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 June 30, 1998
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)
(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
$0.01 par value.
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
The number of shares of the registrant's Common Stock outstanding as of July 31,
1998 was 7,810,904 shares.
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TABLE OF CONTENTS
Page
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PART I
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements Of Financial Condition....................................................................1
Consolidated Statements Of Operations And Comprehensive Income....................................................2
Consolidated Statements Of Cash Flows.............................................................................3
Consolidated Statements Of Changes In Stockholders' Equity........................................................4
Notes To Consolidated Statements..................................................................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ...........................................................................7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................................................................20
ITEM 2. CHANGES IN SECURITIES...................................................................................20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.........................................................................20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................20
ITEM 5. OTHER INFORMATION.......................................................................................21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................................21
SIGNATURES.......................................................................................................22
EXHIBITS.........................................................................................................23
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION.
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------------- -------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 9,833,258 $ 8,257,791
Federal funds sold and overnight interest-earning deposits 13,800,000 82,094,629
Securities available for sale:
Mortgage-backed securities 329,003,832 217,110,108
Other securities 37,568,751 139,602,095
Loans:
1-4 Family residential mortgage loans 335,914,557 301,351,063
Multi-family mortgage loans 251,800,806 230,229,036
Commercial real estate loans 75,245,379 68,181,602
Construction loans 2,361,906 2,797,256
Small Business Administration loans 1,946,566 2,789,036
Consumer loans 730,067 1,385,574
Less: Unearned loan fees (1,301,522) (1,838,229)
Allowance for loan losses (6,668,219) (6,474,027)
-------------------- -------------------
Net loans 660,029,540 598,421,311
Interest and dividends receivable 8,615,293 9,281,705
Real estate owned, net 244,785 432,986
Bank premises and equipment, net 6,598,427 6,492,937
Federal Home Loan Bank of New York stock 14,355,750 14,355,750
Goodwill 5,186,834 5,369,899
Other assets 6,671,194 7,056,825
-------------------- -------------------
Total assets $ 1,091,907,664 $ 1,088,476,036
==================== ===================
LIABILITIES
Due to depositors:
Non-interest bearing $ 37,045,287 $ 22,089,514
Interest bearing 631,542,043 631,747,441
Mortgagors' escrow deposits 3,558,597 2,074,434
Borrowed funds 271,465,534 287,187,199
Other liabilities 8,493,870 8,934,348
-------------------- -------------------
Total liabilities 952,105,331 952,032,936
-------------------- -------------------
STOCKHOLDERS' EQUITY
Preferred stock ($0.01 par value; 5,000,000 shares authorized) -- --
Common stock ($0.01 par value; 20,000,000 shares authorized;
8,910,100 shares issued; 7,810,404 and 7,864,620 shares outstanding
at June 30, 1998 and December 31, 1997, respectively) 89,101 89,101
Additional paid-in capital 101,942,647 101,697,157
Treasury stock (1,099,696 and 1,045,480 shares at
June 30, 1998 and December 31, 1997 respectively) (21,154,054) (19,666,287)
Unearned compensation - Employee Benefit Plan (7,102,158) (7,202,703)
Unearned compensation - Restricted Stock Awards (2,932,604) (3,718,355)
Retained earnings 67,603,682 63,785,160
Accumulated Other Comprehensive Income:
Net unrealized gain on securities available for sale, net of taxes 1,355,719 1,459,027
-------------------- -------------------
Total stockholders' equity 139,802,333 136,443,100
-------------------- -------------------
Total liabilities and stockholders' equity $ 1,091,907,664 $ 1,088,476,036
==================== ===================
<FN>
The accompanying notes are an integral part of these consolidated financial statements
</FN>
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME.
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
Ended June 30, Ended June 30,
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 13,934,659 $ 9,758,184 $ 27,378,044 $ 18,348,191
Interest and dividends on securities:
Taxable interest 6,139,256 5,848,178 12,310,461 11,439,511
Tax-exempt interest 7,165 7,944 14,899 15,874
Dividends 58,172 63,068 109,432 135,998
Other interest income 392,255 262,237 1,215,503 657,519
-------------- -------------- -------------- --------------
Total interest and dividend income 20,531,507 15,939,611 41,028,339 30,597,093
-------------- -------------- -------------- --------------
INTEREST EXPENSE
Deposits 7,115,416 6,294,238 14,221,807 12,543,693
Other interest expense 4,186,741 1,699,305 8,508,716 2,470,406
-------------- -------------- -------------- --------------
Total interest expense 11,302,157 7,993,543 22,730,523 15,014,099
-------------- -------------- -------------- --------------
NET INTEREST INCOME 9,229,350 7,946,068 18,297,816 15,582,994
Provision for loan losses 42,089 46,620 158,283 66,792
-------------- -------------- -------------- --------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,187,261 7,899,448 18,139,533 15,516,202
-------------- -------------- -------------- --------------
NON-INTEREST INCOME
Other fee income 337,477 211,429 673,525 487,401
Net gain on sales of securities and loans 74,025 (3,180) 150,235 49,019
Other income 359,324 235,838 706,677 338,293
-------------- -------------- -------------- --------------
Total non-interest income 770,826 444,087 1,530,435 874,713
-------------- -------------- -------------- --------------
NON-INTEREST EXPENSE
Salaries and employee benefits 3,164,200 2,353,596 6,640,134 4,773,212
Occupancy and equipment 464,266 481,366 949,356 938,415
Professional services 471,385 379,790 897,328 780,588
Federal deposit insurance premiums 25,924 18,946 51,935 37,035
Data processing 277,837 184,401 555,360 462,824
Depreciation and amortization 242,883 186,255 476,243 380,172
Real estate owned expenses 3,828 (9,901) 78,753 25,343
Other operating expenses 1,009,658 839,223 1,946,984 1,589,917
-------------- -------------- -------------- --------------
Total non-interest expense 5,659,981 4,433,676 11,596,093 8,987,506
-------------- -------------- -------------- --------------
INCOME BEFORE INCOME TAXES 4,298,106 3,909,859 8,073,875 7,403,409
-------------- -------------- -------------- --------------
PROVISION FOR INCOME TAXES
Federal 1,364,442 1,103,598 2,727,295 2,105,343
State and local 190,926 682,788 379,169 1,285,054
-------------- -------------- -------------- --------------
Total taxes 1,555,368 1,786,386 3,106,464 3,390,397
-------------- -------------- -------------- --------------
NET INCOME $ 2,742,738 $ 2,123,473 $ 4,967,411 $ 4,013,012
============== ============== ============== ==============
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gains(loss) on securities:
Unrealized holding losses arising during
period 194,953 3,208,912 (143,387) 708,444
Less: reclassification adjustment for
gains (loss) included in net income 7,326 (1,978) 40,079 26,470
-------------- -------------- -------------- --------------
Net unrealized holding losses 202,279 3,206,934 (103,308) 734,914
-------------- -------------- -------------- --------------
COMPREHENSIVE INCOME $ 2,945,017 $ 5,330,407 $ 4,864,103 $ 4,747,926
============== ============== ============== ==============
Weighted average shares outstanding 6,956,948 7,124,985 6,951,702 7,148,876
Weighted average shares outstanding and 7,150,004 7,203,347 7,125,515 7,219,733
common shares equivalent
$0.39 $0.30 $0.71 $0.56
Basic earnings per share
Diluted earnings per share $0.38 $0.29 $0.70 $0.56
<FN>
The accompanying notes are an integral part of these consolidated financial statements
</FN>
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS.
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
--------------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 4,967,411 $ 4,013,012
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 158,283 66,792
Provision for losses on real estate owned 33,243 0
Depreciation of bank premises and equipment 476,243 380,172
Amortization of Goodwill 183,065 0
Net gain on sales of securities & loans (150,235) (49,019)
Net loss (gain) on sale of real estate owned 5,574 (299)
Amortization of unearned premium, net of
accretion of unearned discount 798,374 274,206
Amortization of deferred income (333,435) (275,302)
Deferred income tax (benefit) provision (265,093) 332,736
Deferred compensation 118,177 78,356
Proceeds from sales of loans 2,042,118 0
Changes in operating assets and liabilities 480,907 (3,793,566)
Unearned compensation 1,131,786 750,675
------------------- -------------------
Net cash provided by operating activities 9,646,418 1,777,763
------------------- -------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of banking premises and equipment (581,733) (1,102,310)
Purchases of securities available for sale (185,418,000) (93,129,475)
Proceeds from sales and calls of securities available for sale 141,430,219 64,262,019
Proceeds from maturities and prepayments of securities
available for sale 33,318,620 25,318,342
Net originations and repayments of loans (49,933,185) (64,507,324)
Purchases of loans (13,478,000) (22,186,000)
Proceeds from sales & operations of real estate owned 420,282 526,699
------------------- -------------------
Net cash used by investing activities (74,241,797) (90,818,049)
------------------- -------------------
CASH FLOWS USED BY FINANCING ACTIVITIES:
Net increase in non-interest bearing deposits 14,955,773 329,135
Net (decrease) increase in interest bearing deposits (205,398) 9,078,957
Net increase in mortgagors' escrow deposits 1,484,163 1,675,930
Repayments of short-term borrowed funds (20,000,000) 0
Increases in long-term borrowed funds 15,000,000 75,000,000
Repayments of long-term borrowed funds (10,721,665) 0
Purchases of treasury stock, net (1,487,767) (4,952,663)
Cash dividends paid (1,148,889) (737,566)
------------------- -------------------
Net cash (used) provided by financing activities (2,123,783) 80,393,793
------------------- -------------------
Net decrease in cash and cash equivalents (66,719,162) (8,646,493)
Cash and cash equivalents, beginning of period 90,352,420 34,425,155
------------------- -------------------
Cash and cash equivalents, end of period $ 23,633,258 $ 25,778,662
=================== ===================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 20,374,922 $ 15,014,099
Income taxes paid 3,825,406 3,526,587
Non-cash activities:
Loans originated as the result of real estate sales 0 617,200
Net change in unrealized loss on securities available for sale (166,508) 1,361,113
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY.
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
------------------------
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COMMON STOCK
Balance, beginning of period $ 89,101
No activity 0
------------------------
Balance, end of period $ 89,101
========================
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period $ 101,697,157
Release of shares from Employee Benefit Trust (1,285 shares) 17,899
Stock options exercised (23,175 shares) (64,506)
Tax benefit of stock plans 292,097
------------------------
Balance, end of period $ 101,942,647
========================
TREASURY STOCK
Balance, beginning of period $ (19,666,287)
Purchases of common shares outstanding (67,500 shares) (1,592,845)
Options exercised (23,175 common shares) 441,100
Repurchase of restricted stock award (12,591 common shares) (336,022)
------------------------
Balance, end of period $ (21,154,054)
========================
UNEARNED COMPENSATION
Balance, beginning of period $ (10,921,058)
Release of shares from Employee Benefit Trust (8,750 shares) 100,545
Restricted stock award expense 785,751
------------------------
Balance, end of period $ (10,034,762)
========================
RETAINED EARNINGS
Balance, beginning of period $ 63,785,160
Net income 4,967,411
Cash dividends declared and paid (1,148,889)
------------------------
Balance, end of period $ 67,603,682
========================
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of period $ 1,459,027
Mark-to-market adjustment (103,308)
------------------------
Balance, end of period $ 1,355,719
========================
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS.
1. BASIS OF PRESENTATION
The information furnished in these interim statements reflects all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results for such periods of Flushing Financial Corporation and Subsidiaries (the
"Company"). Such adjustments are of a normal recurring nature, unless otherwise
disclosed in this Form 10-Q. The results of operations in the interim statements
are not necessarily indicative of the results that may be expected for the full
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 interim financial
information should be read in conjunction with the Company's 1997 Annual Report
on Form 10-K.
2. BORROWED FUNDS
The primary business of the Company is the operation of its wholly-owned
subsidiary, Flushing Savings Bank, FSB (the "Bank"). Although deposits are the
Bank's primary source of funds, the Bank has increased utilization of borrowings
as a complimentary and cost effective source of funds for lending, investing and
other general purposes. Upon the Bank's conversion from a New York State
chartered mutual savings bank to a federally chartered mutual savings bank on
May 10, 1994, the Bank became a member of, and became eligible to obtain
advances from, the Federal Home Loan Bank of New York (FHLB-NY). Such advances
generally are secured by a blanket lien against the Bank's mortgage portfolio
and the Bank's investment in the stock of the FHLB-NY. At June 30, 1998,
borrowings from FHLB-NY totaled $271.5 million, with a composite interest rate
of 6.17%.
3. TREASURY STOCK
In November of 1997, the Company announced its intention to repurchase up to
397,946 shares of the Company's outstanding common stock in its Third Stock
Repurchase program. At June 30, 1998, the Company had purchased a total of
1,141,350 shares at a cost of $21.8 million pursuant to the Company's Stock
Repurchase programs, leaving 235,446 shares to be repurchased under the current
Stock Repurchase program. Total shares outstanding at June 30, 1998 were
7,810,404.
4. EARNINGS PER SHARE
Earnings per share is computed by dividing the net income by the weighted
average number of common shares and common equivalent shares outstanding during
each period. The company has adopted SFAS 128 "Earnings Per Share" ("SFAS 128"),
which has changed the method for calculating earnings per share. SFAS 128
requires the presentation of "basic" and "diluted" earnings per share on the
face of the income statement. Prior period earnings per share data have been
restated in accordance with Statement 128.
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
5. IMPACT OF NEW ACCOUNTING STANDARDS
In February of 1998, the Financial Accounting Standard Board ("FASB") issued
SFAS No.132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits", an amendment of FASB Statements No. 87, 88 and 106. This
pronouncement is effective for fiscal years beginning after December 15, 1997.
This Statement standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable and does not change the
measurement or recognition of the benefits. Adoption of this Pronouncement is
not expected to have a material impact on the Company's consolidated financial
statements.
In June of 1998, FASB issued SFAS No.133, "Accounting for Derivative Instruments
and Hedging Activities", which amends SFAS No. 52 and 107, and it supercedes
FASB Statements No. 80, 105 and 119. This Pronouncement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. This Statement
requires the recognition of all derivatives as either assets or liabilities in
the statement of financial position and the measurement of these derivatives at
fair value. Management will implement the disclosure requirements as per FASB
Pronouncement.
<PAGE>
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.
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) origination and purchases of
multi-family income-producing property loans, commercial real estate loans, and
one-to-four family residential mortgage 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 certain other loans, including
construction loans and Small Business Administration loans.
The Company has in the past increased growth through acquisitions of financial
institutions or branches of other financial institutions, and will pursue growth
through acquisitions that are, or are expected to be within a reasonable time
frame, accretive to earnings, as opportunities arise. On September 9, 1997, The
Company acquired New York Federal Savings Bank, a privately held federal savings
bank ("New York Federal"), and merged it with and into the Bank in a cash
transaction that was immediately accretive to earnings, valued at approximately
$13 million. With this purchase, the Bank acquired $75.1 million in real estate
loans, $2.0 million in Small Business Administration loans, and $48.4 million in
deposits. This acquisition enhanced the Bank's multi-family and commercial real
estate lending businesses and provided entry into the Small Business
Administration loan market.
In November of 1997, the Bank established a real estate investment trust
subsidiary, Flushing Preferred Funding Corporation ("FPFC"), and transferred
$256.7 million in real estate loans from the Bank to FPFC. The assets
transferred to FPFC are viewed by regulators as part of the Bank's assets in
consolidation. However, the establishment of FPFC provides an additional vehicle
for access by the Company to the capital markets for future investment
opportunities. In addition, under current law, all income earned by FPFC and
distributed to the Bank in the form of a dividend has the effect of reducing
income tax expenses.
During the first quarter of 1998, the Bank formed Flushing Service Corporation
("FSC"), a service corporation to market insurance products and mutual funds.
The insurance products and mutual funds sold are products of unrelated insurance
and securities firms from which the service corporation earns a commission. FSC
became fully operational in the month of June, 1998. Management is currently
reviewing the potential profitability of various new products to further extend
the Bank's product lines and market.
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 also generates
non-interest income from loan fees, service charges on deposit accounts,
mortgage servicing fees, late charges and other fees and net gains and losses on
sales of securities and loans. The Company's operating expenses consist
principally of employee compensation and benefits, occupancy and equipment
costs, federal deposit insurance premiums, other general and administrative
expenses and income tax expense. The Company's results of operations also can be
significantly affected by its periodic provision for loan losses and specific
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.
The Company utilizes and is dependent upon data processing systems and software
to conduct its business. The data processing systems and software include those
developed and maintained by the Company's third party data processing vendor,
and purchased software run on in-house computer networks. As the year 2000
approaches, a critical business issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. As a result, in 1997, the Company established a year 2000 task force to
evaluate whether its computer systems will function properly in the year 2000
and report to the Board of Directors on a monthly basis. The task force has
contacted parties with which the Company has material relationships, including
the Company's data processing vendor and software suppliers to determine whether
the systems used, or relied upon, by the Company are year 2000 compliant and, if
not, to assess the corrective steps being taken. The Company also plans to
contact all borrowers with loan balances outstanding in excess of two million
dollars to assess the state of each such party's year 2000 readiness. The
Company's data processing vendor and the majority of the other vendors which
have been contacted have indicated that their hardware and/or software is or
will be year 2000 compliant. Systems for which year 2000 compliance could not be
assured are being replaced. Testing for year 2000 compliance has been performed
on in-house systems and is being performed, or will be performed for the
Company's third party data processing vendors. The Company expects to be year
2000 compliant by the end of calendar 1998. The Company has developed
contingency plans in the event of the unavailability of each mission critical
system, including the identification of reasonable substitutes for the functions
of such systems. The Company is also dependent upon the availability of public
utilities, including communication and power services. The year 2000 readiness
of such utilities has yet to be established. While there can be no assurance as
to the cost of year 2000 compliance, some expense is likely to be incurred
during the next two years. Management does not expect, however, that year 2000
compliance will have a material adverse effect on the Company's consolidated
financial condition, results of operations or cash flows.
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 two paragraphs 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 1997 Annual Report to Shareholders and the SEC
Report on Form 10-K for the year ended December 31, 1997. The Company has no
obligation to update these forward-looking statements.
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
JUNE 30, 1998 AND 1997
GENERAL. Net income for the second quarter of 1998 increased 29.16% to $2.7
million, or $0.38 per diluted share, from the $2.1 million, or $0.29 per diluted
share, earned in the quarter ended June 30, 1997. The return on average equity
for the second quarter of 1998 increased to 7.93% from 6.49% as reported in the
comparable 1997 period, while the return on average assets remained stable at
1.01% for the quarters ended June 30, 1998 and 1997.
INTEREST INCOME. Total interest and dividend income increased $4.6 million from
$15.9 million for the three months ended June 30, 1997 to $20.5 million for the
three months ended June 30, 1998. This increase was primarily the result of a
$191.6 million increase in the average earning balances of mortgage loans from
the quarter ended June 30, 1997 as compared to the quarter ended June 30, 1998,
and a $26.7 million increase in the average earning balances of investment
securities available for sale from the second quarter of 1997 as compared to the
second quarter of 1998.
INTEREST EXPENSE. Interest expense increased $3.3 million from $8.0 million for
the three months ended June 30, 1997 to $11.3 million for the three months ended
June 30, 1998, primarily due to a $2.5 million increase in borrowed funds
expense as the average balance of borrowed funds increased. Interest paid on
deposits also increased $850,000, resulting from an increase of $56.9 million in
the average balances of higher costing certificates of deposit accounts and a
decline of $4.2 million in the average balances of lower costing regular savings
from the quarter ended June 30, 1997 as compared to the quarter ended June 30,
1998.
NET INTEREST INCOME. For the three months ended June 30, 1998, net interest
income increased 16.15% to $9.2 million from $7.9 million in the comparable 1997
period, for reasons stated above. Although net interest margin declined 35 basis
points from 3.92% for the three months ended June 30, 1997 to 3.57% for the
comparable 1998 period as a result of increasing costs of funds, the Company
continued to focus on its return on interest-earning assets. The resultant
dollar impact to net interest income was a growth of $1.3 million from the
similar period a year before.
PROVISION FOR LOAN LOSSES. Provision for loan losses remained stable at $42,000
and $47,000 for the three months ended June 30, 1998 and 1997, respectively. The
allowance for loan losses increased from $6.5 million at December 31, 1997 to
$6.7 million at June 30, 1998, which reflects 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.
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NON-INTEREST INCOME. Total non-interest income during the second quarter of 1998
increased by 73.58% to $771,000 for the three months ended June 30, 1998 from
$444,000 for the second quarter of 1997. The increase is due principally to an
increase of quarterly dividends on FHLB stock and increased fee income from
mortgage and banking services.
NON-INTEREST EXPENSE. Non-interest expense increased by $1.3 million to $5.7
million for the three months ended June 30, 1998 as compared to $4.4 million for
the quarter ended June 30, 1997. This increase is primarily a result of
additional expenses attributable to the New York Federal division which was
established as a result of the acquisition of New York Federal Savings Bank in
September 1997, and expenses related to the opening of the Edward's Supermarket
branch in June of 1998. The efficiency ratio, which excludes distortions from
non-recurring items, continues to remain at a competitive level of 53.43% and
53.26% for the three months ended June 30, 1998 and 1997, respectively, despite
an increase in non-interest expense.
INCOME BEFORE INCOME TAXES. Total income before provision for income taxes
increased $388,000, or 9.93%, from $3.9 million for the three months ended June
30, 1997 as compared to $4.3 million for the three months ended June 30, 1998
for the reasons stated above.
PROVISION FOR INCOME TAXES. Income tax expense declined $231,000 to $1.6 million
for the three months ended June 30, 1998 as compared to $1.8 million for the
comparable 1997 period, despite an increase in income before taxes. The
reduction in the Company's effective tax rate was primarily attributed to a tax
benefit associated with the Company's real estate investment trust.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997
GENERAL. Net income for the six months ended June 30, 1998 increased 23.78% to
$5.0 million, or $0.70 per diluted share, from the $4.0 million, or $0.56 per
diluted share, earned in the comparable 1997 period. As the Company continued to
leverage its strong balance sheet, return on average assets dipped slightly to
0.92% for the six months ended June 30, 1998 as compared to 0.98% for the six
months ended June 30, 1997. However, as a result of the leverage, return on
equity improved from 6.14% for the six months ended June 30, 1997 to 7.34% for
the six months ended June 30, 1998.
INTEREST INCOME. Total interest and dividend income increased $10.4 million from
$30.6 million for the six months ended June 30, 1997 to $41.0 million for the
six months ended June 30, 1998. This increase was primarily the result of a
$200.2 million increase in the average earning balances of mortgage loans, and a
$31.2 million increase in the average earning balances of investment securities
available for sale, from the six months ended June 30, 1997 as compared to the
six months ended June 30, 1998.
<PAGE>
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 $7.7 million from $15.0 million for
the six months ended June 30, 1997 to $22.7 million for the six months ended
June 30, 1998, primarily due to a $6.0 million increase in borrowed funds
expense as the average balance of borrowed funds increased. Interest paid on
deposits also increased $1.7 million, resulting from an increase of $58.8
million in the average balances of higher costing certificates of deposit
accounts and a decline of $6.4 million in the average balances of lower costing
regular savings from the six months ended June 30, 1997 as compared to the six
months ended June 30, 1998.
NET INTEREST INCOME. For the six months ended June 30, 1998, net interest income
increased 17.42% to $18.3 million from $15.6 million in the comparable 1997
period, for reasons stated above. Although net interest margin declined 44 basis
points from 3.99% for the six months ended June 30, 1997 to 3.55% for the
comparable 1998 period as a result of increasing costs of funds, the Company
continued to focus on its return on interest-earning assets. The resultant
dollar impact to net interest income was a growth of $2.7 million from the
similar period a year before.
PROVISION FOR LOAN LOSSES. Provision for loan losses increased to $158,000 for
the six months ended June 30, 1998 as compared to $67,000 for the six months
ended June 30, 1997. The allowance for loan losses increased from $6.5 million
at December 31, 1997 to $6.7 million at June 30, 1998, which reflects the Bank's
evaluation of current economic conditions, the overall trend of non-performing
loans in the loan portfolio (see Asset Section), it's analysis of specific loan
situations, and the size and composition of the loan portfolio.
NON-INTEREST INCOME. Total non-interest income during the six months ended June
30, 1998 increased by 74.96% to $1.5 million as compared to $875,000 for the six
months ended June 30, 1997. The increase is due primarily to gains on sales of
securities, sales of the guaranteed portion of Small Business Administration
loans ("SBA"), an increase in quarterly FHLB stock dividends, and increased fee
income from mortgage and banking services.
NON-INTEREST EXPENSE. Non-interest expense increased by $2.6 million to $11.6
million for the six months ended June 30, 1998 as compared to $9.0 million for
the first half of 1997. This increase is primarily a result of additional
expenses attributable to the New York Federal division which was established as
a result of the acquisition of New York Federal Savings Bank in September 1997,
non-recurring compensation expenses related to Mr. McConnell's upcoming
retirement, and expenses related to the opening of the Edward's Supermarket
branch in June of 1998. The efficiency ratio, which excludes distortions from
non-recurring items, improved to 52.57% for the six months ended June 30, 1998
as compared to 54.68% for the first half of 1997, despite an increase in
non-interest expense.
INCOME BEFORE INCOME TAXES. Total income before provision for income taxes
increased $670,000, or 9.06%, from $7.4 million for the six months ended June
30, 1997 as compared to $8.1 million for the six months ended June 30, 1998 for
the reasons stated above.
PROVISION FOR INCOME TAXES. Income tax expense declined $284,000 to $3.1 million
for the six months ended June 30, 1998 as compared to $3.4 million for the
comparable 1997 period, despite an increase in income before taxes. The
reduction in the Company's effective tax rate was primarily attributed to a tax
benefit associated with the Company's real estate investment trust.
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
ASSETS. Total assets at June 30, 1998 were $1.1 billion. During the first six
months of 1998, loan originations were $50.9 million for 1-4 family residential
mortgage loans, $39.7 million for multi-family real estate loans, $10.9 million
for commercial real estate loans and $2.0 million in construction loans. For the
first six months of 1997, loan originations were $49.6 million for 1-4 family
real estate loans, $45.6 million for multi-family real estate loans, $12.2
million for commercial real estate loans and $1.0 million in construction loans.
Since December 31, 1997, the total loan portfolio grew $61.3 million or 10.10%.
As the Company continues to increase its loan portfolio, management continues to
adhere to the Bank's strict underwriting standards. As a result, the Company has
been able to minimize charge-offs of losses from impaired loans and maintain
asset quality. Non-performing assets continues to be stable at $3.4 million at
June 30, 1998, and total non-performing assets as a percentage of total assets
were 0.31 percent at June 30, 1998. Allowance for loan losses to non-performing
loans was 214.31 percent at June 30, 1998.
LIABILITIES. Total liabilities increased $72,000 to $952.1 million at June 30,
1998 from December 31, 1997 levels. This change in total liabilities is due
primarily to an increase in deposit balances of $16.2 million during the first
six months of 1998 to $672.1 million at June 30, 1998, offset in part by a
decline of $15.7 million in borrowed funds. The increase in deposits is
primarily due to the establishment of the Bank's operating accounts at the Bank
over the last year, the maintenance of balances in such accounts to cover checks
written by the Bank when they are presented for payment and timing differences
in clearing and settlement of the accounts. Management is implementing
procedures to minimize such timing differences in the third quarter of 1998 and
expects non-interest bearing demand deposits at the end of the quarter to
approximate December 31, 1997 levels.
EQUITY. Total stockholders' equity increased 2.46% to $139.8 million at June 30,
1998 from $136.4 million at December 31, 1997. The increase is due to $5.0
million in net income for the six months ended June 30, 1998, offset by $1.6
million in treasury shares purchased through the Company's stock repurchase
plan, and $1.1 million in cash dividends paid during 1998. Quarterly dividends
per share were increased in the first quarter of 1998 to $0.08 from $0.06 in the
fourth quarter of 1997. Book value per share continued to improve to $17.90 per
share at June 30, 1998 from $17.35 per share at December 31, 1997 and $16.68 at
June 30, 1997.
In November of 1997, the Company announced its intention to repurchase up to
397,946 shares of the Company's outstanding common stock in its Third Stock
Repurchase program. At June 30, 1998, the Company had purchased a total of
1,141,350 shares at a cost of $21.8 million pursuant to the Company's Stock
Repurchase programs, leaving 235,446 shares to be repurchased under the current
Stock Repurchase program. Total shares outstanding at June 30, 1998 were
7,810,404.
<PAGE>
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 and certain securities with detailed maturity limitations
and marketability requirements) 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 4%.
Monetary penalties may be imposed by the OTS for failure to meet these liquidity
requirements. At June 30, 1998 and December 31, 1997, the Bank's liquidity
ratio, computed in accordance with the OTS requirement was 24.41% and 24.53%,
respectively. 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. General funding for Company activities comes from cashflow provided by
operating activities which totaled $9.6 million for the six months ended June
30, 1998. The Company's primary business objective is the origination and
purchase of residential, multi-family and commercial real estate loans. During
the six months ended June 30, 1998, the net total of loan originations and loan
repayments were $49.9 million and real estate loans purchased were $13.5
million. During periods of low loan demand, the Company also invests in other
securities including mortgage loan surrogates such as mortgage-backed
securities. In the six months ended June 30, 1998, the Company purchased a total
of $185.4 million in securities available for sale. Cash flow used in these
investment activities were funded primarily from an aggregate of $174.7 million
in sales, calls, maturities and prepayments of securities available for sale,
and funds provided by operating activities. In addition, cash flows used by
financing activities totaled $2.1 million from December 31, 1997 to June 30,
1998 primarily due to repayments of borrowings of $30.7 million, offset in part
by additional borrowings.
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTEREST RATE RISK
The Consolidated Financial Statements have been prepared in accordance with
GAAP, which requires the measurement of financial position and operating results
in terms of historical dollars without considering the changes in fair value of
investments due to changes in interest rate risk. Generally, the fair value of
financial investments such as loans and securities fluctuates inversely with
changes in interest rates. As a result, increases in interest rates could result
in decreases in the fair value of the Company's interest-earning assets which
could adversely affect the Company's results of operation if sold, or, in the
case of securities classified as available-for-sale, the Company's stockholders'
equity, if retained.
The Company manages the mix of interest-earning assets and interest-bearing
liabilities on a continuous basis to maximize return and adjust risk exposure.
On a quarterly basis, management prepares the "Earnings and Economic Exposure to
Changes In Interest Rate" report for review by the Board of Directors, as
summarized below. This report quantifies the potential changes in net interest
income and net portfolio value should interest rates go up or down (shocked) 400
basis points, assuming the yield curves of the rate shocks will be parallel to
each other. Net portfolio value is defined as interest-earning assets net of
interest-bearing liabilities. All changes in income and value are measured as
percentage changes from the projected net interest income and net portfolio
value at the base interest rate scenario. The base interest rate scenario
assumes interest rates at June 30, 1998 and various estimates regarding
prepayment and all activities are made at each level of rate shock. Actual
results could differ significantly from these estimates. The Company's current
interest rate exposure is within the guidelines set forth by the Board of
Directors.
<TABLE>
<CAPTION>
Projected Percentage Change In
- --------------------------------------------------------------------------------------------------------------------
Change in Interest Rate Net Interest Income Net Portfolio Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-400 Basis Points 5.29 % 24.38 %
-300 Basis Points 2.58 17.01
-200 Basis Points 0.42 11.02
-100 Basis Points -0.50 5.72
Base Interest Rate 0 0
+100 Basis Points -3.85 -13.91
+200 Basis Points -8.81 -30.23
+300 Basis Points -14.55 -48.14
+400 Basis Points -20.77 -63.22
</TABLE>
<PAGE>
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
June 30, 1998, 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 June 30, 1998.
<TABLE>
<CAPTION>
Percent of
Amount Assets
----------------------- ------------------
(Dollars in thousands)
<S> <C> <C>
Tangible Capital:
Capital level $100,354 9.53%
Requirement 15,803 1.50
Excess 84,551 8.03
Core Capital:
Capital level $100,354 9.53%
Requirement 42,141 4.00
Excess 58,213 5.53
Risk-Based Capital:
Capital level $106,787 20.76%
Requirement 41,150 8.00
Excess 65,637 12.76
</TABLE>
<PAGE>
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 six
months ended June 30, 1998 and 1997, and reflects the average yield on assets
and average cost of liabilities for the periods indicated. Such yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances are derived
from average daily balances. The yields include amortization of fees which are
considered adjustments to yields.
<TABLE>
<CAPTION>
For the six months ended June 30,
--------------------------------------------------------------------------
1998 1997
----------------------------------- -----------------------------------
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 $622,474 $27,157 8.73 % $422,306 $18,273 8.65 %
Other loans 3,356 221 13.17 1,567 75 9.57
Mortgage-backed securities 302,843 10,333 6.82 167,807 5,812 6.93
Other securities 61,959 2,102 6.79 165,754 5,779 6.97
Interest-earning deposits
and federal funds sold 41,082 1,215 5.91 24,095 658 5.46
------------ --------- ----------- ------------ -------- ----------
Total interest-earning assets 1,031,714 41,028 7.95 781,529 30,597 7.83
--------- ----------- -------- ----------
Non-interest earning assets 50,672 35,852
------------ ------------
Total assets $1,082,386 $817,381
============ ============
LIABILITIES AND EQUITY:
Interest-bearing liabilities:
Deposits:
Passbook accounts $202,290 $2,873 2.84 % $208,698 $2,963 2.84 %
NOW accounts 23,858 227 1.90 22,029 213 1.93
Money market accounts 24,934 363 2.91 25,118 347 2.76
Certificate of deposit accounts 380,779 10,725 5.63 321,997 8,961 5.57
Mortgagors' escrow deposits 5,285 34 1.29 6,087 60 1.97
Borrowed Funds 277,111 8,509 6.14 85,532 2,470 5.78
------------ --------- ----------- ------------ -------- ----------
Total interest-bearing
liabilities 914,257 22,731 4.97 669,461 15,014 4.49
--------- ----------- -------- ----------
Other liabilities 32,728 17,255
------------ ------------
Total liabilities 946,985 686,716
Equity 135,401 130,665
------------ ------------
Total liabilities and equity $1,082,386 $817,381
============ ============
Net interest income/expense spread $18,297 2.98 % $15,583 3.34 %
========= =========== ======== ==========
Net interest-earning assets/net
interest margin $117,457 3.55 % $112,068 3.99 %
============ =========== ============ ==========
Ratio of interest-earning assets
to interest-bearing liabilities 1.13 x 1.17 x
=========== ==========
</TABLE>
<PAGE>
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 periods indicated.
<TABLE>
<CAPTION>
For the six For the
months ended year ended
June 30, 1998 December 31, 1997
---------------------- ----------------------
(In thousands)
<S> <C> <C>
MORTGAGE LOANS $ 602,559 $ 388,086
At beginning of period
Mortgage loans originated:
One-to-four family 37,462 42,756
Cooperative 0 475
Multi-family 39,679 79,976
Commercial 10,889 17,121
Construction 2,001 3,016
---------- ----------
Total mortgage loans originated 90,031 143,344
---------- ----------
Acquired loans:
Loans purchased 13,478 49,965
Acquired NY Federal 1-4 family loans 0 901
Acquired NY Federal multi-family loans 0 62,405
Acquired NY Federal commercial loans 0 11,717
---------- ----------
Total acquired loans 13,478 124,988
---------- ----------
Less:
Principal reductions 40,433 53,416
Mortgage loans sold 0 0
Mortgage loan foreclosures 312 443
---------- ----------
At end of period $ 665,323 $ 602,559
========== ==========
OTHER LOANS:
At beginning of period $ 4,175 $ 1,680
Small Businesses Administration lending activity, net (842) 2,029
Other consumer loan activity, net (656) 466
---------- ----------
At end of period $ 2,677 $ 4,175
========== ==========
</TABLE>
<PAGE>
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 loans in its portfolio on a monthly basis to determine
whether any problem 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>
June 30, December 31,
1998 1997
-------------------------- --------------------------
(Dollars in Thousands)
<S> <C> <C>
Non-accrual mortgage loans $3,067 $2,409
Other non-accrual loans 44 49
-------------------------- --------------------------
Total non-accrual loans 3,111 2,458
-------------------------- --------------------------
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 3,111 2,458
-------------------------- --------------------------
Real estate owned (foreclosed real estate) 245 433
-------------------------- --------------------------
Total REO 245 433
-------------------------- --------------------------
Total non-performing assets $3,356 $2,891
========================== ==========================
Non-performing loans to gross loans 0.47% 0.41%
Non-performing assets to total assets 0.31% 0.27%
</TABLE>
<PAGE>
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 a reserve against 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 are also 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>
June 30, December 31,
1998 1997
------------------ -----------------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $6,474 $5,437
Provision for loan losses 158 104
NY Federal acquisition provision 0 979
Loans charged-off:
One-to-four family 91 85
Co-operative 0 44
Multi-family 0 0
Commercial 0 0
Construction 0 0
Other 12 77
------------------ -----------------
Total loans charged-off 103 206
------------------ -----------------
Recoveries:
Mortgage loans 139 155
Other loans 0 5
------------------ -----------------
Total recoveries 139 160
------------------ -----------------
Balance at end of period $6,668 $6,474
================== =================
Ratio of net charge-offs during the year to
average loans outstanding during the period 0.00% 0.01%
Ratio of allowance for loans losses to
loans at end of period 1.00% 1.07%
Ratio of allowance for loans losses to
non-performing loans at end of period 214.31% 263.38%
Ratio of allowance for loans losses to
non-performing assets at end of period 198.68% 223.94%
</TABLE>
<PAGE>
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 adverse effect on the Company's
consolidated financial condition and results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Shareholders held on May 20, 1998, as
contemplated by the Company's definitive proxy material for the meeting, certain
matters were submitted to a vote of shareholders. The following table summarizes
the results of voting with respect to each matter.
<TABLE>
<CAPTION>
For Against Withheld Abstain
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Election of Directors (four directors were elected to serve until the 2001
Annual Meeting of Shareholders and until their successors are elected and
qualified).
Gerard P. Tully, Sr. 6,686,932 143,872
James F. McConnell 6,700,166 130,638
John M. Gleason 6,691,048 139,756
Vincent F. Nicolosi 6,680,832 149,972
Amendments to the 1996 Restricted Stock
Incentive Plan. 6,359,766 406,540 25 64,473
Amendments to the 1996 Stock Option Incentive
Plan. 6,379,351 405,013 46,440
Ratification of the appointment of Coopers &
Lybrand, LLP as the independent auditors of the
Company. 6,690,268 104,724 35,812
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBIT
10.1 Amendments to the Company's 1996 Restricted Stock
Incentive Plan*.
10.2 Amendments to the Company's 1996 Stock Option Incentive Plan*.
27 Financial data schedule.
*Incorporated by reference to Exhibit 99.1 (Proxy Statement
for the Annual Meeting of Shareholders held on May 20, 1998)
filed with the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
b) REPORTS ON FORM 8-K
Not applicable.
<PAGE>
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: August 14, 1998 By: /s/ Michael J. Hegarty
---------------------- -----------------------
Michael J. Hegarty
Executive Vice President
Dated: August 14, 1998 By: /s/ Monica C. Passick
---------------------- ----------------------
Monica C. Passick
Senior Vice President, Treasurer
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at June 30, 1998
(unaudited), and the Condensed Consolidated Statement of Income for the six
months ended June 30, 1998 (unaudited), and is qualified in its entirety by
reference to such financial statements. </LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<PERIOD-TYPE> 6-MOS
<CASH> 9,833
<INT-BEARING-DEPOSITS> 700
<FED-FUNDS-SOLD> 13,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 366,573
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 666,698
<ALLOWANCE> 6,668
<TOTAL-ASSETS> 1,091,908
<DEPOSITS> 672,146
<SHORT-TERM> 10,000
<LIABILITIES-OTHER> 8,494
<LONG-TERM> 261,466
0
0
<COMMON> 89
<OTHER-SE> 139,713
<TOTAL-LIABILITIES-AND-EQUITY> 1,091,908
<INTEREST-LOAN> 27,378
<INTEREST-INVEST> 12,435
<INTEREST-OTHER> 1,216
<INTEREST-TOTAL> 41,029
<INTEREST-DEPOSIT> 14,222
<INTEREST-EXPENSE> 22,731
<INTEREST-INCOME-NET> 18,298
<LOAN-LOSSES> 158
<SECURITIES-GAINS> 74
<EXPENSE-OTHER> 10,140
<INCOME-PRETAX> 8,074
<INCOME-PRE-EXTRAORDINARY> 8,074
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,967
<EPS-PRIMARY> 0.71
<EPS-DILUTED> 0.70
<YIELD-ACTUAL> 7.95
<LOANS-NON> 3,111
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,474
<CHARGE-OFFS> 103
<RECOVERIES> 139
<ALLOWANCE-CLOSE> 6,668
<ALLOWANCE-DOMESTIC> 6,668
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,668
</TABLE>
