest paid on deposits
also increased $1.3 million, resulting from an increase of $36.4 million in
the average balance of higher costing certificates of deposit accounts and a
decline of $10.8 million in the average balances of lower costing regular
savings and money market accounts from the nine months ended September 30,
1996 as compared to the nine months ended September 30, 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses during the nine
months ended September 30, 1997 was $67,000, compared to $322,000 for the nine
months ended September 30, 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. Non-interest income during the nine months ended
September 30, 1997 increased by $52,000 to $1.6 million as compared to the
comparable 1996 period. This increase is primarily attributable to receipt of
$361,000 associated with a construction project that was completed in prior
years and a general increase of $116,000 in other fee income during the nine
months ended September 30, 1997, as compared to the comparable 1996 period.
This increase is partially offset by a $419,000 decrease in gain on sales of
securities from $431,000 during the nine months ended September 30, 1996 as
compared to $12,000 for the nine months ended September 30, 1997.
(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 EXPENSE. Non-interest expense increased by $609,000 from
$13.4 million for the nine months ended September 30, 1996 as compared to
$14.0 million for the nine months ended September 30, 1997. This increase
is due primarily to a $1.0 million increase in expenses attributable to
salaries and employee benefits, which reflects salary increases,
contributions to profit sharing plans, the amortization of unearned
compensation expense associated with the Restricted Stock Awards made in
December of 1996, and the inclusion of New York Federal employees that were
retained by the Bank after the merger of New York Federal with and into the
Bank. The increase in non-interest expense on a comparative basis from the
1996 period was also attributable to a one-time recovery of provision for
deposits at Nationar of $449,000 during the 1996 period, which reduced 1996
expenses. Contributing to the increase was a general rise in federal deposit
insurance premiums and other operating expenses. Part of the increase in
other operating expenses was a result of $45,000 in non-recurring provision
for contingencies relating to a prior sale of property and $30,000 in
amortization of goodwill. These increases were offset in part by a one time
accrual of expenses in the first half of 1996 for costs associated with
changing the Company's data service providers which resulted in a $145,000
decline in depreciation expense and a $407,000 decline in data processing
expenses. Professional services also declined $419,000 and real estate owned
expenses decreased $157,000 as management continues to monitor its loan
portfolio. This increase in non-interest expense as a result of the
deliberate growth of our institution still resulted in an improvement in our
efficiency ratio from 57.10% for the nine months ended September 30, 1996 to
the present 54.71% for the nine months ended September 30, 1997.
INCOME BEFORE INCOME TAXES. Total income before provision for income taxes
increased $2.2 million, or 24.19%, from $9.2 million for the nine months ended
September 30, 1996 as compared to $11.4 million for the nine months ended
September 30, 1997 for the reasons stated above.
PROVISION FOR INCOME TAXES. The provision for income taxes increased
$999,000 from $4.2 million for the nine months ended September 30, 1996 as
compared to $5.2 million for the nine months ended September 30, 1997 as a
result of a corresponding increase in income before income taxes.
(continued)
<PAGE> 13
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
ASSETS. At September 30, 1997, total assets were $960.1 million, an
increase of $184.8 million, or 23.83%, from the December 31, 1996 balance of
$775.3 million. The growth in assets is primarily due to a 48.21% increase,
or $187.9 million, in gross loans, of which $77.1 million was attributable
to the acquisition of New York Federal Savings in September 1997. This
growth is offset in part by a decline of $17.3 million in securities
available for sale. At September 30, 1997, the Company had $121.8 million in
callable U.S. government securities. There were no collateralized mortgage
obligations ("CMO") at September 30, 1997.
Loan originations and purchases, excluding the New York Federal acquisition,
for the third quarter of 1997 totaled $23.6 million for 1-4 family residential
mortgage loans, $8.0 million for multi-family real estate loans and $3.5
million for commercial real estate loans. For the nine months ended
September 30, 1997, loan originations and purchases, excluding the New York
Federal acquisition, totaled $73.2 million for 1-4 family real estate loans,
$53.6 million for multi-family real estate loans and $15.8 million for
commercial real estate. This compares to the loan originations and purchases
activity for the nine months ended September 30, 1996 of $68.2 million for
1-4 family real estate loans, $31.4 million for multi-family real estate
loans and $2.4 million for commercial real estate loans.
While non-performing assets increased by $114,000 to $3.7 million at September
30, 1997 from $3.6 million at December 31, 1996 as a result of the New York
Federal Savings acquisition, the ratio of total non-performing assets as a
percentage of total assets continued to improve from 0.47% at December 31,
1996 to 0.39% at September 30, 1997. By adherence to strict underwriting
standards and aggressive charge-offs of possible losses from impaired loans,
the Company continues to monitor its loan portfolio quality, as evidenced by
the Company's ratio of allowance for loan losses to non-performing loans
which equaled 189.84% at September 30, 1997.
LIABILITIES. Funding the growth in assets was an increase of $62.3 million
in deposit accounts from $581.1 million at December 31, 1996 to $643.4 million
at September 30, 1997, and increased utilization of Federal Home Loan Bank
(FHLB) advances which totaled $165.1 million at September 30, 1997, bearing a
composite interest rate of 6.29%. The Company's borrowing program with the
FHLB of New York is consistent with our goal to leverage the Company's highly
capitalized position when interest rates on FHLB advances are attractive, to
fund increases in mortgage lending.
(continued)
<PAGE> 14
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EQUITY. Total stockholders' equity increased $3.1 million from $133.3
million at December 31, 1996 to $136.4 million at September 30, 1997. This
increase is due to $6.2 million in net income for the nine months ended
September 30, 1997 and a $2.5 million improvement in the net unrealized gain
(loss) on securities available for sale, net of taxes. 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. These
increases to stockholders' equity are partially offset by $5.6 million in
treasury shares purchased through the Company's stock repurchase plan, as
noted below, and $1.2 million in cash dividends paid during 1997.
As a result of improving earnings and policies beneficial to shareholders,
book value per share continued to improve from $15.73 per share at September
30, 1996 to $17.08 per share at September 30, 1997.
In June and December 1996, the Company had 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 September 30, 1997, the Company had purchased 956,350
shares at a cost of $17.6 million, an average of $18.36 per share, leaving
169,688 shares to be purchased under the Share Repurchase Program. Total
shares outstanding at September 30, 1997 were 7,983,423.
In light of the Company's capital strength and earnings performance, the Board
of Directors declared a $0.04 per share dividend for the first quarter of 1997
and a $0.06 per share dividend for the second and third quarters of 1997.
Retained earnings were reduced by $1.2 million to reflect these cash
dividends.
(continued)
<PAGE> 15
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY. The Bank, as a federal savings bank, is subject to Office of
Thrift Supervision ("OTS") guidelines regarding liquidity requirements.
Pursuant to these requirements, the Bank is required to maintain an average
daily balance of liquid assets (cash, certain time deposits, banker's
acceptances, specific 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, 1997 and December 31,
1996, the Bank's liquidity ratio, computed in accordance with the OTS
requirement was 7.24% 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.
CASHFLOW. The Company's primary business objective is in the originations
and purchases of residential, multi-family and commercial real estate loans.
During the nine months ended September 30, 1997, net originations and
repayments of loans totaled $80.1 million and $107.5 million in real estate
loans were purchased, of which $77.1 million were related to the acquisition
of New York Federal Savings Bank. During periods of low loan demand, the
Company also invests in other securities including mortgage loan surrogates
such as mortgage-backed securities. In the nine months ended September 30,
1997, the Company purchased a total of $114.1 million in securities available
for sale. During the month of September 1997, the Bank also purchased New
York Federal Savings Bank at a net cash outlay of $5.2 million. Cash flow
used in these investment activities were funded in part from an aggregate of
$134.2 million in sales, calls, maturities and prepayments of securities
available for sale, a net increase of $62.4 million in deposits and $114.1
million in additional borrowed funds.
General funding for Company activities comes from cashflow provided by
operating and financing activities totaling $5.8 million and $174.1 million
for the nine months ended September 30, 1997, respectively. For the nine
months ended September 30, 1997, the Company borrowed $88.9 million in
short-term FHLB advances and acquired $25.2 million in FHLB advance funds
from the purchase of New York Federal Savings Bank. In addition, the Bank's
total deposit base increased $62.4 million from December 31, 1996 to
September 30, 1997, which includes $50.9 million in deposits acquired from
New York Federal Savings Bank.
<PAGE> 16
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
September 30, 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 September 30, 1997.
<TABLE>
<CAPTION>
Percent of
Amount Assets
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Tangible Capital:
Capital level $ 93,280 10.17%
Requirement 13,762 1.50
Excess 79,518 8.67
Core Capital:
Capital level $ 93,280 10.17%
Requirement 36,699 4.00
Excess 56,581 6.17
Risk-based Capital:
Capital level $ 99,177 21.05%
Requirement 37,700 8.00
Excess 61,477 13.05
</TABLE>
<PAGE> 17
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, 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 annualized
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,
-----------------------------------------------------------------
1997 1996
-------------------------------- --------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Mortgage loans, net $447,829 $29,366 8.74% $309,675 $20,776 8.95%
Other loans 1,719 134 10.39 2,067 180 11.61
Mortgage-backed securities 173,047 9,057 6.98 165,493 7,995 6.44
Other securities 156,948 8,140 6.92 220,900 11,252 6.79
Interest-earning deposits and
federal funds sold 29,929 1,266 5.64 10,732 431 5.35
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets 809,472 47,963 7.90 708,867 40,634 7.64
---------- ---------- ---------- ----------
Non-interest earning assets 37,482 38,453
---------- ----------
Total assets $846,954 $747,320
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Regular savings accounts $207,612 4,435 2.85 $215,978 4,622 2.85
NOW accounts 22,431 331 1.97 19,228 273 1.89
Money market accounts 24,458 509 2.77 26,917 564 2.79
Certificate of deposit accounts 329,217 13,937 5.64 292,772 12,452 5.67
Mortgagors' escrow deposits 6,009 55 1.22 4,209 47 1.49
Borrowed funds 107,426 4,880 6.06 31,492 1,350 5.72
Other liabilities 0 0 0 498 32 8.57
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing
liabilities 697,153 24,147 4.62 591,094 19,340 4.36
---------- ---------- ---------- ----------
Other liabilities 17,919 17,947
---------- ----------
Total liabilities 715,072 609,041
Stockholders' equity 131,882 138,279
---------- ----------
Total liabilities and equity $846,954 $747,320
========== ==========
Net interest income/expense spread $23,816 3.28% $21,294 3.28%
========== ========== ========== ==========
Net interest-earning assets /
net interest margin $112,319 3.92% $117,773 4.01%
========== ========== ========== ==========
Ratio of interest-earning assets to
interest-bearing liabilities 1.16x 1.20x
========== ==========
</TABLE>
<PAGE> 18
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, 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 40,689 51,309
Cooperative 0 76
Multi-family 53,592 43,184
Commercial 15,788 7,501
Construction 1,435 0
------------------ -----------------
Total mortgage loans originated 111,504 102,070
Acquired loans 32,495 39,873
Real estate loans acquired from
New York Federal Savings Bank:
One-to-four family 901 0
Multi-family 62,405 0
Commercial 11,717 0
------------------ -----------------
Total mortgage loans acquired 107,518 39,873
Less:
Principal reductions 32,825 37,150
Mortgage loans sold 0 0
Mortgage loan foreclosures 301 1,150
------------------ -----------------
At end of period $573,982 $388,086
================== =================
OTHER LOANS
At beginning of period $1,680 $2,328
Acquired New York Federal SBA loans 2,029 0
Net activity (22) (648)
------------------ -----------------
At end of period $3,687 $1,680
================== =================
</TABLE>
<PAGE> 19
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,
1997 1996
------------- ------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual mortgage loans $3,374 $2,372
Other non-accrual loans 33 36
------------- ------------
Total non-accrual loans 3,407 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 3,407 2,408
Real estate owned (foreclosed real estate) 333 1,218
------------- ------------
Total non-performing assets $3,740 $3,626
============= ============
Non-performing loans to gross loans 0.59% 0.62%
Non-performing assets to total assets 0.39% 0.47%
</TABLE>
<PAGE> 20
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 from 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 experience, 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,
1997 1996
------------- ------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $5,437 $5,310
Provision for loan losses 67 418
Provision for loans acquired from
New York Federal Savings Bank 979 0
Loans charged-off:
One-to-four family 19 220
Cooperative 20 162
Multi-family 0 41
Commercial 0 68
Other 38 44
------------- ------------
Total loans charged off 77 535
------------- ------------
Recoveries:
Mortgage loans 57 244
Other 5 0
------------- ------------
Total recoveries 62 244
------------- ------------
Other adjustments 0 0
------------- ------------
Balance at end of period $6,468 $5,437
============= ============
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.00% 0.09%
Ratio of allowance for loan losses to gross
loans at the end of period 1.12% 1.39%
Ratio of allowance for loan losses to
non-performing loans at end of period 189.84% 225.79%
Ratio of allowance for loan losses to
non-performing assets at end of period 172.94% 149.94%
</TABLE>
<PAGE> 21
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
10.1 Employment agreement between Flushing Financial Corporation
and Donald L. Shapiro.
10.2 Employment agreement between Flushing Savings Bank, FSB
and Donald L. Shapiro.
10.3 Indemnity Agreement among Flushing Savings Bank, FSB, Flushing
Financial Corporation and Donald L. Shapiro, dated September
9, 1997, in the form filed as exhibit 10.8(b) to the Company's
SEC Form 10-Q for the quarterly period ended September 30,
1996 (incorporated by reference to Form 10-Q filed on November
14, 1996).
27 Financial data schedules for electronic (EDGAR) filing.
b) REPORTS ON FORM 8-K
On September 24, 1997, the Company filed a report on Form 8-K to
report that it has completed the merger of New York Federal Savings
Bank, a privately held federal savings bank, with Flushing Savings,
effective September 9, 1997.
<PAGE> 22
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, 1997 By: /s/ James F. McConnell
-------------------- --------------------------------
James F. McConnell
President and
Chief Executive Officer
Dated: November 13, 1997 By: /s/ Monica C. Passick
-------------------- --------------------------------
Monica C. Passick
Senior Vice President, Treasurer
and Chief Financial Officer
<PAGE> 23
EXHIBIT INDEX
Exhibit No. Description
- ----------- ------------------------------------------------------------------
10.1 Employment agreement between Flushing Financial Corporation
and Donald L. Shapiro.
10.2 Employment agreement between Flushing Savings Bank, FSB
and Donald L. Shapiro.
27 Financial Data Schedule.
Exhibit 10.1
FLUSHING FINANCIAL CORPORATION
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as
of the 9th day of September, 1997, 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
Donald L. Shapiro, residing at 27 East 65th Street, New York, New York 10021
("Officer").
W I T N E S S E T H:
WHEREAS, the Holding Company considers the availability of the
Officer's services to be important to the successful management and conduct of
the Holding Company's business and desires to secure for itself the
availability of his services; and
WHEREAS, for purposes of securing for the Holding Company the
Officer's services, the Board of Directors of the Holding Company ("Board")
has authorized the proper officers of the Holding Company to enter into an
employment agreement with the Officer on the terms and conditions set forth
herein; and
WHEREAS, the Officer is willing to make his services available to
the Holding Company on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations hereinafter set forth, the Holding Company and the
Officer hereby agree as follows:
Section 1. EMPLOYMENT.
The Holding Company hereby agrees to employ the Officer, and the
Officer hereby agrees to accept such employment, during the period and upon
the terms and conditions set forth in this Agreement.
<PAGE> 2
Section 2. EMPLOYMENT PERIOD.
(a) Except as otherwise provided in this Agreement to the
contrary, the terms and conditions of this Agreement shall be and remain in
effect during the period of employment ("Employment Period") established under
this section 2. The Employment Period shall be for a term commencing on the
Effective Time, as defined in the Agreement and Plan of Merger, dated as of
the 24th day of April, 1997 among the Holding Company, Flushing Savings Bank,
FSB (the "Bank") and New York Federal Savings Bank (the "Effective Time") and
ending on the second anniversary of such date, plus such extensions as are
provided pursuant to section 2(b) of this Agreement.
(b) On or as of July 1, 1998, and on or as of each July 1
thereafter, the Employment Period shall be extended for one additional year if
and only if the Board shall have authorized the extension of the Employment
Period prior to July 1 of such year and the Officer shall not have notified
the Holding Company prior to July 1 of such year that the Employment Period
shall not be so extended. If the Board shall not have authorized the
extension of the Employment Period prior to July 1 of any such year, or if the
Officer shall have given notice of nonextension to the Holding Company prior
to July 1 of such year, then the Employment Period shall not be extended
pursuant to this section 2(b) at any time thereafter and shall end on the last
day of its term as then in effect.
(c) Upon the termination of the Officer's employment with the
Holding Company, the extensions provided pursuant to section 2(b) shall cease
(if such extensions have not previously ceased).
Section 3. TITLE AND DUTIES.
On the date on which the Employment Period commences, the Officer
shall hold the position of Senior Vice President of the Holding Company with
all of the powers and duties incident to such position under law and under the
by-laws of the Holding Company. During the Employment Period, the Officer
shall: (a) devote his full business time and attention (other than during
weekends, holidays, vacation periods and periods of illness or approved leaves
of absence) to the business and affairs of the Holding Company and its
subsidiaries and use his best efforts to advance the interests of the Holding
Company and its subsidiaries, including reasonable periods of service as an
officer and/or board member of trade associations, their related entities and
charitable organizations; and (b) perform such reasonable additional duties as
may be assigned to him by or under the authority of the Board. The Officer
shall also serve as an officer of the Bank pursuant to the Employment
Agreement between the Officer and the Bank dated as of the date hereof ("Bank
Employment Agreement"). The Holding Company hereby acknowledges that the
Officer's service under this Agreement shall not be deemed to materially
interfere with the Officer's performance under the Bank Employment Agreement
or otherwise result in a breach of the Bank Employment Agreement. The Officer
shall have such authority as is necessary or appropriate to carry out his
duties under this Agreement.
<PAGE> 3
Section 4. COMPENSATION.
In consideration for services rendered by the Officer under this
Agreement:
(a) The Holding Company shall pay to the Officer a salary at an
annual rate equal to the greater of (i) $200,000 or (ii) such higher annual
rate as may be prescribed by or under the authority of the Board (the "Current
Salary"). The Officer will undergo an annual salary and performance review on
or about June 30 of each year commencing in 1998. The Current Salary payable
under this section 4 shall be paid in approximately equal installments in
accordance with the Holding Company's customary payroll practices.
(b) The Officer shall be eligible to participate in any bonus
plan maintained by the Holding Company for its officers and employees. If the
Officer shall earn any bonus under any bonus plan of the Bank but such bonus
shall not be paid by the Bank, the Holding Company shall pay such bonus to the
Officer.
Section 5. EMPLOYEE BENEFITS AND OTHER COMPENSATION.
(a) Except as otherwise provided in this Agreement, the Officer
shall, during the Employment Period, be treated as an employee of the Holding
Company and be entitled to participate in and receive benefits under the
Holding Company's employee benefit plans and programs, as well as such other
compensation plans or programs (whether or not employee benefit plans or
programs), as the Holding Company may maintain from time to time, in
accordance with the terms and conditions of such employee benefit plans and
programs and compensation plans and programs and with the Holding Company's
customary practices.
(b) The Holding Company shall provide the Officer with a
suitable automobile for use in the performance of the Officer's duties
hereunder and shall reimburse the Officer for all expenses incurred in
connection therewith.
(c) The Officer shall be entitled, without loss of pay, to
vacation time in accordance with the policies periodically established by the
Board for senior management officials of the Holding Company, which shall in
no event be less than three weeks in each calendar year. Except as provided
in section 7(b), the Officer shall not be entitled to receive any additional
compensation from the Holding Company on account of his failure to take a
vacation, nor shall he be entitled to accumulate unused vacation from one
calendar year to the next except to the extent authorized by the Board for
senior management officials of the Holding Company.
<PAGE> 4
Section 6. WORKING FACILITIES AND EXPENSES.
The Officer's principal place of employment shall be at the offices
of the Holding Company in New York County, New York or at such other location
upon which the Holding Company and the Officer may mutually agree. The
Holding Company shall provide the Officer, at his principal place of
employment, with a private office, stenographic services and other support
services and facilities consistent with his position with the Holding Company
and necessary or appropriate in connection with the performance of his duties
under this Agreement. The Holding Company shall reimburse the Officer for his
ordinary and necessary business expenses, including, without limitation,
travel and entertainment expenses, incurred in connection with the performance
of his duties under this Agreement, upon presentation to the Holding Company
of an itemized account of such expenses in such form as the Holding Company
may reasonably require.
Section 7. TERMINATION WITH HOLDING COMPANY LIABILITY.
(a) In the event that the Officer's employment with the Bank
and/or the Holding Company shall terminate during the Employment Period on
account of:
(i) the Officer's voluntary resignation from employment with the
Bank and the Holding Company within one year following an event that
constitutes "Good Reason," which is defined as:
(A) the failure of the Bank to elect or to reelect the
Officer to serve as its Senior Vice President and President of the
New York Federal Division of the Bank, or such other position as the
Officer consents to hold, or the failure of the Holding Company to
elect or reelect the Officer to serve as its Senior Vice President,
or such other position as the Officer consents to hold;
(B) the failure of the Bank or the Holding Company to cure
a material adverse change made by it in the Officer's functions,
duties, or responsibilities in his position with the Bank or the
Holding Company, respectively, within sixty days following written
notice thereof from the Officer;
(C) the failure of the Bank or the Holding Company to
maintain the Officer's principal place of employment at its offices
in New York County, New York or at such other location upon which
the Bank or the Holding Company and the Officer may mutually agree;
<PAGE> 5
(D) the failure of the Board to extend the Employment
Period within the times provided in section 2(b) or the failure of
the Bank's board of directors to extend the Employment Period under
the Bank Employment Agreement within the times provided in section
2(b) of such Agreement; provided, however, that such failure shall
not constitute Good Reason until the earlier of 30 days after any
determination by the Board or the Bank's board of directors that the
Employment Period shall not be so extended or August 1 of such year;
or
(E) the failure of the Bank or the Holding Company to cure
a material breach of the Bank Employment Agreement or this Agreement
by the Bank or the Holding Company, respectively, within sixty days
following written notice thereof from the Officer;
(ii) the discharge of the Officer by the Bank or the Holding
Company for any reason other than (A) for "Cause" as defined in section
8(b) of this Agreement or (B) the Officer's death or "Disability" as
defined in section 9(a) of this Agreement; or
(iii) the Officer's voluntary resignation from employment with the
Bank and the Holding Company for any reason within the sixty-day period
commencing six months following a Change of Control as defined in section
10;
then the Holding Company shall provide the benefits and pay to the Officer as
liquidated damages the amounts provided for under section 7(b).
(b) Upon the termination of the Officer's employment with the
Bank and/or the Holding Company under circumstances described in section 7(a),
the Holding Company shall pay and provide to the Officer:
(i) his earned but unpaid Current Salary as of the date of
termination, plus an amount representing any accrued but unpaid vacation
time and floating holidays;
(ii) the benefits, if any, to which he is entitled as a
former employee under the Bank's and the Holding Company's employee
benefit plans and programs and compensation plans and programs;
(iii) 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 24 months ("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
<PAGE> 6
(iv) within thirty days following his termination of
employment with the Bank or the Holding Company, a cash lump sum payment
in an amount equal to the Current Salary and bonus that the Officer would
have earned pursuant to sections 4(a) and 4(b), respectively, if he had
continued working for the Holding Company and the Bank for the Severance
Period (basing such bonus on the highest bonus, if any, paid to the
Officer by the Bank or the Holding Company under section 4(b) of the Bank
Employment Agreement or this Agreement within the three-year period prior
to the date of termination).
The lump sum payable pursuant to clause (iv) of this section 7(b) is to be
paid in lieu of all other payments of Current Salary and bonus provided for
under this Agreement relating to the period following any such termination and
shall be payable without proof of damages and without regard to the Officer's
efforts, if any, to mitigate damages. The Holding Company and the Officer
hereby stipulate that the damages which may be incurred by the Officer
following any such termination of employment are not capable of accurate
measurement as of the date first above written and that the payments and
benefits provided under this section 7(b) are reasonable under the
circumstances as a combination of liquidated damages and severance benefits.
Section 8. TERMINATION FOR CAUSE OR VOLUNTARY
RESIGNATION WITHOUT GOOD REASON.
(a) In the event that the Officer's employment with the Holding
Company shall terminate during the Employment Period on account of:
(i) the discharge of the Officer by the Holding Company for
Cause; or
(ii) the Officer's voluntary resignation from employment with the
Holding Company for reasons other than those constituting a Good Reason;
then the Holding Company shall have no further obligations under this
Agreement, other than (A) the payment to the Officer of his earned but unpaid
Current Salary as of the date of the termination of his employment; and (B)
the provision of such other benefits, if any, to which he is entitled as a
former employee under the Bank's and the Holding Company's employee benefit
plans and programs and compensation plans and programs.
(b) For purposes of this Agreement, the term "Cause" means the
Officer's (i) willful failure to perform his duties under this Agreement or
under the Bank Employment Agreement and failure to cure such failure within
sixty days following written notice thereof from the Holding Company or the
Bank, or (ii) intentional engagement in dishonest conduct in connection with
his performance of services for the Holding Company or the Bank or conviction
of a felony.
<PAGE> 7
Section 9. DISABILITY OR DEATH.
(a) The Officer's employment with the Holding Company may be
terminated for "Disability" if the Officer shall become disabled or
incapacitated during the Employment Period to the extent that he has been
unable to perform the essential functions of his employment for 270
consecutive days, subject to the Officer's right to receive from the Holding
Company following his termination due to Disability the following percentages
of his Current Salary under section 4 of this Agreement: 100% for the first
six months, 75% for the next six months and 60% thereafter for the remaining
term of the Employment Period (less in each case any benefits which may be
payable to the Officer under the provisions of disability insurance coverage
in effect for Bank and/or Holding Company employees).
(b) In the event that the Officer's employment with the Holding
Company shall terminate during the Employment Period on account of death, the
Holding Company shall promptly pay the Officer's designated beneficiaries or,
failing any designation, his estate a cash lump sum payment equal to his
earned but unpaid Current Salary.
Section 10. CHANGE OF CONTROL.
For purposes of this Agreement, the term "Change of Control" means:
(a) the acquisition of all or substantially all of the assets of
the Bank or the Holding Company by any person or entity, or by any persons or
entities acting in concert;
(b) the occurrence of any event if, immediately following such
event, a majority of the members of the Board of Directors of the Bank or the
Holding Company or of any successor corporation shall consist of persons other
than Current Members (for these purposes, a "Current Member" shall mean any
member of the Board of Directors of the Bank or the Holding Company as of the
Effective Time and any successor of a Current Member whose nomination or
election has been approved by a majority of the Current Members then on the
Board of Directors);
(c) the acquisition of beneficial ownership, directly or
indirectly (as provided in Rule 13d-3 of the Securities Exchange Act of 1934
(the "Act"), or any successor rule), of 25% or more of the total combined
voting power of all classes of stock of the Bank or the Holding Company by any
person or group deemed a person under Section 13(d)(3) of the Act; or
(d) approval by the stockholders of the Bank or the Holding
Company of an agreement providing for the merger or consolidation of the Bank
or the Holding Company with another corporation where the stockholders of the
Bank or the Holding Company, immediately prior to the merger or consolidation,
would not beneficially own, directly or indirectly, immediately after the
merger or consolidation, shares entitling such stockholders to 50% or more of
the total combined voting power of all classes of stock of the surviving
corporation.
<PAGE> 8
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) such
that the net amount retained by the Officer, after reduction for any 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.
<PAGE> 9
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's
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
<PAGE> 10
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.
Section 12. NO EFFECT ON EMPLOYEE BENEFIT
PLANS OR COMPENSATION PROGRAMS
Except as expressly provided in this Agreement, the termination of
the Officer's employment during the term of this Agreement or thereafter,
whether by the Holding Company or by the Officer, shall have no effect on the
rights and obligations of the parties hereto under the Holding Company's
employee benefit plans or programs or compensation plans or programs (whether
or not employee benefit plans or programs) that the Holding Company may
maintain from time to time.
Section 13. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Officer, his legal representatives and estate or intestate distributees, and
the Holding Company and its successors and assigns, including any successor by
merger or consolidation or a statutory receiver or any other person or firm or
corporation to which all or substantially all of the assets and business of
the Holding Company may be sold or otherwise transferred.
Section 14. NOTICES.
Any communication to a party required or permitted under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been
given at such time as it is delivered personally, or five days after mailing
if mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such
<PAGE> 11
other address as one such party may by written notice specify to the other
party:
If to the Officer:
Donald L. Shapiro
27 East 65th Street
New York, New York 10021
If to the Holding Company:
Flushing Financial Corporation
144-51 Northern Boulevard
Flushing, New York 11354
Attention: Secretary
Section 15. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
Section 16. WAIVER.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be
made in writing, designated as a waiver, and signed by the party against whom
its enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
Section 17. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and
the same Agreement.
Section 18. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without reference to
conflicts of law principles.
Section 19. HEADINGS.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
<PAGE>
<PAGE> 12
Section 20. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the
subject matter hereof, other than the Bank Employment Agreement. No
modifications of this Agreement shall be valid unless made in writing and
signed by the parties hereto.
Section 21. FUNDING.
The Holding Company may elect in its sole discretion to fund all or
part of its obligations to the Officer under this Agreement; provided,
however, that should it elect to do so, all assets acquired by the Holding
Company to fund its obligations shall be part of the general assets of the
Holding Company and shall be subject to all claims of the Holding Company's
creditors.
Section 22. GUARANTEE.
The Holding Company guarantees the payment by the Bank of any and
all benefits and compensation to which the Officer is entitled under the Bank
Employment Agreement.
Section 23. NON-DUPLICATION.
In the event that the Officer shall perform services for the Bank or
any other direct or indirect subsidiary of the Holding Company, any
compensation or benefits provided to the Officer by such other employer shall
be applied to offset the obligations of the Holding Company hereunder, it
being intended that this Agreement set forth the aggregate compensation and
benefits payable to the Officer for all services to the Holding Company and
all of its direct or indirect subsidiaries. The Officer hereby acknowledges
that if any payment made or benefit provided by the Holding Company under this
Agreement is also required to be made or provided by the Bank under the Bank
Employment Agreement, such payment or benefit by the Holding Company under
this Agreement shall offset the payment required to be made or benefit
required to be provided by the Bank under the Bank Employment Agreement.
Section 24. REQUIRED REGULATORY PROVISIONS.
Notwithstanding any other provision of this Agreement to the
contrary, any payments made to the Officer pursuant to this Agreement or
otherwise are subject to and conditioned upon their compliance with 12 U.S.C.
section 1828(k) and any regulations promulgated thereunder.
<PAGE> 13
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
day and year first above written.
FLUSHING FINANCIAL CORPORATION
By: /s/ James F. McConnell
---------------------------
Name: James F. McConnell
Title: President and C.E.O.
By: /s/ Donald L. Shapiro
---------------------------
Name: Donald L. Shapiro
Exhibit 10.2
FLUSHING SAVINGS BANK, FSB
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as
of the 9th day of September, 1997, by and between Flushing Savings Bank, FSB,
a savings bank organized and existing under Federal law and having its
executive offices at 144-51 Northern Boulevard, Flushing, New York 11354 (the
"Bank"), and Donald L. Shapiro, residing at 27 East 65th Street, New York, New
York 10021 ("Officer").
W I T N E S S E T H:
WHEREAS, the Bank considers the availability of the Officer's
services to be important to the successful management and conduct of the
Bank's business and desires to secure for itself the availability of his
services; and
WHEREAS, for purposes of securing for the Bank the Officer's
services, the Board of Directors of the Bank ("Board") has authorized the
proper officers of the Bank to enter into an employment agreement with the
Officer on the terms and conditions set forth herein; and
WHEREAS, the Officer is willing to make his services available to
the Bank on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations hereinafter set forth, the Bank and the Officer
hereby agree as follows:
Section 1. EMPLOYMENT.
The Bank hereby agrees to employ the Officer, and the Officer hereby
agrees to accept such employment, during the period and upon the terms and
conditions set forth in this Agreement.
Section 2. EMPLOYMENT PERIOD.
(a) Except as otherwise provided in this Agreement to the
contrary, the terms and conditions of this Agreement shall be and remain in
effect during the period of employment ("Employment Period") established under
this section 2. The Employment Period shall be for a term commencing on the
Effective Time, as defined in the Agreement and Plan of Merger, dated as of
the 24th day of April, 1997 among the Bank, Flushing Financial Corporation and
New York Federal Savings Bank (the "Effective Time") and ending on the second
anniversary of such date, plus such extensions as are provided pursuant to
section 2(b) of this Agreement.
<PAGE> 2
(b) On or as of July 1, 1998, and on or as of each July 1
thereafter, the Employment Period shall be extended for one additional year if
and only if the Board shall have authorized the extension of the Employment
Period prior to July 1 of such year and the Officer shall not have notified
the Bank prior to July 1 of such year that the Employment Period shall not be
so extended. If the Board shall not have authorized the extension of the
Employment Period prior to July 1 of any such year, or if the Officer shall
have given notice of nonextension to the Bank prior to July 1 of such year,
then the Employment Period shall not be extended pursuant to this section 2(b)
at any time thereafter and shall end on the last day of its term as then in
effect.
(c) Upon the termination of the Officer's employment with the
Bank, the extensions provided pursuant to section 2(b) shall cease (if such
extensions have not previously ceased).
Section 3. TITLE AND DUTIES.
On the date on which the Employment Period commences, the Officer
shall hold the position of Senior Vice President of the Bank and President of
the New York Federal Division of the Bank (the "Division"). During the
Employment Period, the Officer shall: (a) devote his full business time and
attention (other than during weekends, holidays, vacation periods and periods
of illness or approved leaves of absence) to the business and affairs of the
Bank and use his best efforts to advance the Bank's interests, including
reasonable periods of service as an officer and/or board member of trade
associations, their related entities and charitable organizations; and
(b) perform such reasonable additional duties as may be assigned to him by or
under the authority of the Board. The Officer shall have such authority as is
necessary or appropriate to carry out his duties under this Agreement.
Section 4. COMPENSATION.
In consideration for services rendered by the Officer under this
Agreement:
(a) The Bank shall pay to the Officer a salary at an annual rate
equal to the greater of (i) $200,000 or (ii) such higher annual rate as may be
prescribed by or under the authority of the Board (the "Current Salary"). The
Officer will undergo an annual salary and performance review on or about
June 30 of each year commencing in 1998. The Current Salary payable under
this section 4 shall be paid in approximately equal installments in accordance
with the Bank's customary payroll practices.
(b) The Officer shall be eligible to participate in any bonus
plan maintained by the Bank for its officers and employees.
<PAGE> 3
Section 5. EMPLOYEE BENEFITS AND OTHER COMPENSATION.
(a) Except as otherwise provided in this Agreement, the Officer
shall, during the Employment Period, be treated as an employee of the Bank and
be entitled to participate in and receive benefits under the Bank's employee
benefit plans and programs, as well as such other compensation plans or
programs (whether or not employee benefit plans or programs), as the Bank may
maintain from time to time, in accordance with the terms and conditions of
such employee benefit plans and programs and compensation plans and programs
and with the Bank's customary practices.
(b) The Bank shall provide the Officer with a suitable
automobile for use in the performance of the Officer's duties hereunder and
shall reimburse the Officer for all expenses incurred in connection therewith.
(c) The Officer shall be entitled, without loss of pay, to
vacation time in accordance with the policies periodically established by the
Board for senior management officials of the Bank, which shall in no event be
less than three weeks in each calendar year. Except as provided in section
7(b), the Officer shall not be entitled to receive any additional compensation
from the Bank on account of his failure to take a vacation, nor shall he be
entitled to accumulate unused vacation from one calendar year to the next
except to the extent authorized by the Board for senior management officials
of the Bank.
Section 6. WORKING FACILITIES AND EXPENSES.
The Officer's principal place of employment shall be at the offices
of the Bank in New York County, New York or at such other location upon which
the Bank and the Officer may mutually agree. The Bank shall provide the
Officer, at his principal place of employment, with a private office,
stenographic services and other support services and facilities consistent
with his position with the Bank and necessary or appropriate in connection
with the performance of his duties under this Agreement. The Bank shall
reimburse the Officer for his ordinary and necessary business expenses,
including, without limitation, travel and entertainment expenses, incurred in
connection with the performance of his duties under this Agreement, upon
presentation to the Bank of an itemized account of such expenses in such form
as the Bank may reasonably require.
Section 7. TERMINATION WITH BANK LIABILITY.
(a) In the event that the Officer's employment with the Bank
shall terminate during the Employment Period on account of:
(i) the Officer's voluntary resignation from employment
with the Bank within one year following an event that constitutes "Good
Reason," which is defined as:
<PAGE> 4
(A) the failure of the Bank to elect or to reelect the
Officer to serve as its Senior Vice President and President of the
Division or such other position as the Officer consents to hold;
(B) the failure of the Bank to cure a material adverse
change made by the Bank in the Officer's functions, duties, or
responsibilities in his position with the Bank within sixty days
following written notice thereof from the Officer;
(C) the failure of the Bank to maintain the Officer's
principal place of employment at its offices in New York County, New
York or at such other location upon which the Bank and the Officer
may mutually agree;
(D) the failure of the Board to extend the Employment
Period within the times provided in section 2(b); provided, however,
that such failure shall not constitute Good Reason until the earlier
of 30 days after any determination by the Board that the Employment
Period shall not be so extended or August 1 of such year; or
(E) the failure of the Bank to cure a material breach of
this Agreement by the Bank within sixty days following written
notice thereof from the Officer;
(ii) the discharge of the Officer by the Bank for any reason
other than (A) for "Cause" as defined in section 8(b) or (B) the
Officer's death or "Disability" as defined in section 9(a); or
(iii) the Officer's voluntary resignation from employment
with the Bank for any reason within the sixty-day period commencing six
months following a Change of Control as defined in section 10;
then the Bank shall provide the benefits and pay to the Officer as liquidated
damages the amounts provided for under section 7(b).
(b) Upon the termination of the Officer's employment with the
Bank under circumstances described in section 7(a), the Bank shall pay and
provide to the Officer:
(i) his earned but unpaid Current Salary as of the date of
termination, plus an amount representing any accrued but unpaid vacation time
and floating holidays;
(ii) the benefits, if any, to which he is entitled as a
former employee under the Bank's employee benefit plans and programs and
compensation plans and programs;
<PAGE> 5
(iii) 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 24 months ("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 during the Severance Period
at the highest annual rate of Current Salary achieved during the Employment
Period; and
(iv) within thirty days following his termination of
employment with the Bank, a cash lump sum payment in an amount equal to the
Current Salary and bonus that the Officer would have earned pursuant to
sections 4(a) and 4(b), respectively, if he had continued working for the Bank
for the Severance Period (basing such bonus on the highest bonus, if any, paid
to the Officer by the Bank under section 4(b) within the three-year period
prior to the date of termination), PROVIDED, HOWEVER, that the lump sum
payable pursuant to this clause (iv) of this section 7(b) shall not exceed
three times the Officer's average annual compensation based on the most recent
five taxable years (or such lesser number of taxable years the Officer was
employed by the Bank).
The lump sum payable pursuant to clause (iv) of this section 7(b) is to be
paid in lieu of all other payments of Current Salary and bonus provided for
under this Agreement relating to the period following any such termination and
shall be payable without proof of damages and without regard to the Officer's
efforts, if any, to mitigate damages. The Bank and the Officer hereby
stipulate that the damages which may be incurred by the Officer following any
such termination of employment are not capable of accurate measurement as of
the date first above written and that the payments and benefits provided under
this section 7(b) are reasonable under the circumstances as a combination of
liquidated damages and severance benefits.
Section 8. TERMINATION FOR CAUSE OR VOLUNTARY
RESIGNATION WITHOUT GOOD REASON.
(a) In the event that the Officer's employment with the Bank
shall terminate during the Employment Period on account of:
(i) the discharge of the Officer by the Bank for Cause; or
(ii) the Officer's voluntary resignation from employment
with the Bank for reasons other than those constituting a Good Reason;
then the Bank shall have no further obligations under this Agreement, other
than (A) the payment to the Officer of his earned but unpaid Current Salary as
of the date of the termination of his employment; and (B) the provision of
such other benefits, if any, to which he is entitled as a former employee
under the Bank's employee benefit plans and programs and compensation plans
and programs.
<PAGE> 6
(b) For purposes of this Agreement, the term "Cause" means the
Officer's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform
stated duties, willful violation of any law, rule, or regulation (other than
traffic violations or similar offenses) or final cease-and-desist order, or
material breach of any provision of this Agreement.
Section 9. DISABILITY OR DEATH.
(a) The Officer's employment with the Bank may be terminated for
"Disability" if the Officer shall become disabled or incapacitated during the
Employment Period to the extent that he has been unable to perform the
essential functions of his employment for 270 consecutive days, subject to the
Officer's right to receive from the Bank following his termination due to
Disability the following percentages of his Current Salary under section 4 of
this Agreement: 100% for the first six months, 75% for the next six months
and 60% thereafter for the remaining term of the Employment Period (less in
each case any benefits which may be payable to the Officer under the
provisions of disability insurance coverage in effect for Bank employees).
(b) In the event that the Officer's employment with the Bank
shall terminate during the Employment Period on account of death, the Bank
shall promptly pay the Officer's designated beneficiaries or, failing any
designation, his estate a cash lump sum payment equal to his earned but unpaid
Current Salary.
Section 10. CHANGE OF CONTROL.
For purposes of this Agreement, the term "Change of Control" means:
(a) the acquisition of all or substantially all of the assets of
the Bank or Flushing Financial Corporation ("Holding Company") by any person
or entity, or by any persons or entities acting in concert;
(b) the occurrence of any event if, immediately following such
event, a majority of the members of the Board of Directors of the Bank or the
Holding Company or of any successor corporation shall consist of persons other
than Current Members (for these purposes, a "Current Member" shall mean any
member of the Board of Directors of the Bank or the Holding Company as of the
Effective Time and any successor of a Current Member whose nomination or
election has been approved by a majority of the Current Members then on the
Board of Directors);
(c) the acquisition of beneficial ownership, directly or
indirectly (as provided in Rule 13d-3 of the Securities Exchange Act of 1934
(the "Act"), or any successor rule), of 25% or more of the total combined
voting power of all classes of stock of the Bank or the Holding Company by any
person or group deemed a person under Section 13(d)(3) of the Act; or
<PAGE> 7
(d) approval by the stockholders of the Bank or the Holding
Company of an agreement providing for the merger or consolidation of the Bank
or the Holding Company with another corporation where the stockholders of the
Bank or the Holding Company, immediately prior to the merger or consolidation,
would not beneficially own, directly or indirectly, immediately after the
merger or consolidation, shares entitling such stockholders to 50% or more of
the total combined voting power of all classes of stock of the surviving
corporation.
Section 11. NO EFFECT ON EMPLOYEE BENEFIT
PLANS OR COMPENSATION PROGRAMS
Except as expressly provided in this Agreement, the termination of
the Officer's employment during the term of this Agreement or thereafter,
whether by the Bank or by the Officer, shall have no effect on the rights and
obligations of the parties hereto under the Bank's employee benefit plans or
programs or compensation plans or programs (whether or not employee benefit
plans or programs) that the Bank may maintain from time to time.
Section 12. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Officer, his legal representatives and estate or intestate distributees, and
the Bank and its successors and assigns, including any successor by merger or
consolidation or a statutory receiver or any other person or firm or
corporation to which all or substantially all of the assets and business of
the Bank may be sold or otherwise transferred.
Section 13. NOTICES.
Any communication to a party required or permitted under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been
given at such time as it is delivered personally, or five days after mailing
if mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such
other address as one such party may by written notice specify to the other
party:
If to the Officer:
Donald L. Shapiro
27 East 65th Street
New York, New York 10021
If to the Bank:
Flushing Savings Bank, FSB
144-51 Northern Boulevard
Flushing, New York 11354
Attention: Secretary of the Bank
<PAGE> 8
Section 14. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
Section 15. WAIVER.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be
made in writing, designated as a waiver, and signed by the party against whom
its enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
Section 16. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and
the same Agreement.
Section 17. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with (i) the laws of the State of New York, without reference to
conflicts of law principles, and (ii) Federal law, to the extent such law
preempts New York law.
Section 18. HEADINGS.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
Section 19. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the
subject matter hereof. No modifications of this Agreement shall be valid
unless made in writing and signed by the parties hereto.
Section 20. FUNDING.
The Bank may elect in its sole discretion to fund all or part of its
obligations to the Officer under this Agreement; provided, however, that
should it elect to do so, all assets acquired by the Bank to fund its
obligations shall be part of the general assets of the Bank and shall be
subject to all claims of the Bank's creditors.
<PAGE> 9
Section 21. REGULATORY ACTION
(a) Notwithstanding any other provision of this Agreement to the
contrary, this Section 21 shall apply at all times during the Employment
Period.
(b) If the Officer is suspended and/or temporarily prohibited
from participating in the conduct of the affairs of the Bank by a notice
served under 12 U.S.C. 1818(e)(3) and (g)(1), the Bank's obligations to the
Officer under this Agreement shall be suspended as of the date of such service
unless such service is stayed by appropriate proceedings. If the charges in
such notice are dismissed, the Bank shall (i) pay the Officer all of the
compensation withheld while the Bank's obligations under this Agreement were
so suspended, and (ii) reinstate in whole any of its obligations to the
Officer which were suspended.
(c) If the Officer is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under 12
U.S.C. 1818(e)(4) or (g)(1), all obligations of the Bank to the Officer under
this Agreement shall terminate as of the effective date of the order, other
than vested rights of the parties accrued as of such effective date, which
shall not be affected.
(d) If the Bank is in default (as defined in section 3(x)(1) of
the Federal Deposit Insurance Act), all obligations of the Bank under this
Agreement shall terminate as of the date of such default, but this Section
21(d) shall not affect any vested rights of the Officer accrued as of such
date of default.
(e) All obligations of the Bank under this Agreement shall be
terminated, except to the extent it is determined that continuation of the
Agreement is necessary to the continued operation of the Bank, (i) by the
Regional Director of the Office of Thrift Supervision or his or her designee
("Director") at the time the Federal Deposit Insurance Corporation or
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13 of the
Federal Deposit Insurance Act; or (ii) by the Director at the time the
Director approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition; provided, however, that this Section 21(e)
shall not affect any vested rights of the Officer accrued as of such date of
termination.
(f) Any payments made to the Officer pursuant to this Agreement
or otherwise are subject to and conditioned upon their compliance with 12
U.S.C. section 1828(k) and any regulations promulgated thereunder.
<PAGE> 10
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
day and year first above written.
FLUSHING SAVINGS BANK, FSB
By: /s/ James F. McConnell
---------------------------
Name: James F. McConnell
Title: President and C.E.O.
By: /s/ Donald L. Shapiro
---------------------------
Name: Donald L. Shapiro
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at September 30, 1997
(unaudited) and the Condensed Consolidated Statement of Income for the nine
months ended September 30, 1997 (unaudited) and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,368
<INT-BEARING-DEPOSITS> 2,680
<FED-FUNDS-SOLD> 30,141
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 314,569
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 575,945
<ALLOWANCE> 6,468
<TOTAL-ASSETS> 960,130
<DEPOSITS> 650,644
<SHORT-TERM> 0
<LIABILITIES-OTHER> 8,034
<LONG-TERM> 165,063
<COMMON> 89
0
0
<OTHER-SE> 136,300
<TOTAL-LIABILITIES-AND-EQUITY> 960,130
<INTEREST-LOAN> 29,500
<INTEREST-INVEST> 17,197
<INTEREST-OTHER> 1,266
<INTEREST-TOTAL> 47,963
<INTEREST-DEPOSIT> 19,267
<INTEREST-EXPENSE> 4,880
<INTEREST-INCOME-NET> 23,816
<LOAN-LOSSES> 67
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 12,363
<INCOME-PRETAX> 11,398
<INCOME-PRE-EXTRAORDINARY> 11,398
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,206
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.84
<YIELD-ACTUAL> 7.90
<LOANS-NON> 3,407
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,437
<CHARGE-OFFS> 77
<RECOVERIES> 62
<ALLOWANCE-CLOSE> 6,468
<ALLOWANCE-DOMESTIC> 6,468
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,468
</TABLE>
