UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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
October 28, 1999 was 9,909,096 shares.
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TABLE OF CONTENTS
PAGE
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PART I -- FINANCIAL INFORMATION
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 6
AND RESULTS OF OPERATIONS
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK 20
PART II. -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 2. CHANGES IN SECURITIES 20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
ITEM 5. OTHER INFORMATION 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 21
EXHIBITS 22
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<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) September 30, 1999 December 31, 1998
=======================================================================================================
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,262 $ 11,934
Federal funds sold and overnight interest-earning deposits 8,720 10,800
Securities available for sale:
Mortgage-backed securities 284,344 302,421
Other securities 25,424 24,269
Loans:
1-4 Family residential mortgage loans 392,542 361,786
Multi-family mortgage loans 295,166 277,437
Commercial real estate loans 131,041 101,401
Co-operative apartment loans 9,205 10,238
Construction loans 7,386 3,203
Small Business Administration loans 2,847 2,616
Consumer and other loans 3,550 1,899
Less: Unearned loan fees (119) (1,263)
Allowance for loan losses (6,937) (6,762)
--------------- ---------------
Net loans 834,681 750,555
Interest and dividends receivable 7,172 7,120
Real estate owned, net 333 77
Bank premises and equipment, net 6,081 6,441
Federal Home Loan Bank of New York stock 20,865 17,320
Goodwill 4,729 5,004
Other assets 10,456 6,114
--------------- ---------------
Total assets $ 1,210,067 $ 1,142,055
=============== ===============
LIABILITIES
Due to depositors:
Non-interest bearing $ 17,475 $ 27,505
Interest-bearing 625,439 629,991
Mortgagors' escrow deposits 11,573 6,563
Borrowed funds 417,303 335,458
Other liabilities 17,949 10,451
--------------- ---------------
Total liabilities 1,089,739 1,009,968
--------------- ---------------
STOCKHOLDERS' EQUITY
Preferred stock ($0.01 par value; 5,000,000 shares authorized) -- --
Common stock ($0.01 par value; 20,000,000 shares authorized;
11,355,678 shares issued; 9,937,996 and 10,898,805 shares
outstanding at September 30, 1999 and December 31, 1998,
respectively) 114 114
Additional paid-in capital 75,705 75,452
Treasury stock (1,417,682 and 456,873 shares at September 30,
1999 and December 31, 1998, respectively) (21,974) (6,949)
Unearned compensation - Employee Benefit Plan (6,736) (6,956)
Unearned compensation - Restricted Stock Awards (2,755) (2,376)
Retained earnings 78,501 71,460
Accumulated other comprehensive income:
Net unrealized gain (loss) on securities available for
sale, net of taxes (2,527) 1,342
--------------- ---------------
Total stockholders' equity 120,328 132,087
--------------- ---------------
Total liabilities and stockholders' equity $ 1,210,067 $ 1,142,055
=============== ===============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
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<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
---------------------- ----------------------
(In thousands, except per share data) 1999 1998 1999 1998
=================================================================================================================
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 16,940 $ 14,364 $ 49,293 $ 41,742
Interest and dividends on securities:
Taxable interest 5,038 6,129 14,480 18,455
Dividends 62 57 177 166
Other interest income 159 279 463 1,494
----------- ---------- ----------- ----------
Total interest and dividend income 22,199 20,829 64,413 61,857
----------- ---------- ----------- ----------
INTEREST EXPENSE
Deposits 6,220 7,046 18,601 21,268
Other interest expense 6,038 4,922 16,395 13,431
----------- ---------- ----------- ----------
Total interest expense 12,258 11,968 34,996 34,699
----------- ---------- ----------- ----------
NET INTEREST INCOME 9,941 8,861 29,417 27,158
Provision for loan losses -- 15 36 173
----------- ---------- ----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,941 8,846 29,381 26,985
----------- ---------- ----------- ----------
NON-INTEREST INCOME
Other fee income 417 346 1,371 1,019
Net gain on sales of securities and loans 37 180 182 330
Other income 442 436 1,252 1,143
----------- ---------- ----------- ----------
Total non-interest income 896 962 2,805 2,492
----------- ---------- ----------- ----------
NON-INTEREST EXPENSE
Salaries and employee benefits 2,840 3,429 8,444 10,069
Occupancy and equipment 496 476 1,438 1,425
Professional services 612 422 1,862 1,319
Data processing 337 296 928 852
Depreciation and amortization 249 253 763 729
Other operating expenses 1,092 1,156 3,493 3,234
----------- ---------- ----------- ----------
Total non-interest expense 5,626 6,032 16,928 17,628
----------- ---------- ----------- ----------
INCOME BEFORE INCOME TAXES 5,211 3,776 15,258 11,849
----------- ---------- ----------- ----------
PROVISION FOR INCOME TAXES
Federal 1,654 1,264 4,775 3,991
State and local 326 53 1,023 432
----------- ---------- ----------- ----------
Total taxes 1,980 1,317 5,798 4,423
----------- ---------- ----------- ----------
Net income $ 3,231 $ 2,459 $ 9,460 $ 7,426
=========== ========== =========== ==========
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gains on securities:
Unrealized holding (losses) gains arising
during period $ (913)$ 1,230 $ (3,834)$ 1,167
Less: reclassification adjustments for gains
included in income -- (14) (35) (54)
----------- ---------- ----------- ----------
Net unrealized holding (losses) gains (913) 1,216 (3,869) 1,113
----------- ---------- ----------- ----------
COMPREHENSIVE NET INCOME $ 2,318 $ 3,675 $ 5,591 $ 8,539
=========== ========== =========== ==========
Basic earnings per share $0.36 $0.24 $1.03 $0.72
Diluted earnings per share $0.35 $0.24 $1.01 $0.70
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ended
September 30,
--------------------------------
(In thousands) 1999 1998
=======================================================================================================================
(Unaudited)
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net income $ 9,460 $ 7,426
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 36 173
Provision for losses on real estate owned -- 33
Depreciation of bank premises and equipment 764 729
Amortization of goodwill 275 275
Net gain on sales of securities (64) (100)
Net gain on sales of Small Business Administration loans (118) (230)
Net loss on sales of real estate owned 10 6
Amortization of unearned premium, net of accretion of unearned discount 1,855 1,390
Amortization of deferred income (1,079) (620)
Deferred income tax benefit (193) (511)
Deferred compensation 143 161
Changes in operating assets and liabilities 6,679 5,212
Unearned compensation 963 1,205
--------------- ---------------
Net cash provided by operating activities 18,731 15,149
--------------- ---------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of banking premises and equipment (404) (781)
Purchases of Federal Home Loan Bank stock (3,545) (2,965)
Purchases of securities available for sale (73,694) (242,341)
Proceeds from sales and calls of securities available for sale 7,540 176,679
Proceeds from maturities and prepayments of securities available for sale 74,452 57,156
Net originations and repayment of loans (73,964) (81,727)
Purchases of loans (9,671) (20,587)
Proceeds from sales and operations of real estate owned 67 565
--------------- ---------------
Net cash used by investing activities (79,219) (114,001)
--------------- ---------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Net decrease in non-interest bearing deposits (10,030) (4,238)
Net decrease in interest-bearing deposits (4,552) (9,752)
Net increase in mortgagors' escrow deposits 5,010 6,729
Net increase (decrease) in short-term borrowed funds 5,000 (20,000)
Net increase in long-term borrowed funds 76,845 78,923
Purchases of treasury stock, net (16,304) (7,615)
Cash dividends paid (2,233) (1,774)
--------------- ---------------
Net cash provided by financing activities 53,736 42,273
--------------- ---------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (6,752) (56,579)
Cash and cash equivalents, beginning of period 22,734 90,352
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15,982 $ 33,773
=============== ===============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid $ 34,659 $ 30,066
Income taxes paid 1,773 5,050
Non-cash activities:
Loans originated as the result of real estate sales -- --
Loans transferred through foreclosure of a related mortgage
loan to real estate owned 339 420
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
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<CAPTION>
For the nine months ended
(In thousands, except share data) September 30, 1999
=====================================================================================================
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COMMON STOCK
Balance, beginning of period $ 114
No activity --
---------------------------
Balance, end of period $ 114
===========================
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period $ 75,452
Release of shares from Employee Benefit Trust ( 2,673 common shares) 21
Restricted stock award (76,750 common shares) 8
Tax benefit of stock plans 224
---------------------------
Balance, end of period $ 75,705
===========================
TREASURY STOCK
Balance, beginning of period $ (6,949)
Purchases of common shares outstanding (1,054,900 common shares) (16,480)
Restricted stock award (76,750 common shares) 1,177
Repurchase of restricted stock awards (18,621 common shares) (275)
Restricted stock award forfeitures (5,700 common shares) (84)
Options exercised (41,662 common shares) 637
---------------------------
Balance, end of period $ (21,974)
===========================
UNEARNED COMPENSATION
Balance, beginning of period $ (9,332)
Restricted stock award expense 722
Restricted stock award forfeitures (5,700 common shares) 84
Restricted stock award (76,750 common shares) (1,185)
Release of shares from Employee Benefit Trust (28,607 common shares) 220
---------------------------
Balance, end of period $ (9,491)
===========================
RETAINED EARNINGS
Balance, beginning of period $ 71,460
Net income 9,460
Options exercised (41,662 common shares) (186)
Cash dividends declared and paid (2,233)
---------------------------
Balance, end of period $ 78,501
===========================
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of period $ 1,342
Change in net unrealized gain (loss), net of taxes of approximately
$3,267 on securities available for sale (3,834)
Less: Reclassification adjustment for gains included in net income,
net of taxes of approximately $29 (35)
---------------------------
Balance, end of period $ (2,527)
===========================
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS
1. BASIS OF PRESENTATION
The primary business of Flushing Financial Corporation is the operation of its
wholly-owned subsidiary, Flushing Savings Bank, FSB (the "Bank"). The
consolidated financial statements presented in this Form 10-Q reflect
principally the Bank's activities.
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 1998 Annual Report
on Form 10-K.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
3. EARNINGS PER SHARE
Basic earnings per share for the three and nine month periods ended September
30, 1999 and 1998 was computed by dividing net income by the total weighted
average number of common shares outstanding, including only the vested portion
of restricted stock awards. Diluted earnings per share includes the additional
dilutive effect of stock options outstanding and the unvested portion of
restricted stock awards during the period.
Earnings per share has been computed based on the following:
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<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
(Amounts in thousands, except per share data) 1999 1998 1999 1998
=========================================================================================================
<S> <C> <C> <C> <C>
Net income $3,231 $2,459 $9,460 $7,426
Divided by:
Weighted average common shares outstanding 8,957 10,209 9,207 10,287
Weighted average common stock equivalents 229 245 192 259
Total weighted average common shares & common stock equivalents 9,186 10,454 9,399 10,546
Basic earnings per share $0.36 $0.24 $1.03 $0.72
Diluted earnings per share $0.35 $0.24 $1.01 $0.70
Dividends per share $0.08 $0.06 $0.24 $0.16
</TABLE>
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<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 (the
"Bank"), a federally chartered, FDIC insured savings institution, originally
organized in 1929. The Bank is a consumer-oriented savings institution and
conducts its business through eight banking offices located in Queens, Brooklyn,
Manhattan and Nassau County. The opening of a second supermarket branch in Co-op
City in the Bronx is scheduled for November, 1999. 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 funds generated from
operations and borrowings, primarily in (i) origination and purchases of
one-to-four family residential mortgage loans, multi-family income-producing
property loans and commercial real estate loans, (ii) mortgage loan surrogates
such as mortgage-backed securities; and (iii) U.S. government and federal agency
securities, corporate fixed-income securities and other marketable securities.
To a lesser extent, the Company originates certain other loans, including
construction loans, Small Business Administration loans and other small business
loans.
The Company's results of operations depend primarily on net interest income,
which is the difference between the interest income earned on its loan and
securities portfolios, and its cost of funds, consisting primarily of interest
paid on deposit accounts and borrowed funds. Net interest income is the result
of the Company's interest rate margin, which is the difference between the
average yield earned on interest-earning assets and the average cost of
interest-bearing liabilities, and the average balance of interest-earning assets
compared to the average balance of interest-bearing liabilities. 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, 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. Such results also are 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 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.
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 during 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.
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<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements contained in this Quarterly Report relating to plans, strategies,
objectives, economic performance and trends and other statements that are not
descriptions of historical facts may be forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward looking information is inherently
subject to risks and uncertainties, and actual results could differ materially
from those currently anticipated due to a number of factors, which include, but
are not limited to, the factors set forth in the preceding paragraphs, the
factors described below under Year 2000 Compliance, 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 1998 Annual Report to Shareholders and the SEC Report
on Form 10-K for the year ended December 31, 1998. The Company has no obligation
to update these forward-looking statements.
YEAR 2000 COMPLIANCE
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 vendors,
and purchased software operating on in-house computer networks. As the year 2000
approaches, a critical business issue has emerged regarding how existing
software, such as application programs and operating systems, will accommodate
the year 2000 date value. In the past, such software was programmed to assume
that all year values begin with "19". In response to this business concern, the
Company established, in 1997, a Year 2000 Task Force ("Y2K 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. With the implementation
of the Y2K Task Force, actions were taken to remedy the Company's year 2000
problems.
Since its formation, the Y2K Task Force has contacted parties with which the
Company has material relationships, including the Company's data processing
vendors, 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 contacted 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 continues to communicate with
these borrowers to monitor their year 2000 readiness. The Company's investment
securities portfolio, which amounted to 25.6% of total assets at September 30,
1999, consists primarily of U.S. government securities or U.S. government agency
backed mortgage-backed securities. Although the Company is attempting to monitor
and evaluate the efforts of these other parties, it cannot control the success
of their efforts.
The Company believes that its in-house systems and software are year 2000
compliant. In addition, the Company's data processing vendors have indicated
that their hardware and software are year 2000 compliant. The majority of other
vendors have indicated that their hardware and/or software is or will be year
2000 compliant prior to the date change. Notwithstanding the foregoing, given
the inherent uncertainty in the year 2000 problem, there can be no assurance
that the Company will not experience a disruption in service related to the year
2000 problem. For this reason, the Company plans to continue to monitor its year
2000 readiness through the end of the year.
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<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is also dependent in its business upon the availability of public
utilities, including communications and power services. The Company cannot
predict the year 2000 readiness of such utilities or the outcome of their
remediation efforts.
The Company's cost to upgrade various systems, primarily software version
upgrades, was approximately $85,000, excluding the time that internal staff
devoted to testing and monitoring year 2000 compliance, although these
activities did not add significant incremental cost. Management does not
anticipate significant future costs for year 2000 compliance and testing.
Therefore, management believes that the cost of year 2000 compliance, in the
aggregate, will not have a material adverse effect on the Company's consolidated
financial condition, results of operations, or cash flow.
The Company believes that the most reasonably likely worst case scenario, should
there be a disruption of service in spite of the year 2000 efforts of the
Company and its third party vendors, would be an inability to process banking
transactions, calculate investment yields and costs, send and receive electronic
data with third parties, or engage in similar normal business activities. Should
the Company need to manually calculate and complete transactions, assuming a
doubling in manpower, the cost of alternative methods of doing business is
projected to be approximately $250,000 in additional expenses per month.
Management believes that a more likely scenario in the event of any year 2000
non-compliance would be a temporary disruption of service to its customers. The
Company is of the opinion that its contingency plans would mitigate the
long-term effect of such a scenario and that a temporary disruption would not
have a material adverse effect on its consolidated financial condition, results
of operations or cash flow.
In the unanticipated event that the Company experiences a disruption of service,
the Company has developed contingency plans that management believes will
provide reasonable substitutes for the essential functions in the Company's
primary business that become unavailable on its systems or those of its third
party vendors. Some of these contingency plans are already in use for
unanticipated data processing vendor downtime which occurs during the normal
course of business.
The discussion above of the Company's efforts, and management's expectations,
relating to year 2000 compliance are forward-looking statements, which are based
on management's best estimate of various factors involving numerous assumptions.
The Company's ability to achieve year 2000 compliance and the level of
incremental costs associated therewith could be adversely impacted by, among
other things, the availability and cost of programming and testing resources,
vendors' ability to modify proprietary software, and unanticipated problems
identified in the ongoing compliance review.
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<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
SEPTEMBER 30, 1999 AND 1998
GENERAL. Net income for the third quarter of 1999 increased 31.4% to $3.2
million, or $0.35 per diluted share, from the $2.5 million, or $0.24 per diluted
share, earned in the quarter ended September 30, 1998. The return on average
assets for the third quarter of 1999 increased to 1.09% from 0.88% for the
comparable 1998 period, while the return on average equity for the third quarter
of 1999 increased to 10.77% from 7.16% for the comparable 1998 period.
INTEREST INCOME. Total interest and dividend income increased $1.4 million, or
6.6%, to $22.2 million for the three months ended September 30, 1999 from $20.8
million for the three months ended September 30, 1998. This increase was
primarily the result of a $77.9 million increase in the average earning balances
of interest-earning assets for the quarter ended September 30, 1999 as compared
to the quarter ended September 30, 1998. The average balance of mortgage loans,
net, increased $146.2 million for the third quarter of 1999 as compared to the
third quarter of 1998. This increase was partially offset by $66.2 million and
$5.2 million decreases in the average balances of investment securities and
interest-earning deposits and federal funds, respectively, for the third quarter
of 1999 compared to the third quarter of 1998. The yield on interest-earning
assets declined six basis points to 7.78% for the third quarter of 1999 from
7.84% for the third quarter of 1998 primarily due to declining rates on mortgage
loans originated.
INTEREST EXPENSE. Interest expense increased $0.3 million, or 2.4%, to $12.3
million for the three months ended September 30, 1999 from $12.0 million for the
three months ended September 30, 1998, primarily due to an $84.7 million
increase in the average balance of interest-bearing liabilities. This increase
in the average balance of interest-bearing liabilities was partially offset by a
30 basis point decrease in the average cost of interest-bearing liabilities to
4.74% in the third quarter of 1999 from 5.04% in the third quarter of 1998, as
certificates of deposit renewed at lower rates, the rate paid for passbook
deposit accounts was reduced, and the cost of borrowings declined.
NET INTEREST INCOME. For the three months ended September 30, 1999, net interest
income increased $1.0 million, or 12.2%, to $9.9 million from $8.9 million in
the comparable 1998 period, for reasons stated above. The net interest margin
improved 16 basis points to 3.49% for the three months ended September 30, 1999
from 3.33% for the comparable 1998 period, due primarily to the decrease in the
average cost of interest-bearing liabilities. The net interest margin declined
12 basis points from 3.61% in the second quarter of 1999 to 3.49% in the third
quarter of 1999. The decline is primarily the result of a 15 basis point
increase in the cost of interest bearing liabilities, as the average balance of
interest bearing liabilities increased by $36.6 million, with the higher costing
borrowed funds increasing $41.7 million. This was, however, partially offset by
a three basis point increase in the yield on interest earning assets, as the
average balance of interest earning assets increased $33.3 million, of which
$30.6 million was on higher yielding mortgage loans.
PROVISION FOR LOAN LOSSES. There was no provision for loan losses for the three
months ended September 30, 1999 as compared to a $15,000 provision in the
comparable 1998 period. Despite the lower provision, the allowance for loan
losses increased from $6.8 million at December 31, 1998 to $6.9 million at
September 30, 1999 due to recoveries on previously charged-off loans. The level
of the allowance for loan losses reflects the Bank's evaluation of current
economic conditions, the overall trend of non-performing loans in the loan
portfolio (see Asset Section), its analysis of specific loan situations, and the
size and composition of the loan portfolio.
-9-
<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 decreased by 6.9% to $0.9 million
for the three months ended September 30, 1999 from $1.0 million for the three
months ended September 30, 1998. An increase of $71,000, or 20.5%, in fee income
from mortgage operations and banking services was offset by a decrease of
$143,000 in net gain on sale of securities and loans.
NON-INTEREST EXPENSE. Non-interest expense declined $0.4 million to $5.6 million
for the three months ended September 30, 1999 as compared to $6.0 million for
the comparable 1998 period. Salaries and benefits declined by $0.6 million,
primarily due to $0.5 million in one-time non-recurring compensation expense
recorded in the quarter ended September 30, 1998. This decrease was partially
offset by an increase in professional fees. Management continues to monitor
expenditures resulting in efficiency ratios, which exclude non-recurring items,
of 51.0% and 55.5% for the three months ended September 30, 1999 and 1998,
respectively.
INCOME BEFORE INCOME TAXES. Total income before provision for income taxes
increased $1.4 million, or 38.0%, to $5.2 million for the three months ended
September 30, 1999 as compared to $3.8 million for the three months ended
September 30, 1998 for reasons stated above.
PROVISION FOR INCOME TAXES. Income tax expense increased $0.7 million to $2.0
million for the three months ended September 30, 1999 as compared to $1.3
million for the comparable 1998 period. This is primarily due to the $1.4
million increase in income before taxes.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
GENERAL. Net income for the nine months ended September 30, 1999 increased 27.4%
to $9.5 million, or $1.01 per diluted share, from the $7.4 million, or $0.70 per
diluted share, earned in the nine months ended September 30, 1998. The return on
average assets for the nine months ended September 30, 1999 increased to 1.09%
from 0.90% for the comparable 1998 period, while the return on average equity
for the nine months ended September 30, 1999 increased to 10.07% from 7.28% for
the comparable 1998 period.
INTEREST INCOME. Total interest and dividend income increased $2.5 million, or
4.1%, to $64.4 million for the nine months ended September 30, 1999 from $61.9
million for the nine months ended September 30, 1998. This increase was
primarily the result of a $67.7 million increase in the average earning balances
of interest-earning assets for the nine months ended September 30, 1999 as
compared to the nine months ended September 30, 1998. The average balance of
mortgage loans, net, increased $147.9 million for the nine months ended
September 30, 1999 as compared to the comparable 1998 period. This increase was
partially offset by $60.9 million and $21.5 million decreases in the average
balances of investment securities and interest-earning deposits and federal
funds, respectively, for the nine months ended September 30, 1999 compared to
the comparable 1998 period. The yield on interest-earning assets declined 17
basis points to 7.74% for the nine months ended September 30, 1999 from 7.91%
for the nine months ended September 30, 1998 primarily due to declining rates on
mortgage loans originated. Interest Expense. Interest expense increased $0.3
million, or 0.9%, to $35.0 million for the nine months ended September 30, 1999
from $34.7 million for the comparable 1998 period. A $75.8 million increase in
the average balance of interest-bearing liabilities for the nine months ended
September 30, 1999 from the comparable 1998 period was offset by a 34 basis
point decline in the cost of interest-bearing liabilities to 4.66% in the nine
months ended September 30, 1999 as compared to 5.00% for the nine months ended
September 30, 1998. This decline in the cost of interest-bearing liabilities is
due to certificates of deposit renewing at lower rates, the rate paid for
passbook deposit accounts being reduced, and a decline in the cost of borrowed
funds.
-10-
<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INTEREST INCOME. For the nine months ended September 30, 1999, net interest
income increased $2.2 million, or 8.3%, to $29.4 million from $27.2 million in
the comparable 1998 period, for reasons stated above. The net interest margin
improved six basis point to 3.53% for the nine months ended September 30, 1999
from 3.47% for the comparable 1998 period.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the nine months
ended September 30, 1999 was $36,000 as compared to $173,000 for the comparable
1998 period. Despite the lower provision, the allowance for loan losses
increased from $6.8 million at December 31, 1998 to $6.9 million at September
30, 1999 due to recoveries on previously charged-off loans. The level of the
allowance for loan losses reflects the Bank's evaluation of current economic
conditions, the overall trend of non-performing loans in the loan portfolio (see
Asset Section), its analysis of specific loan situations, and the size and
composition of the loan portfolio.
NON-INTEREST INCOME. Total non-interest income increased by 12.6% to $2.8
million for the nine months ended September 30, 1999 from $2.5 million for the
nine months ended September 30, 1998. The increase is due primarily to increases
in fee income from mortgage operations and banking services.
NON-INTEREST EXPENSE. Non-interest expense decreased by $0.7 million, or 4.0%,
to $16.9 million for the nine months ended September 30, 1999 as compared to
$17.6 million for the nine months ended September 30, 1998. Salaries and
benefits declined by $1.6 million due primarily to $1.5 million in one-time
non-recurring compensation expenses recorded during the nine months ended
September 30, 1998 relating to the planned retirement of a senior executive and
a one-time payout under a senior officer's employment agreement. This decrease
was partially offset by increases in professional fees, business promotion, and
other expenses. Management continues to monitor expenditures resulting in
efficiency ratios, which exclude non-recurring items, of 51.7% and 53.6% for the
nine months ended September 30, 1999 and 1998, respectively.
INCOME BEFORE INCOME TAXES. Total income before provision for income taxes
increased $3.5 million, or 28.8%, to $15.3 million for the nine months ended
September 30, 1999 as compared to $11.8 million for the nine months ended
September 30, 1998 for reasons stated above.
PROVISION FOR INCOME TAXES. Income tax expense increased $1.4 million to $5.8
million for the nine months ended September 30, 1999 as compared to $4.4 million
for the comparable 1998 period. This is primarily due to the $3.5 million
increase in income before taxes.
FINANCIAL CONDITION
ASSETS. Total assets at September 30, 1999 were $1.21 billion, a $68.0 million
increase from December 31, 1998. During the nine months ended September 30,
1999, loan originations and purchases were $74.6 million for 1-4 family
residential mortgage loans, $58.3 million for multi-family real estate loans,
$37.0 million for commercial real estate loans and $6.1 million in construction
loans. During the nine months ended September 30, 1998, loan originations and
purchases were $84.8 million for 1-4 family residential mortgage loans, $58.8
million for multi-family real estate loans, $31.2 million for commercial real
estate loans and $2.3 million in construction loans. Total loans, net, increased
$84.1 million during the nine months ended September 30, 1999 to $834.7 million
from $750.6 million at December 31, 1998.
-11-
<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. For the nine months ended September 30, 1999, the Bank realized
net recoveries of $139,000, and for the 1998 year, the Bank realized net
recoveries of $74,000. Non-performing assets were $5.6 million at September 30,
1999 compared to $2.7 million at December 31, 1998 and $2.6 million at September
30, 1998. The increase in non-performing assets primarily relates to three
commercial mortgage loans for which management believes the value of the
underlying collateral is sufficient to allow the Bank to realize its investment
in these loans. Total non-performing assets as a percentage of total assets were
0.47% at September 30, 1999 compared to 0.23% at December 31, 1998 and 0.22% at
September 30, 1998. The ratio of allowance for loan losses to total
non-performing loans was 130.72% at September 30, 1999 compared to 260.36% at
December 31, 1998 and 281.53% at September 30, 1998. The ratio of allowance for
loan losses to loans was 0.82% at September 30, 1999 and 0.89% at December 31,
1999.
LIABILITIES. Total liabilities increased $79.8 million to $1.09 billion at
September 30, 1999 from $1.01 billion at December 31, 1998 . The change in total
liabilities was due primarily to an increase in FHLB borrowings of $81.8 million
during the nine months ended September 30, 1999, bringing FHLB borrowings to
$417.3 million at September 30, 1999.
EQUITY. Total stockholders' equity decreased $11.8 million to $120.3 million at
September 30, 1999 from $132.1 million at December 31, 1998. Net income of $9.5
million for the nine months ended September 30, 1999 was offset by $16.5 million
in treasury shares purchased through the Company's stock repurchase plans, $2.2
million in cash dividends paid during the nine month period, and a $3.9 million
after tax decline in the market value of securities available for sale.
Quarterly dividends per share were increased from $0.06 per share for the fourth
quarter of 1998 to $0.08 per share in each of the first three quarters of 1999.
Book value is $12.11 per share at September 30, 1999 compared to $12.12 per
share at December 31, 1998 and $12.10 at September 30, 1998.
During the first quarter of 1999, the Company completed its fourth stock
repurchase program, and the Board of Directors approved the fifth stock
repurchase program for 540,000 shares, which was completed during the second
quarter of 1999. The Board of Directors approved the sixth stock repurchase
program for 512,000 during the second quarter of 1999. Under these programs, the
Company repurchased 1,054,900 shares during the nine months ended September 30,
1999, leaving 111,500 shares to be repurchased under the current stock
repurchase program at September 30, 1999.
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 September 30, 1999 and December 31, 1998, the Bank's liquidity
ratio, computed in accordance with the OTS requirement was 11.76% and 18.28%,
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.
-12-
<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CASH FLOW. During the nine months ended September 30, 1999, funds provided by
the Company's operating activities amounted to $18.7 million. These funds,
together with $53.7 million provided by financing activities and funds available
at the beginning of the year, were utilized to fund net investing activities of
$79.2 million. The Company's primary business objective is the origination and
purchase of 1-4 family residential, multi-family and commercial real estate
loans. During the nine months ended September 30, 1999, the net total of loan
originations less loan repayments was $74.0 million, and the total amount of
real estate loans purchased was $9.7 million. The Company also invests in other
securities including mortgage loan surrogates such as mortgage-backed
securities. During the nine months ended September 30, 1999, the Company
purchased a total of $73.7 million in securities available for sale. Funds for
investment were also provided by $82.0 million in sales, calls, maturities, and
prepayments of securities available for sale, and $76.8 million of net increased
borrowings from the FHLB-NY with original maturities greater than one year. The
Company also used funds of $16.8 million for treasury stock repurchases and $2.2
million in dividend payments during the nine months ended September 30, 1999.
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
certain 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) 300
basis points, assuming the yield curves of the rate shocks will be parallel to
each other. Net portfolio value is defined as the market value of assets net of
the market value of liabilities. The net portfolio value ratio is the ratio of
the net portfolio value to the market value of assets. 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 September 30, 1999 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, with the exception of plus 300 basis points for the net portfolio
value which exceeds the guideline of minus 45.00%. This exception has been
reviewed with the Board of Directors. Management is taking steps to bring this
exposure within the guideline.
<TABLE>
<CAPTION>
Projected Percentage Change In
----------------------------------
Net
Net Interest Net Portfolio Portfolio
Change in Interest Rate Income Value Value Ratio
=========================================================================================
<S> <C> <C> <C>
-300 Basis points 1.52 % 18.83 % 15.03 %
-200 Basis points 2.61 16.73 15.11
-100 Basis points 2.47 12.82 14.92
Base interest rate 0.00 0.00 13.68
+100 Basis points -4.58 -15.61 11.99
+200 Basis points -17.14 -32.21 10.02
+300 Basis points -15.55 -47.74 8.04
</TABLE>
-13-
<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
September 30, 1999, the Bank exceeded each of the three OTS capital requirements
and is categorized as "well-capitalized" by the OTS under the prompt corrective
action regulations. Set forth below is a summary of the Bank's compliance with
OTS capital standards as of September 30, 1999.
<TABLE>
<CAPTION>
(Dollars in thousands) Amount Percent of Assets
======================================================================================
<S> <C> <C>
Tangible Capital:
Capital level $107,380 8.97%
Requirement 17,958 1.50
Excess 89,422 7.47
Core Capital:
Capital level $107,380 8.97%
Requirement 47,888 4.00
Excess 59,492 4.97
Risk-Based Capital:
Capital level $114,317 17.56%
Requirement 52,094 8.00
Excess 62,223 9.56
</TABLE>
-14-
<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
set forth certain information relating to the Company's consolidated statements
of financial condition and consolidated statements of operations for the three
month periods ended September 30, 1999 and 1998, 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 September 30,
----------------------------------------------------------------
1999 1998
------------------------------- -------------------------------
Average Average Average Average
(Dollars in thousands) Balance Interest Yield/Cost Balance Interest Yield/Cost
==================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Mortgage loans, net $815,962 $16,784 8.23% $669,796 $14,300 8.54%
Other loans 5,997 156 10.41 2,867 64 8.93
Mortgage-backed securities 286,434 4,784 6.68 342,871 5,656 6.60
Other securities 21,548 316 5.87 31,325 530 6.77
Interest-earning deposits and
federal funds sold 10,942 159 5.81 16,173 279 6.90
-------------------------------- -------------------------------
Total interest-earning assets 1,140,883 22,199 7.78 1,063,032 20,829 7.84
--------------------- ---------------------
Non-interest earning assets 50,018 55,131
----------- -----------
Total assets $1,190,901 $1,118,163
=========== ===========
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Due Depositors:
Passbook accounts $200,380 1,044 2.08 $201,556 1,450 2.88
NOW accounts 25,843 124 1.92 24,742 118 1.91
Money market accounts 38,784 308 3.18 26,783 207 3.09
Certificate of deposit accounts 361,645 4,729 5.23 373,284 5,253 5.63
Mortgagors' escrow deposits 9,140 15 0.66 6,493 18 1.11
Borrowed funds 398,543 6,038 6.06 316,758 4,922 6.22
-------------------------------- -------------------------------
Total interest-bearing liabilities 1,034,335 12,258 4.74 949,616 11,968 5.04
--------------------- ---------------------
Other liabilities 36,582 31,320
----------- -----------
Total liabilities 1,070,917 980,936
Equity 119,984 137,227
----------- -----------
Total liabilities and equity $1,190,901 $1,118,163
=========== ===========
Net interest income/Interest rate spread $9,941 3.04% $8,861 2.80%
===================== =====================
Net interest-earning assets /
Net interest margin $106,548 3.49% $113,416 3.33%
=========== =========== =========== ===========
Ratio of interest-earning assets 1.10X 1.12X
to interest-bearing liabilities =========== ===========
</TABLE>
-15-
<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AVERAGE BALANCES (continued)
The following tables set forth certain information relating to the Company's
consolidated statements of financial condition and consolidated statements of
operations for the nine month periods ended September 30, 1999 and 1998, 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 nine months ended September 30,
----------------------------------------------------------------
1999 1998
------------------------------- -------------------------------
Average Average Average Average
(Dollars in thousands) Balance Interest Yield/Cost Balance Interest Yield/Cost
==================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Mortgage loans, net $786,347 $48,900 8.29% $638,421 $41,457 8.66%
Other loans 5,311 393 9.87 3,192 285 11.90
Mortgage-backed securities 288,385 13,838 6.40 316,333 15,989 6.74
Other securities 18,714 819 5.84 51,635 2,632 6.80
Interest-earning deposits and
federal funds sold 11,229 463 5.50 32,688 1,494 6.09
-------------------------------- -------------------------------
Total interest-earning assets 1,109,986 64,413 7.74 1,042,269 61,857 7.91
--------------------- ---------------------
Non-interest earning assets 52,213 52,174
----------- -----------
Total assets $1,162,199 $1,094,443
=========== ===========
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Due Depositors:
Passbook accounts $201,650 3,124 2.07 $202,043 4,322 2.85
NOW accounts 26,381 375 1.90 24,156 345 1.90
Money market accounts 34,713 778 2.99 25,557 570 2.97
Certificate of deposit accounts 364,355 14,269 5.22 378,253 15,979 5.63
Mortgagors' escrow deposits 10,842 55 0.68 5,692 52 1.22
Borrowed funds 364,057 16,395 6.00 290,472 13,431 6.17
-------------------------------- --------------------------------
Total interest-bearing liabilities 1,001,998 34,996 4.66 926,173 34,699 5.00
--------------------- ---------------------
Other liabilities 34,917 32,254
----------- -----------
Total liabilities 1,036,915 958,427
Equity 125,284 136,016
----------- -----------
Total liabilities and equity $1,162,199 $1,094,443
=========== ===========
Net interest income/Interest rate spread $29,417 3.08% $27,158 2.91%
==================== =====================
Net interest-earning assets /
Net interest margin $107,988 3.53% $116,096 3.47%
=========== ========== =========== ===========
Ratio of interest-earning assets
to interest-bearing liabilities 1.11X 1.13X
=========== ===========
</TABLE>
-16-
<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 refinancing) and the changes in the Company's portfolio of loans,
including purchases, sales and principal reductions for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------------------
(In thousands) September 30, 1999 September 30,1998
=============================================================================================
<S> <C> <C>
MORTGAGE LOANS
At beginning of period $754,065 $602,559
Mortgage loans originated:
One-to-four family 64,669 64,258
Cooperative 300 --
Multi-family real estate 58,348 58,791
Commercial real estate 36,994 31,193
Construction 6,121 2,251
---------------------- ----------------------
Total mortgage loans originated 166,432 156,493
---------------------- ----------------------
Acquired loans:
Loans purchased 9,599 20,587
---------------------- ----------------------
Total acquired loans 9,599 20,587
---------------------- ----------------------
Less:
Principal reductions 94,417 73,969
Mortgage loan foreclosures 339 452
---------------------- ----------------------
At end of period $835,340 $705,218
====================== ======================
OTHER LOANS
At beginning of period $4,515 $4,174
Other loans originated:
Small Business Administration 2,152 2,721
Small business loans 2,367 416
Other loans 810 1,161
---------------------- ----------------------
Total other loans originated 5,329 4,298
---------------------- ----------------------
Less:
Sales 1,689 2,324
Principal reductions 1,758 2,878
---------------------- ----------------------
At end of period $6,397 $3,270
====================== ======================
</TABLE>
-17-
<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 at the dates indicated.
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, 1999 December 31, 1998
===============================================================================================
<S> <C> <C>
Non-accrual mortgage loans $5,269 $2,556
Other non-accrual loans 37 41
---------------------- -----------------------
Total non-accrual loans 5,306 2,597
Mortgage loans 90 days or more delinquent
and still accruing -- --
Other loans 90 days or more delinquent
and still accruing -- --
---------------------- -----------------------
Total non-performing loans 5,306 2,597
Real estate owned (foreclosed real estate) 333 77
---------------------- -----------------------
Total non-performing assets $5,639 $2,674
====================== =======================
Non-performing loans to gross loans 0.63% 0.34%
Non-performing assets to total assets 0.47% 0.23%
<FN>
The increase in non-accrual mortgage loans primarily relates to three commercial
mortgage loans for which management believes the value of the underlying
collateral is sufficient to allow the Bank to realize its investment in these
mortgage loans.
The increase in real estate owned is primarily related to one property which is
currently under contract for sale at an amount which will result in the Bank
realizing the carrying value of the property.
</FN>
</TABLE>
-18-
<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 activity in the Bank's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------------------
(Dollars in thousands) September 30, 1999 September 30, 1998
===================================================================================================
<S> <C> <C>
Balance at beginning of period $6,762 $6,474
Provision for loan losses 36 173
Loans charged-off:
One-to-four family 11 91
Co-operative -- --
Multi-family -- --
Commercial -- --
Construction -- --
Other 3 12
----------------------- ----------------------
Total loans charged-off 14 103
----------------------- ----------------------
Recoveries:
Mortgage loans 153 176
Other loans -- --
----------------------- ----------------------
Total recoveries 153 176
----------------------- ----------------------
Balance at end of period $6,937 $6,720
======================= ======================
Ratio of net charge-offs(recoveries) during the
year to average loans outstanding during the
period (0.02)% (0.01)%
Ratio of allowance for loan losses to loans at
end of period 0.82% 0.95%
Ratio of allowance for loan losses to
non-performing loans at end of period 130.72% 281.53%
Ratio of allowance for loan losses to
non-performing assets at end of period 123.01% 262.57%
</TABLE>
-19-
<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the qualitative and quantitative disclosures about market
risk, see the information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Interest Rate Risk".
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, results of operations and cash flows.
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.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBIT.
Exhibit No.
Description
27. Financial data schedule
b) REPORTS ON FORM 8-K.
Not applicable.
-20-
<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: November 1, 1999 By: /s/Michael J. Hegarty
---------------- ---------------------
Michael J. Hegarty
President and Chief Executive Officer
Dated: November 1, 1999 By: /s/Monica C. Passick
---------------- --------------------
Monica C. Passick
Senior Vice President, Treasurer and
Chief Financial Officer
-21-
<PAGE>
FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit No.
Description
27 Financial Data Schedule.
-22-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at September 30, 1999
(unaudited), and the Condensed Statement of Income for the nine months ended
September 30, 1999 (unaudited), and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<PERIOD-TYPE> 9-MOS
<CASH> 7,262
<INT-BEARING-DEPOSITS> 8,720
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 309,768
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 841,618
<ALLOWANCE> 6,937
<TOTAL-ASSETS> 1,210,067
<DEPOSITS> 654,487
<SHORT-TERM> 20,000
<LIABILITIES-OTHER> 17,949
<LONG-TERM> 397,303
0
0
<COMMON> 114
<OTHER-SE> 120,214
<TOTAL-LIABILITIES-AND-EQUITY> 1,210,067
<INTEREST-LOAN> 49,293
<INTEREST-INVEST> 14,657
<INTEREST-OTHER> 463
<INTEREST-TOTAL> 64,413
<INTEREST-DEPOSIT> 18,601
<INTEREST-EXPENSE> 34,996
<INTEREST-INCOME-NET> 29,417
<LOAN-LOSSES> 36
<SECURITIES-GAINS> 64
<EXPENSE-OTHER> 16,928
<INCOME-PRETAX> 15,258
<INCOME-PRE-EXTRAORDINARY> 15,258
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,460
<EPS-BASIC> 1.03
<EPS-DILUTED> 1.01
<YIELD-ACTUAL> 7.74
<LOANS-NON> 5,306
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,762
<CHARGE-OFFS> 14
<RECOVERIES> 153
<ALLOWANCE-CLOSE> 6,937
<ALLOWANCE-DOMESTIC> 6,937
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
