UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------
Commission file number 000-24272
FLUSHING FINANCIAL CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-3209278
-------- ----------
(State or other (I.R.S. Employer
jurisdiction of 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
April 30, 1998 was 7,828,895 shares.
<PAGE>
TABLE OF CONTENTS
Page
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
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................................19
ITEM 2. CHANGES IN SECURITIES..............................................19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................19
ITEM 5. OTHER INFORMATION..................................................19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................19
SIGNATURES..................................................................20
EXHIBITS....................................................................21
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION.
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Cash and due from banks $ 4,593,928 $ 8,257,791
Federal funds sold and overnight 35,800,000 82,094,629
interest-earning deposits
Securities available for sale:
Mortgage-backed securities 318,889,539 217,110,108
Other securities 49,307,463 139,602,095
Loans:
1-4 Family residential mortgage loans 318,397,603 301,351,063
Multi-family mortgage loans 240,320,617 230,229,036
Commercial real estate loans 70,371,501 68,181,602
Construction loans 3,926,906 2,797,256
Small Business Administration loans 1,709,796 2,789,036
Consumer loans 1,459,637 1,385,574
Less: Unearned loan fees (1,511,101) (1,838,229)
Allowance for loan losses (6,597,918) (6,474,027)
------------- -------------
Net loans 628,077,041 598,421,311
Interest and dividends receivable 8,662,077 9,281,705
Real estate owned, net 489,753 432,986
Bank premises and equipment, net 6,527,727 6,492,937
Federal Home Loan Bank of New York stock 14,355,750 14,355,750
Goodwill 5,278,366 5,369,899
Other assets 6,473,834 7,056,825
============= =============
Total assets $ 1,078,455,478 $ 1,088,476,036
============= =============
LIABILITIES
Due to depositors:
Non-interest bearing $ 23,678,475 $ 22,089,514
Interest bearing 632,421,117 631,747,441
Mortgagors' escrow deposits 4,354,905 2,074,434
Borrowed funds 271,569,213 287,187,199
Other liabilities 9,271,597 8,934,348
------------- -------------
Total liabilities 941,295,307 952,032,936
------------- -------------
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; 7,827,695 and
7,864,620 shares outstanding at March 31, 1998 and
December 31, 1997, respectively) 89,101 89,101
Additional paid-in capital 101,663,136 101,697,157
Treasury stock (1,082,405 and 1,045,480
shares at March 31, 1998 and
December 31, 1997 respectively) (20,565,176) (19,666,287)
Unearned compensation - Employee Benefit Plan (7,152,406) (7,202,703)
Unearned compensation - Restricted Stock Awards (3,459,123) (3,718,355)
Retained earnings 65,431,199 63,785,160
Accumulated Other Comprehensive Income:
Net unrealized gain on securities
available for sale, net of taxes 1,153,440 1,459,027
------------- -------------
Total stockholders' equity 137,160,171 136,443,100
------------- -------------
Total liabilities and stockholders' equity $ 1,078,455,478 $ 1,088,476,036
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME.
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months
Ended March 31,
---------------------
1998 1997
--------- ----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
- ----------------------------
Interest and fees on loans $ 13,443,385 $8,590,007
Interest and dividends on
securities:
Taxable interest 6,171,205 5,591,333
Tax-exempt interest 7,734 7,930
Dividends 51,260 72,930
Other interest income 823,248 395,282
--------- ----------
Total interest and dividend income 20,496,832 14,657,482
--------- ----------
INTEREST EXPENSE
- ----------------
Deposits 7,106,391 6,249,455
Other interest expense 4,321,975 771,101
--------- ----------
Total interest expense 11,428,366 7,020,556
--------- ----------
NET INTEREST INCOME 9,068,466 7,636,926
Provision for loan losses 116,194 20,172
--------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,952,272 7,616,754
--------- ----------
NON-INTEREST INCOME
- -------------------
Other fee income 336,046 275,972
Net gain on sales of securities 76,210 52,199
and loans
Other income 347,353 102,455
--------- ----------
Total non-interest income 759,609 430,626
--------- ----------
NON-INTEREST EXPENSE
- --------------------
Salaries and employee benefits 3,475,934 2,419,616
Occupancy and equipment 485,090 457,049
Professional services 425,943 400,798
Federal deposit insurance premiums 26,011 18,089
Data processing 277,523 278,423
Depreciation and amortization 233,360 193,917
Real estate owned expenses 74,925 35,244
Other operating expenses 937,326 750,694
--------- ----------
Total non-interest expense 5,936,112 4,553,830
--------- ----------
INCOME BEFORE INCOME TAXES 3,775,769 3,493,550
--------- ----------
PROVISION FOR INCOME TAXES
- --------------------------
Federal 1,362,853 1,001,745
State and local 188,243 602,266
--------- ----------
Total taxes 1,551,096 1,604,011
--------- ----------
NET INCOME $ 2,224,673 $1,889,539
========= ==========
OTHER COMPREHENSIVE INCOME, NET OF TAX
- --------------------------------------
Unrealized gains on securities:
Unrealized holding losses arising during period
Less: reclassification adjustment for gains (338,340) (2,500,468)
included in net income (32,753) (28,448)
--------- ----------
Net unrealized holding losses (305,587) (2,472,020)
========= ==========
COMPREHENSIVE INCOME (LOSS) 1,919,086 (582,481)
========= ==========
Weighted average shares outstanding 6,946,397 7,173,033
Weighted average shares outstanding
and common shares equivalent 7,112,785 7,239,949
Basic earnings per share $0.32 $0.26
Diluted earnings per share $0.31 $0.26
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS.
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 2,224,673 $ 1,889,539
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 116,194 20,172
Provision for losses on real estate owned 33,243 0
Depreciation of bank premises and equipment 233,360 193,917
Amortization of Goodwill 91,532 0
Net gain on sales of securities & loans (76,210) (52,199)
Net loss on sale of real estate owned 13,537 15,081
Amortization of unearned premium, net of
accretion of unearned discount 298,478 128,816
Amortization of deferred income (199,443) (303,630)
Deferred income tax benefit (30,151) (90,738)
Deferred compensation 53,962 22,035
Changes in operating assets and liabilities 1,440,808 1,443,213
Unearned compensation 275,508 414,099
------------- -------------
Net cash provided by operating activities 4,475,491 3,680,305
------------- -------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of banking premises and equipment (268,150) (533,959)
Purchases of securities available for sale (128,455,000) (29,689,000)
Proceeds from sales and calls of securities 104,277,097 16,320,199
available for sale
Proceeds from maturities and prepayments of
securities available for sale 12,165,200 17,933,422
Net originations and repayments of loans (24,369,000) (30,825,635)
Purchases of loans (5,396,000) (9,154,000)
Proceeds from sales & operations of real
estate owned 163,776 426,419
------------- -------------
Net cash used by investing
activities (41,882,077) (35,522,554)
------------- -------------
Cash flows used by financing activities:
Net increase in non-interest bearing deposits 1,588,961 3,173,624
Net increase in interest bearing deposits 673,676 6,832,819
Net increase in mortgagors' escrow deposits 2,280,471 3,446,926
Net decrease in short-term borrowed funds (10,000,000) 0
Increases in long-term borrowed funds 0 25,000,000
Repayments of long-term borrowed funds (5,617,896) 0
Purchases of treasury stock, net (898,889) (2,900,850)
Cash dividends paid (578,139) (297,634)
------------- -------------
Net cash used by financing activities (12,551,906) 35,254,885
------------- -------------
Net increase (decrease) in cash and cash
equivalents (49,958,492) 3,412,636
Cash and cash equivalents, beginning of
period 90,352,420 34,425,155
------------- -------------
Cash and cash equivalents, end of period $ 40,393,928 $ 37,837,791
============= =============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 8,272,773 $ 7,020,556
Income taxes paid 1,127,300 1,080,587
Non-cash activities:
Loans originated as the result of 267,324 542,500
real estate sales
Net change in unrealized loss on
securities
available for sale (319,233) (4,590,220)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY.
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1998
----------------
<S> <C>
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
(687 shares) 8,590
Stock options exercised (15,575 shares) (42,611)
----------------
Balance, end of period $ 101,663,136
================
TREASURY STOCK
Balance, beginning of period $ (19,666,287)
Purchases of common shares outstanding(52,500
shares) (1,194,594)
Options exercised (15,575 common shares) 295,705
----------------
Balance, end of period $ (20,565,176)
================
UNEARNED COMPENSATION
Balance, beginning of period $ (10,921,058)
Release of shares from Employee Benefit Trust
(687 shares) 50,297
Restricted stock award expense 259,232
----------------
Balance, end of period $ (10,611,529)
================
RETAINED EARNINGS
Balance, beginning of period $ 63,785,160
Net income 2,224,673
Cash dividends declared and paid (578,634)
----------------
Balance, end of period $ 65,431,199
================
ACCUMULATED OTHER COMPREHENSIVE
INCOME
Balance, beginning of period $ 1,459,027
Mark-to-market adjustment (305,587)
----------------
Balance, end of period $ 1,153,440
================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<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 March 31, 1998,
borrowings from FHLB-NY totaled $271.6 million, with a composite interest rate
of 6.18%
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 March 31, 1998, the Company had purchased a total of
1,126,350 shares at a cost of $21.4 million pursuant to the Company's Stock
Repurchase programs, leaving 250,446 shares to be repurchased under the current
Stock Repurchase program. Total shares outstanding at March 31, 1998 were
7,827,695.
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.
<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 seven banking offices located in Queens, Brooklyn, Manhattan
and Nassau County. Flushing Financial Corporation's common stock is publicly
traded on the Nasdaq National Market under the symbol "FFIC". The following
discussion of financial condition and results of operations include the
collective results of Flushing Financial Corporation and the Bank (collectively
the "Company"), but reflects principally the Bank's activities.
The Company's principal business is attracting retail deposits from the general
public and investing those deposits, together with borrowed funds and funds
generated from operations, primarily in (i) 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 the
Company's income tax expense.
During the first quarter of 1998, the Bank formed 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. 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
ensure that its computer systems will function properly in the year 2000. The
task force has contacted the Company's data processing vendor and software
suppliers to determine whether the systems used by the Company are year 2000
compliant and, if not, to assess the corrective steps being taken. 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 will be year 2000
compliant. Testing will be performed for compliance and regular monthly reports
are being submitted to the Company's Board of Directors by the task force. 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 MARCH 31, 1998 AND
1997
GENERAL. Net income for the first quarter of 1998 increased 17.7 percent to $2.2
million, or $0.31 per diluted share, from the $1.9 million, or $0.26 per diluted
share, earned in the quarter ended March 31, 1997. The return on average assets
for the first quarter of 1998 decreased to 0.82 percent from 0.96 percent, while
the return on average equity for the first quarter of 1998 increased to 6.73
percent from 5.82 percent as reported in the comparable 1997 period. Excluding a
one-time, non-recurring compensation expense of $750,000, earnings for the three
months ended March 31, 1998 would have been $2.6 million, or $0.37 per diluted
share. Excluding this non-recurring item, the return on average assets for the
first quarter of 1998 increased to 0.97 percent from 0.96 percent and the return
on average equity for the first quarter of 1998 increased to 7.95 percent from
5.82 percent as reported in the comparable 1997 period.
INTEREST INCOME. Total interest and dividend income increased $5.8 million from
$14.7 million for the three months ended March 31, 1997 to $20.5 million for the
three months ended March 31, 1997. This increase was primarily the result of a
$204.8 million increase in the average earning balances of mortgage loans from
the quarter ended March 31, 1997 as compared to the quarter ended March 31,
1998, and a $32.4 million increase in the average earning balances of investment
securities available for sale from the first quarter of 1997 as compared to the
first quarter of 1998.
INTEREST EXPENSE. Interest expense increased $4.4 million from $7.0 million for
the three months ended March 31, 1997 to $11.4 million for the three months
ended March 31, 1998, primarily due to a $3.6 million increase in borrowed funds
expense as the average balance of borrowed funds increased. Interest paid on
deposits also increased $857,000, resulting from an increase of $58.2 million in
the average balances of higher costing certificates of deposit accounts and a
decline of $9.1 million in the average balances of lower costing regular savings
and money market accounts from the quarter ended March 31, 1997 as compared to
the quarter ended March 31, 1998.
NET INTEREST INCOME. For the three months ended March 31, 1998, net interest
income increased 18.7 percent to $9.1 million from $7.6 million in the
comparable 1997 period, for reasons stated above. As the Company continued to
focus on its return on interest-earning assets, net interest margin improved 22
basis points from the 3.31 percent level for the three months ended December 31,
1997 to 3.53 percent for the quarter ended March 31, 1998. The resultant dollar
impact to net interest income was a growth of 9.9 percent to $9.1 million for
the three months ended March 31, 1998 from $8.3 million for the three months
ended December 31, 1997.
PROVISION FOR LOAN LOSSES. Provision for loan losses increased from $20,000 for
the first quarter of 1997 to $116,000 for the comparable period in 1998. The
allowance for loan losses increased from $6.5 million at December 31, 1997 to
$6.6 million at March 31, 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 first quarter of 1998
increased by 76.4 percent to $760,000 for the quarter ended March 31, 1998 from
$431,000 for the first 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 $5.9
million for the three months ended March 31, 1998 as compared to $4.6 million
for the quarter ended March 31, 1997, primarily as 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 a one-time non-recurring compensation expense of $750,000 in connection with
the retirement of Mr. James McConnell, on October 1, 1998 as previously
reported. The efficiency ratio, which excludes distortions from non-recurring
items, improved to 51.7 percent in the 1998 first quarter from 56.2 percent in
the 1997 first quarter, despite the increase in non-interest expense.
INCOME BEFORE INCOME TAXES. Total income before provision for income taxes
increased $282,000, or 8.1%, from $3.5 million for the three months ended March
31, 1997 as compared to $3.8 million for the three months ended March 31, 1998
for the reasons stated above.
PROVISION FOR INCOME TAXES. Income tax expense remained unchanged at $1.6
million for the three months ended March 31, 1998 and 1997. The effective tax
rate for the first quarter of 1998 was 41.1 percent, as compared to an effective
tax rate of 45.9 percent for the comparable 1997 period. 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.
FINANCIAL CONDITION
ASSETS. Total assets at March 31, 1998 were stable at $1.1 billion. During the
first three months of 1998, loan originations were $24.5 million for 1-4 family
residential mortgage loans, $18.9 million for multi-family real estate loans,
$4.7 million for commercial real estate loans and $1.9 million in construction
loans. For the first three months of 1997, loan originations were $18.8 million
for 1-4 family real estate loans, $19.0 million for multi-family real estate
loans and $10.9 million for commercial real estate loans.
Non-performing assets were $3.3 million at March 31, 1998 and total
non-performing assets as a percentage of total assets were 0.3 percent at March
31, 1998 and 1997. As a result of the Bank's strict underwriting standards,
Flushing has been able to minimize charge-offs of losses from impaired loans.
The allowance for loan losses to non-performing loans continued to be favorable
at 238.7 percent at March 31, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIABILITIES. Deposit balances increased by $4.5 million during the first three
months of 1998 to $660.5 million at March 31, 1998 primarily due to an $3.8
million increase in regular savings accounts, NOW and money market accounts, a
$1.6 million increase in non-interest bearing demand deposit accounts, and a
$2.3 million increase in mortgagors' escrow accounts, offset by a $3.2 million
decrease in certificate of deposit accounts.
EQUITY. Total stockholders' equity increased $717,000 to $137.2 million at March
31, 1998 from $136.4 million at December 31, 1997. The increase is due to $2.2
million in net income for the three months ended March 31, 1998, offset by $1.2
million in treasury shares purchased through the Company's stock repurchase
plan, and $578,000 in cash dividends paid during 1998. Dividends paid per share
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 $17.52 per share at March
31, 1998 from $17.35 per share at December 31, 1997 and $16.06 at March 31,
1997.
<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 March 31, 1998 and December 31, 1997, the Bank's liquidity
ratio, computed in accordance with the OTS requirement was 24.11% 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 $4.5 million for the three months ended March
31, 1998. The Company's primary business objective is the origination and
purchase of residential, multi-family and commercial real estate loans. During
the three months ended March 31, 1998, the net total of loan originations and
loan repayments was $24.4 million. Real estate loans purchased were $5.4
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 three months ended March 31, 1998, the Company purchased a
total of $128.5 million in securities available for sale. Cash flow used in
these investment activities were funded in part from an aggregate of $116.4
million in sales, calls, maturities and prepayments of securities available for
sale and a net increase of $4.5 million in deposits. In addition, cash flows
used by financing activities decreased $12.6 million from December 31, 1997 to
March 31, 1998 primarily due to repayments of borrowings of $15.6 million to the
FHLB-NY, offset in part by an increase of the Bank's total deposit base of $4.5
million.
<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 March 31, 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 4.45 % 17.76 %
-300 Basis Points 2.66 12.46
-200 Basis Points 0.93 8.21
-100 Basis Points -0.02 4.49
Base Interest Rate 0 0
+100 Basis Points -2.99 -12.41
+200 Basis Points -6.70 -27.37
+300 Basis Points -11.08 -42.81
+400 Basis Points -15.85 -56.32
</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
March 31, 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 March 31, 1998.
<TABLE>
<CAPTION>
Percent of
Amount Assets
--------- ---------
(Dollars in thousands)
<S> <C> <C>
Tangible capital:
Capital level $ 97,624 9.39%
Requirement 15,588 1.50
Excess 82,036 7.89
Core capital:
Capital level $ 97,624 9.39%
Requirement 41,568 4.00
Excess 56,056 5.39
Risk-based capital:
Capital level $ 103,855 20.85%
Requirement 39,854 8.00
Excess 64,001 12.85
</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 three
months ended March 31, 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 three months ended March 31,
-------------------------------------------------------------------------
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 $ 604,317 $ 13,344 8.83 % $ 399,500 $ 8,546 8.56 %
Other loans 3,613 99 10.96 1,653 44 10.65
Mortgage-backed securities 278,663 4,801 6.89 150,078 2,567 6.84
Other securities 84,109 1,429 6.80 180,303 3,105 6.89
Interest-earning deposits and
federal funds sold 55,935 823 5.89 27,483 395 5.75
---------- -------- ----- -------- -------- -----
Total interest-earning assets 1,026,637 20,496 7.99 759,017 14,657 7.72
-------- ----- -------- -----
Non-interest earning assets 54,691 31,308
Total assets ---------- --------
$1,081,328 $ 790,325
========== ========
LIABILITIES AND EQUITY:
Interest-bearing liabilities:
Deposits:
Passbook accounts $ 200,281 $ 1,427 2.85 % $ 209,947 $ 1,485 2.83 %
NOW accounts 22,947 109 1.90 21,457 100 1.86
Money market accounts 24,235 172 2.84 25,744 170 2.64
Certificate of deposit accounts 381,757 5,382 5.64 323,556 4,481 5.54
Mortgagors' escrow deposits 5,812 16 1.10 5,242 13 1.00
Borrowed Funds 283,872 4,322 6.09 60,611 771 5.09
---------- -------- ----- -------- -------- -----
Total interest-bearing liabilities 918,904 11,428 4.97 646,557 7,020 4.34
-------- ----- -------- -------- -----
Other liabilities 30,090 13,353
---------- --------
Total liabilities 948,994 659,910
Equity 132,334 130,415
---------- --------
Total liabilities and equity $1,081,328 $790,325
========== ========
Net interest income/expense spread $ 9,068 3.02 % $ 7,637 3.38 %
======== ====== ======== =====
Net interest-earning assets/net interest
margin $ 107,733 3.53 % $ 112,460 4.02 %
========== ====== ======== =====
Ratio of
interest-earning assets to
interest-bearing liabilities 1.12 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 three For the
months ended year ended
March 31, 1998 December 31, 1997
---------------- -----------------
(In thousands)
<S> <C> <C>
Mortgage Loans
At beginning of period $602,559 $388,086
Mortgage loans originated:
One-to-four family 19,078 42,756
Cooperative 0 475
Multi-family 18,927 79,976
Commercial 4,659 17,121
Construction 1,866 3,016
------ --------
Total mortgage loans originated 44,530 143,344
------ --------
Acquired loans:
Loans purchased 5,396 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 5,396 124,988
------ --------
Less:
Principal reductions 19,155 53,416
Mortgage loans sold 0 0
Mortgage loan foreclosures 312 443
====== ========
At end of period $633,018 $602,559
====== ========
Other Loans:
At beginning of period $ 4,175 $ 1,680
Small Businesses
Administration loans 585 2,029
Net activity (1,591) 466
------ --------
At end of period $ 3,169 $ 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>
March 31, December 31,
1998 1997
------------------ -----------------
(Dollars in Thousands)
<S> <C> <C>
Non-accrual mortgage loans $2,724 $2,409
Other non-accrual loans 40 49
------------------ -----------------
Total non-accrual loans 2,764 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 2,764 2,458
------------------ -----------------
Real estate owned (foreclosed real
estate) 490 433
------------------ -----------------
Total REO 490 433
------------------ -----------------
Total non-performing assets $3,254 $2,891
================== =================
Non-performing loans to gross loans 0.43% 0.41%
Non-performing assets to total assets 0.30% 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>
March 31, December 31,
1998 1997
------------- -----------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of $6,474 $5,437
period
Provision for loan losses 116 104
NY Federal acquisition provision 0 979
Loans charged-off:
One-to-four family 64 85
Co-operative 0 44
Multi-family 0 0
Commercial 0 0
Construction 0 0
Other 17 77
------------- -----------
Total loans 81 206
charged-off ------------- -----------
Recoveries:
Mortgage loans 89 155
Other loans 0 5
------------- -----------
Total recoveries 89 160
------------- -----------
Balance at end of period $6,598 $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 1.04% 1.07%
Ratio of allowance for loans losses
to non-performing loans at
end of period 238.71% 263.38%
Ratio of allowance for loans losses
to non-performing assets at
end of period 202.77% 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.
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
a) EXHIBIT
10.1 Retirement agreement between Flushing Financial Corporation, Flushing
Savings Bank, FSB and James F. McConnell.
10.2 Consultant agreement between Flushing Savings Bank, FSB, Flushing
Financial Corporation, and James F. McConnell.
27 Financial data schedule.
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: May 13, 1998 By: /s/ James F. McConnell
----------------------
James F. McConnell
President and
Chief Executive Officer
Dated: May 13, 1998 By: /s/ Monica C. Passick
---------------------
Monica C. Passick
Senior Vice President,
Treasurer and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Retirement Agreement between Flushing Financial Corporation,
Flushing Savings Bank, and James F. McConnell.
10.2 Consultant agreement between Flushing Financial Corporation,
Flushing Savings Bank, and James F. McConnell.
27 Financial Data Schedule.
Exhibit 10.1
April 8, 1998
Mr. James F. McConnell
14 Leeds Street
South Huntington, New York 11746
Re: Retirement Agreement
Dear Jim:
This letter sets forth the terms of the agreement between Flushing Financial
Corporation (the "Company"), Flushing Savings Bank, FSB (the "Bank") and you
regarding your pending retirement. Capitalized terms used in this letter and not
otherwise defined have the meanings given to them in your employment agreement
with the Company, dated as of November 21, 1995, as amended through the date of
this letter. For purposes of this letter, your employment agreement with the
Company and your employment agreement with the Bank, dated as of November 21,
1995, as amended through the date of this letter, are collectively referred to
as the "Employment Agreements".
1. Subject to the terms and conditions set forth in this letter, on
October 1, 1998 (or such other date as may be agreed to by you, the
Company and the Bank, your "Retirement Date"), you will retire from
your positions of Chief Executive Officer and President of the Company
and the Bank. On such date, the Company and/or the Bank shall pay
you, in the aggregate, a one time payment of $750,000.00 (the "Waiver
Payment") in consideration for your waiver set forth in Paragraph 2 of
this letter. The Waiver Payment shall be made in immediately
available funds wired to a bank account designated by you. Upon
making the Waiver Payment on your Retirement Date, the Company and the
Bank shall have no further obligations to you under this letter
agreement or the Employment Agreements, other than as set forth in
Section 8(a) in each of the Employment Agreements.
2. In anticipation of your pending retirement, the Boards of Directors of the
Company and the Bank have determined that they will not extend the
Employment Periods under the Employment Agreements. By signing this letter
agreement, you agree to waive your rights under the Employment Agreements
to treat such failure to extend the Employment Agreements as grounds for
termination of your employment from the Company and/or the Bank for Good
Reason.
3. In the event that you are terminated for Cause prior to the Retirement
Date, the Company and the Bank shall have no further obligations to you
under this letter agreement or the Employment Agreements, other than as
set forth in Section 8(a) in each of the Employment Agreements.
4. In the event of your death before the Retirement Date, the Company shall
promptly pay the Waiver Payment to your designated beneficiaries or,
failing any designation, your estate. Upon making the waiver Payment upon
your death, the Company and the Bank shall have no further obligations to
you under this letter agreement or the Employment Agreements, other than
as set forth in Section 5(b) and 9(b) in each of the Employment
Agreements.
<PAGE>
-2-
5. In the event that (i) a Change of Control occurs before the Retirement
Date, (ii) you terminate your employment with the Company or the Bank
before the Retirement Date on account of your voluntary resignation
following an event that constitutes Good Reason, other than failure to
extend the Employment Periods, or (iii) you are discharged by the Bank
or the Company for any reason other than for (A) Cause or (B) your
death or Disability, this letter agreement shall become null and void,
and neither you, the Holding Company nor the Bank shall have any rights
or obligations hereunder. In any such event your rights shall be
determined under the Employment Agreements.
6. This Agreement was negotiated and prepared with the assistance of
counsel to the Company and the Bank, and you understand and acknowledge
that in providing such assistance, such counsel was representing the
Company and the Bank. You represent that notwithstanding the
recommendation of the Company and the Bank, you have elected not to
seek representation by counsel in connection with the negotiation and
preparation of this Agreement. You agree that in any dispute or
litigation based on, or arising out of, under, or in connection with
the Agreement, you hereby expressly and irrevocably waive any
objection you may have or hereafter may have regarding the fact that
you were not represented by counsel in connection with the negotiation
and preparation of this Agreement.
This letter agreement may not be altered, varied, revised or amended except by
an instrument in writing signed by you, the Bank and the Company.
Please indicate your agreement with the foregoing by signing in the space
provided below and returning a signed copy of this letter to each of the
undersigned.
Sincerely,
FLUSHING FINANCIAL CORPORATION
By: /s/ Michael J. Hegarty
----------------------
Name: Michael J. Hegarty
Title: Executive Vice President
and Corporate Secretary
FLUSHING SAVINGS BANK, FSB
By: /s/ Anna M. Piacentini
----------------------
Name: Anna M. Piacentini
Title: Senior Vice President
AGREED AND ACCEPTED
/s/ James F. McConnell
- ----------------------
James F. McConnell
<PAGE>
Exhibit 10.2
AGREEMENT
Agreement between Flushing Savings Bank, FSB, a federal savings bank ("the
"Bank"), Flushing Financial Corporation, a Delaware corporation (the "Company")
and James F. McConnell ("Consultant"), effective upon the occurrence of the
"Retirement Date" as defined in that certain letter agreement dated April 8,
1998, between the Bank, the Company and Consultant (the "Letter Agreement").
W I T N E S S E T H:
A. On the Retirement Date, Consultant shall have retired from his position of
President and Chief Executive Officer of the Bank and the Company, but
will continue to serve as a director on the Board of Directors of the Bank
and the Company;
B. The Bank and the Company desire to continue to have available the
leadership, advice and counsel of Consultant after his retirement, and
Consultant is willing to devote substantial time to the business and
affairs of the Bank and the Company above and beyond that required of
directors; and
C. The parties wish to set forth the terms whereby Consultant will receive
fees for his consulting services; such fees to be in addition to, and
independent of, any retainer and meeting fees Consultant receives as a
director of the Bank and the Company.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Term: The term of this Agreement shall commence on the Retirement Date
----
and end on the first anniversary of such date, unless the Agreement is
extended on terms mutually acceptable to the Bank, the Company and
Consultant or is terminated earlier as provided in Section 6. If
Consultant's employment with the Company or the Bank terminates prior
to the Retirement Date or if the Letter Agreement becomes null and void
in accordance with its terms, this Agreement shall become null and void
and neither the Bank, the Company nor Consultant shall have any rights
or obligations hereunder.
2. Services. During the term of this Agreement, Consultant shall consult
--------
with and advise the Senior Officers of the Bank and the Company and
their respective Boards concerning the business and financial affairs
of the Bank and the Company, including, but not limited to, advice with
respect to the management of the Company's and the Bank's investment
portfolios. Consultant shall be free to exercise his own discretion
and judgment with respect to the time, place, method, and manner of
performance of such services. Consultant is expected periodically to
meet in person and to confer by telephone with Senior Officers, but
shall not be required to perform all of such services on the premises
of the Bank or the company. Within 10 days after the end of each
month, Consultant shall submit a Monthly Activity Report to the Company
detailing his consultant activities performed for the Company and the
Bank during the preceding month.
3. Consultant Fees. During the terms of this Agreement, the Bank and the
-----------------
Company will pay Consultant an aggregate fee of $14,583.34 per month.
Payment will be made on the last business day of the month for which the
fee is paid. The fee provided for under this Section 3 shall be in
addition to, and independent of, any retainer and meeting fees Consultant
receives as a director of the Bank and the Company.
4. Automobile; Expenses. The Bank and the Company shall provide
----------------------
Consultant with a suitable automobile for use in the performance of his
duties hereunder, and shall procure insurance for such automobile that
is no less extensive in amount or coverage than as required by New York
law or any lienholder on the automobile. Premiums for such insurance
shall be billed to, and paid by, the Bank and/or the Company.
Consultant shall be reimbursed for expenses incurred in connection with
such automobile and for expenses reasonably and necessarily incurred by
him in connection with the performance of his services under this
Agreement, in each case in accordance with the Bank's and the Company's
applicable policies and procedures. Consultant shall furnish the Bank
and the Company with appropriate documentation required by the Internal
Revenue Code and regulations thereunder or otherwise reasonably
required under the Bank's and the Company's policies in connection with
such expenses.
5. Independent Contractor Status. Consultant's services under this
--------------------------------
Agreement shall be provided by him as an independent contractor.
Nothing contained in this Agreement or in the performance of the
services hereunder shall be construed as creating the relationship of
employer and employee between the Bank or the Company and consultant.
Consultant understands that this Agreement does not provide him with
any life, health or disability insurance or other employee benefits
provided by the Bank and/or the Company to its employees. However,
nothing in this Agreement shall be construed to affect, in any way, any
life, health or disability insurance or other employee benefits that
Consultant is entitled to receive from the Bank and/or the Company as a
retired employee of the Bank and the Company. The Bank and the
Company shall not withhold federal, state or local taxes with respect
to the consulting fees payable to Consultant under this agreement.
6. Termination. This Agreement shall terminate in the event Consultant
-----------
ceases to be a director at anytime following a "Change in Control", as
defined in the 1996 Restricted Stock Incentive Plan of Flushing
Financial Corporation. Upon such termination of this Agreement,
Consultant shall be paid in one lump sum the amount of the aggregate
fees that Consultant would have earned if he had continued to serve
until the end of the term of this Agreement, either as stated in
Section 1 or as later extended.
7. Entire Agreement; Modification. This Agreement contains the entire
----------------------------------
understanding between the parties with respect to the subject matter
hereof, and may not be altered, varied, revised, or amended except by an
instrument in writing signed by Consultant, the Bank and the Company
subsequent to the date of this Agreement.
8. Assignment. This Agreement is for the personal services of Consultant and
-----------
shall not be assignable by Consultant.
9. No Duty to Mitigate. Consultant shall have no duty to mitigate any damages
--------------------
payable to Bank and/or the Company to consultant hereunder.
IN WITNESS WHEREOF, Consultant, the Bank and the Company have caused this
Agreement to be executed on this 8th day of April, 1998 but effective as of the
Retirement Date.
FLUSHING SAVINGS BANK, FSB
By: /s/ Anna M. Piacentini
----------------------
FLUSHING FINANCIAL CORPORATION
By: /s/ Michael J. Hegarty
----------------------
/s/ James F. McConnell
----------------------
James F. McConnell
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at March 31, 1998
(unaudited), and the Condensed Consolidated Statement of Income for the three
months ended March 31, 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> MAR-31-1998
<PERIOD-TYPE> 3-MOS
<CASH> 4,594
<INT-BEARING-DEPOSITS> 25,300
<FED-FUNDS-SOLD> 10,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 368,197
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 634,675
<ALLOWANCE> 6,598
<TOTAL-ASSETS> 1,078,455
<DEPOSITS> 660,454
<SHORT-TERM> 100,000
<LIABILITIES-OTHER> 9,272
<LONG-TERM> 171,569
0
0
<COMMON> 89
<OTHER-SE> 137,071
<TOTAL-LIABILITIES-AND-EQUITY> 1,078,455
<INTEREST-LOAN> 13,443
<INTEREST-INVEST> 6,231
<INTEREST-OTHER> 823
<INTEREST-TOTAL> 20,497
<INTEREST-DEPOSIT> 7,106
<INTEREST-EXPENSE> 11,429
<INTEREST-INCOME-NET> 9,068
<LOAN-LOSSES> 116
<SECURITIES-GAINS> 76
<EXPENSE-OTHER> 5,936
<INCOME-PRETAX> 3,776
<INCOME-PRE-EXTRAORDINARY> 3,776
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,225
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.31
<YIELD-ACTUAL> 7.99
<LOANS-NON> 2,764
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,474
<CHARGE-OFFS> 81
<RECOVERIES> 89
<ALLOWANCE-CLOSE> 6,598
<ALLOWANCE-DOMESTIC> 6,598
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,598
</TABLE>
