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, 2000
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 31, 2000 was 9,339,763.
<PAGE>
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
and Results of Operations................................................ 7
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
i
<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, 2000 December 31, 1999
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
------
Cash and due from banks $ 10,861 $ 29,059
Federal funds sold and overnight interest-earning deposits 2,560 5,875
Securities available for sale:
Mortgage-backed securities 236,905 269,022
Other securities 16,466 15,994
Loans:
1-4 Family residential mortgage loans 466,676 414,194
Multi-family mortgage loans 329,729 310,594
Commercial real estate loans 161,458 137,072
Co-operative apartment loans 8,217 8,926
Construction loans 10,260 6,198
Small Business Administration loans 3,383 2,369
Consumer and other loans 3,318 3,379
Net unamortized premiums and unearned loan fees 405 (28)
Allowance for loan losses (6,712) (6,818)
------------------ ------------------
Net loans 976,734 875,886
Interest and dividends receivable 7,941 6,812
Real estate owned, net 236 368
Bank premises and equipment, net 6,468 6,202
Federal Home Loan Bank of New York stock 24,932 22,592
Goodwill 4,363 4,638
Other assets 32,321 13,081
------------------ ------------------
Total assets $ 1,319,787 $ 1,249,529
================== ==================
LIABILITIES
-----------
Due to depositors:
Non-interest bearing $ 19,890 $ 20,490
Interest-bearing 653,052 635,428
Mortgagors' escrow deposits 12,088 11,023
Borrowed funds 498,694 451,831
Other liabilities 12,856 12,581
------------------ ------------------
Total liabilities 1,196,580 1,131,353
------------------ ------------------
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; 9,354,763 and 9,725,971 shares outstanding at
September 30, 2000 and December 31, 1999, respectively) 114 114
Additional paid-in capital 76,148 75,952
Treasury stock (2,000,915 and 1,629,707 shares at September 30, 2000 and
December 31, 1999, respectively) (30,480) (25,308)
Unearned compensation (8,166) (9,142)
Retained earnings 87,566 81,056
Accumulated other comprehensive income:
Net unrealized loss on securities available for sale, net of taxes (1,975) (4,496)
------------------ ------------------
Total stockholders' equity 123,207 118,176
------------------ ------------------
Total liabilities and stockholders' equity $ 1,319,787 $ 1,249,529
================== ==================
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
-1-
<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) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
----------------------------
Interest and fees on loans $ 19,795 $ 16,940 $ 56,714 $ 49,293
Interest and dividends on securities:
Interest 4,801 5,038 14,858 14,480
Dividends 66 62 199 177
Other interest income 148 159 468 463
------------ ------------ ------------ ------------
Total interest and dividend income 24,810 22,199 72,239 64,413
------------ ------------ ------------ ------------
INTEREST EXPENSE
----------------
Deposits 7,077 6,220 20,209 18,601
Other interest expense 7,786 6,038 21,740 16,395
------------ ------------ ------------ ------------
Total interest expense 14,863 12,258 41,949 34,996
------------ ------------ ------------ ------------
NET INTEREST INCOME 9,947 9,941 30,290 29,417
Provision for loan losses -- -- -- 36
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,947 9,941 30,290 29,381
------------ ------------ ------------ ------------
NON-INTEREST INCOME
-------------------
Other fee income 443 417 1,455 1,371
Net gain (loss) on sales of securities and loans (718) 37 (682) 182
Other income 539 442 1,532 1,252
------------ ------------ ------------ ------------
Total non-interest income 264 896 2,305 2,805
------------ ------------ ------------ ------------
NON-INTEREST EXPENSE
--------------------
Salaries and employee benefits 3,149 2,840 9,182 8,444
Occupancy and equipment 587 496 1,633 1,438
Professional services 569 612 1,740 1,862
Data processing 311 337 952 928
Depreciation and amortization 279 249 809 763
Other operating expenses 1,118 1,092 3,395 3,493
------------ ------------ ------------ ------------
Total non-interest expense 6,013 5,626 17,711 16,928
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 4,198 5,211 14,884 15,258
------------ ------------ ------------ ------------
PROVISION FOR INCOME TAXES
--------------------------
Federal 1,332 1,654 4,585 4,775
State and local 264 326 1,072 1,023
------------ ------------ ------------ ------------
Total taxes 1,596 1,980 5,657 5,798
------------ ------------ ------------ ------------
NET INCOME $ 2,602 $ 3,231 $ 9,227 $ 9,460
============ ============ ============ ============
OTHER COMPREHENSIVE INCOME, NET OF TAX
--------------------------------------
Unrealized holding gains (losses) arising during period $ 1,562 $ (913)$ 2,075 $ (3,834)
Reclassification adjustments for losses (gains) included in income 446 -- 446 (35)
Net unrealized holding gains (losses) 2,008 (913) 2,521 (3,869)
------------ ------------ ------------ ------------
COMPREHENSIVE NET INCOME $ 4,610 $ 2,318 $ 11,748 $ 5,591
============ ============ ============ ============
Basic earnings per share $0.31 $0.36 $1.10 $1.03
Diluted earnings per share $0.31 $0.35 $1.08 $1.01
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
-2-
<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) 2000 1999
------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
--------------------
Net income $ 9,227 $ 9,460
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses -- 36
Depreciation and amortization of bank premises and equipment 809 764
Amortization of goodwill 275 275
Net loss (gain) on sales of securities 719 (64)
Net gain on sales of loans (37) (118)
Net (gain) loss on sales of real estate owned (126) 10
Amortization of unearned premium, net of accretion of unearned discount 988 1,855
Amortization of deferred income (539) (1,079)
Deferred income tax provision (benefit) 185 (193)
Deferred compensation 155 143
Net (decrease) increase in other assets and liabilities (2,406) 6,679
Unearned compensation 1,123 963
------------------ ------------------
Net cash provided by operating activities 10,373 18,731
------------------ ------------------
INVESTING ACTIVITIES
--------------------
Purchases of bank premises and equipment (1,075) (404)
Purchases of Federal Home Loan Bank shares (2,340) (3,545)
Purchases of securities available for sale (12,274) (73,694)
Proceeds from sales and calls of securities available for sale 20,173 7,540
Proceeds from maturities and prepayments of securities available for sale 27,021 74,452
Net originations and repayment of loans (85,197) (73,964)
Purchases of loans (15,631) (9,671)
Purchase of Bank Owned Life Insurance (20,000) --
Proceeds from sales of real estate owned 494 67
------------------ ------------------
Net cash used by investing activities (88,829) (79,219)
------------------ ------------------
FINANCING ACTIVITIES
--------------------
Net decrease in non-interest bearing deposits (600) (10,030)
Net increase (decrease) in interest-bearing deposits 17,624 (4,552)
Net increase in mortgagors' escrow deposits 1,065 5,010
Net increase in short-term borrowed funds 7,202 5,000
Net increase in long-term borrowed funds 39,661 76,845
Purchases of treasury stock, net (5,431) (16,304)
Cash dividends paid (2,578) (2,233)
------------------ ------------------
Net cash provided by financing activities 56,943 53,736
------------------ ------------------
Net decrease in cash and cash equivalents (21,513) (6,752)
Cash and cash equivalents, beginning of period 34,934 22,734
------------------ ------------------
Cash and cash equivalents, end of period $ 13,421 $ 15,982
================== ==================
SUPPLEMENTAL CASH FLOW DISCLOSURE
---------------------------------
Interest paid $ 41,129 $ 34,659
Income taxes paid 6,189 1,773
Non-cash activities:
Loans transferred through foreclosure of a related mortgage loan
to real estate owned 236 339
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
-3-
<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
(In thousands, except share data) September 30, 2000
--------------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK
------------
Balance, beginning of period $ 114
No activity --
-------------------------------
Balance, end of period $ 114
===============================
ADDITIONAL PAID-IN CAPITAL
--------------------------
Balance, beginning of period $ 75,952
Award of shares released from Employee Benefit Trust (3,593 common shares) 24
Restricted stock awards (4,600 common shares) 3
Tax benefit of unearned compensation 169
-------------------------------
Balance, end of period $ 76,148
===============================
TREASURY STOCK
--------------
Balance, beginning of period $ (25,308)
Purchases of common shares outstanding (387,516 common shares) (5,444)
Repurchase of restricted stock awards (22,392 common shares) (320)
Restricted stock awards (9,600 common shares) 148
Forfeiture of restricted stock awards (1,500 shares) (22)
Options exercised (30,600 common shares) 466
-------------------------------
Balance, end of period $ (30,480)
===============================
UNEARNED COMPENSATION
---------------------
Balance, beginning of period $ (9,142)
Restricted stock award expense 833
Restricted stock awards (9,600 common shares) (145)
Forfeiture of restricted stock awards (1,500 common shares) 22
Release of shares from Employee Benefit Trust (34,611 common shares) 266
-------------------------------
Balance, end of period $ (8,166)
===============================
RETAINED EARNINGS
-----------------
Balance, beginning of period $ 81,056
Net income 9,227
Restricted stock awards (5,000 common shares) (6)
Options exercised (30,600 common shares) (133)
Cash dividends declared and paid (2,578)
-------------------------------
Balance, end of period $ 87,566
===============================
ACCUMULATED OTHER COMPREHENSIVE INCOME
--------------------------------------
Balance, beginning of period $ (4,496)
Change in net unrealized gain (loss), net of taxes of approximately $1,874 on
securities available for sale 2,075
Less: Reclassification adjustment for losses included in net income, net of taxes of
approximately $273 446
-------------------------------
Balance, end of period $ (1,975)
===============================
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</FN>
</TABLE>
-4-
<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial 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 principles
("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 1999 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, 2000 and 1999 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:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- ------------------------
(Amounts in thousands, except per share data) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $2,602 $3,231 $9,227 $9,460
Divided by:
Weighted average common shares outstanding 8,337 8,957 8,412 9,207
Weighted average common stock equivalents 179 229 146 192
Total weighted average common shares & common stock equivalents 8,516 9,186 8,558 9,399
Basic earnings per share $0.31 $0.36 $1.10 $1.03
Diluted earnings per share $0.31 $0.35 $1.08 $1.01
Dividends per share $0.10 $0.08 $0.30 $0.24
Dividend payout ratio 32.26% 22.86% 27.78% 23.76%
</TABLE>
-5-
<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Notes to Consolidated Financial Statements
4. IMPACT OF NEW ACCOUNTING STANDARDS
In June of 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which amends SFAS No. 52 and 107, and
supercedes SFAS No. 80, 105 and 119. This Statement requires the recognition of
all derivatives as either assets or liabilities in the statement of financial
position and the measurement of these derivatives at fair value. This
Pronouncement was scheduled to be effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. In June of 1999, FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of SFAS No. 133", which amends SFAS No. 133 to delay the
effective date to all fiscal quarters of fiscal years beginning after June 15,
2000. In June of 2000, FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities", which amends SFAS No.
133 by clarifying certain aspects of SFAS No. 133 to ease implementation.
Adoption of this Pronouncement is not expected to have a material impact on the
Company's financial position or results of operations.
-6-
<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 ten banking offices located in Queens, Brooklyn,
Manhattan, Bronx and Nassau County. The tenth branch was opened in Flushing,
Queens on July 12, 2000. 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 includes
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.
Statements contained in this Quarterly Report relating to plans, strategies,
objectives, economic performance and trends, projections of results of specific
activities or investments and other statements that are not descriptions of
historical facts may be forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Forward-looking information is inherently subject to risks and
uncertainties, and actual results could differ materially from those currently
anticipated due to a number of factors, which include, but are not limited to,
the factors set forth in the preceding paragraph and elsewhere in this Quarterly
Report, and in other documents filed by the Company with the Securities and
Exchange Commission from time to time, including, without limitation, risk
factors described in the Company's 1999 Annual Report to Shareholders and the
SEC Report on Form 10-K for the year ended December 31, 1999. Forward-looking
statements may be identified by terms such as "may", "will", "should", "could",
"expects", "plans", "intends", "anticipates", "believes", "estimates",
"predicts", "forecasts", "potential" or "continue" or similar terms or the
negative of these terms. Although we believe that the expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. The Company has no
obligation to update these forward-looking statements.
-7-
<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, 2000 AND 1999
GENERAL. Net income for the three months ended September 30, 2000 was $2.6
million, a decline of $0.6 million, or 19.5%, from the $3.2 million reported for
the three months ended September 30, 1999. Earnings per diluted share were $0.31
for the three months ended September 30, 2000, a decrease of 11.4% from the
$0.35 per diluted share earned in the three months ended September 30, 1999. The
return on average assets for the three months ended September 30, 2000 was 0.79%
compared to 1.09% for the three months ended September 30, 1999, while the
return on average equity for the three months ended September 30, 2000 was 8.73%
compared to 10.77% for the three months ended September 30, 1999.
The three months ended September 30, 2000 includes the sale of approximately
$20.7 million of mortgage-backed securities, which resulted in an after tax loss
of $445,000. The proceeds of this sale were used to purchase $20.0 million of
Bank Owned Life Insurance (BOLI), which has been included in Other Assets in the
Consolidated Statements of Financial Condition. The purchase of the BOLI is
expected to allow the company to recover a substantial portion of the Company's
employee benefit costs. The tax advantages of the BOLI are immediately accretive
to earnings, and will allow the Company to recover this loss within one year.
Excluding this loss on sale of securities, net income for the three months ended
September 30, 2000 would have been $3.0 million, or $0.36 per diluted share.
INTEREST INCOME. Total interest and dividend income increased $2.6 million, or
11.8%, to $24.8 million for the three months ended September 30, 2000 from $22.2
million for the three months ended September 30, 1999. This increase was
primarily the result of a $117.0 million increase in the average earning
balances of interest-earning assets for the three months ended September 30,
2000 as compared to the three months ended September 30, 1999. The average
balance of mortgage loans, net, increased $148.7 million for the three months
ended September 30, 2000 as compared to the three months ended September 30,
1999. This increase was partially offset by $24.7 million, $5.2 million and $3.0
million decreases in the average balances of mortgage-backed securities, other
securities and interest-earning deposits and federal funds sold, respectively,
for the three months ended September 30, 2000 compared to the three months ended
September 30, 1999. The yield on interest-earning assets improved 11 basis
points to 7.89% for the three months ended September 30, 2000 from 7.78% for the
three months ended September 30, 1999 due to an increase in the average balance
of mortgage loans, which have a higher yield than the yield on total
interest-earning assets.
INTEREST EXPENSE. Interest expense increased $2.6 million, or 21.3%, to $14.9
million for the three months ended September 30, 2000 from $12.3 million for the
three months ended September 30, 1999, primarily due to a $128.5 million
increase in the average balance of interest-bearing liabilities. This was
coupled with a 37 basis point increase in the average cost of interest-bearing
liabilities to 5.11% in the three months ended September 30, 2000 from 4.74% in
the three months ended September 30, 1999, as both certificates of deposit and
borrowed funds renewed at higher rates. In addition, the average balance of
higher costing certificates of deposit and borrowed funds increased.
NET INTEREST INCOME. For the three months ended September 30, 2000, net interest
income was $9.9 million, the same as in the three months ended September 30,
1999. The net interest margin declined 33 basis points to 3.16% for the three
months ended September 30, 2000 from 3.49% for the three months ended September
30, 1999. Despite this decline in net interest margin, net interest income for
the three months ended September 30, 2000 remained at the same level as the
comparable prior year period due to a $117.0 million increase in average
interest- earning assets.
-8-
<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
PROVISION FOR LOAN LOSSES. There was no provision for loan losses for the three
months ended September 30, 2000 or 1999. 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 decreased by 70.5% to $264,000
for the three months ended September 30, 2000 from $896,000 for the three months
ended September 30, 1999. Increases in fee income from mortgage operations and
banking services were more than offset by the $718,000 pre-tax loss on sale of
securities.
NON-INTEREST EXPENSE. Non-interest expense was $6.0 million for the three months
ended September 30, 2000, an increase of $0.4 million, or 6.9%, from that
reported for the three months ended September 30, 1999. The operating expenses
of the Co-op City branch, opened in November 1999, and the Kissena branch,
opened in July 2000, accounted for this increase. Management continues to
monitor expenditures resulting in efficiency ratios, which exclude distortions
from non-recurring items, of 54.1% and 51.0% for the three months ended
September 30, 2000 and 1999, respectively.
INCOME BEFORE INCOME TAXES. Total income before provision for income taxes was
$4.2 million for the three months ended September 30, 2000, a decrease of $1.0
million, or 19.4%, from the $5.2 million reported for the three months ended
September 30, 1999, for the reasons stated above.
PROVISION FOR INCOME TAXES. Income tax expense decreased $0.4 million to $1.6
million for the three months ended September 30, 2000 as compared to $2.0
million for the three months ended September 30, 1999, due to the $1.0 million
decrease in income before income taxes.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
GENERAL. Net income for the nine months ended September 30, 2000 decreased 2.5%
to $9.2 million from the $9.5 million reported for the nine months ended
September 30, 1999. Earnings per diluted share were $1.08 for the nine months
ended September 30, 2000, an increase of 6.9% from the $1.01 per diluted share
earned in the nine months ended September 30, 1999. The return on average assets
for the nine months ended September 30, 2000 was 0.96% compared to 1.09% for the
nine months ended September 30, 1999, while the return on average equity for the
nine months ended September 30, 2000 increased to 10.49% from 10.07% for the
nine months ended September 30, 1999.
The nine months ended September 30, 2000 includes the previously mentioned loss
on sale of mortgage-backed securities, resulting in an after tax loss of
$445,000. Excluding this loss on sale of securities, net income for the nine
months ended September 30, 2000 would have been $9.7 million, or $1.13 per
diluted share.
INTEREST INCOME. Total interest and dividend income increased $7.8 million, or
12.15%, to $72.2 million for the nine months ended September 30, 2000 from $64.4
million for the nine months ended September 30, 1999. This increase was
primarily the result of a $116.1 million increase in the average earning
balances of interest-earning assets for the nine months ended September 30, 2000
as compared to the nine months ended September 30, 1999. The average balance of
mortgage loans, net, increased $137.6 million for the nine months ended
September 30, 2000 as compared to the nine months ended September 30, 1999. This
increase was partially offset by $18.1 million, $2.4 million and $2.3 million
decreases in the average balances of mortgage-backed securities, other
-9-
<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
securities and interest-earning deposits and federal funds sold, respectively,
for the nine months ended September 30, 2000 compared to the nine months ended
September 30, 1999. The yield on interest-earning assets improved 12 basis
points to 7.86% for the nine months ended September 30, 2000 from 7.74% for the
nine months ended September 30, 1999, primarily due to an increase in the
average balance of mortgage loans, which have a higher yield than the yield on
total interest earning assets.
INTEREST EXPENSE. Interest expense increased $7.0 million, or 19.9%, to $42.0
million for the nine months ended September 30, 2000 from $35.0 million for the
nine months ended September 30, 1999. The average balance of interest-bearing
liabilities increased $126.4 million to $1.13 billion for the nine months ended
September 30, 2000 compared to the nine months ended September 30, 1999. In
addition, the weighted average cost of interest-bearing liabilities increased 30
basis points to 4.96% for the nine months ended September 30, 2000 compared to
4.66% for the nine months ended September 30, 1999, as both certificates of
deposit and borrowed funds renewed at higher rates. In addition, the average
balance of higher costing certificates of deposit and borrowed funds increased.
NET INTEREST INCOME. For the nine months ended September 30, 2000, net interest
income increased $0.9 million, or 3.0%, to $30.3 million from $29.4 million for
the nine months ended September 30, 1999, for reasons stated above. The net
interest margin declined 24 basis points to 3.29% for the nine months ended
September 30, 2000 from 3.53% for the nine months ended September 30, 1999.
PROVISION FOR LOAN LOSSES. There was no provision for loan losses for the nine
months ended September 30, 2000 compared to $36,000 for the nine months ended
September 30, 1999. 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 decreased by 17.8% to $2.3
million for the nine months ended September 30, 2000 from $2.8 million for the
nine months ended September 30, 1999. Increases in fee income from mortgage
operations and banking services were more than offset by the $718,000 pre-tax
loss on sale of securities recorded in the third quarter of 2000.
NON-INTEREST EXPENSE. Non-interest expense increased by $0.8 million, or 4.6%,
to $17.7 million for the nine months ended September 30, 2000 as compared to
$16.9 million for the nine months ended September 30, 1999. The operating
expenses of the Co-op City branch, opened in November 1999, and the Kissena
branch, opened in July 2000, primarily accounted for this increase. Management
continues to monitor expenditures resulting in efficiency ratios, which exclude
distortions from non-recurring items, of 52.7% for the nine months ended
September 30, 2000 compared to 51.7 % for the nine months ended 1999.
INCOME BEFORE INCOME TAXES. Total income before provision for income taxes
decreased $0.4 million, or 2.5%, to $14.9 million for the nine months ended
September 30, 2000 as compared to $15.3 million for the nine months ended
September 30, 1999 for reasons stated above.
PROVISION FOR INCOME TAXES. Income tax expense decreased $0.1 million to $5.7
million for the nine months ended September 30, 2000 as compared to $5.8 million
for the nine months ended September 30, 1999. This is due to the $0.4 million
decrease in income before taxes.
-10-
<PAGE>
PART I -- FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION
ASSETS. Total assets at September 30, 2000 were $1.32 billion, a $70 million
increase from December 31, 1999. During the nine months ended September 30,
2000, loan originations and purchases were $80.8 million for 1-4 family
residential mortgage loans, $46.4 million for multi-family real estate loans,
$33.4 million for commercial real estate loans and $4.5 million in construction
loans. During the nine months ended September 30, 1999, loan originations and
purchases were $74.6 million for 1-4 family residential mortgage loans, $65.0
million for multi- family real estate loans, $30.4 million for commercial real
estate loans and $6.1 million in construction loans. Total loans, net, increased
$100.8 million during the nine months ended September 30, 2000 to $976.7 million
from $875.9 million at December 31, 1999.
As the Company continues to increase its loan portfolio, management continues to
adhere to the Bank's strict underwriting standards. As a result, the Company has
been able to minimize charge-offs of losses from impaired loans and maintain
asset quality. Non-performing assets were $1.4 million at September 30, 2000
compared to $3.6 million at December 31, 1999 and $5.6 million at September 30,
1999. Total non-performing assets as a percentage of total assets were 0.11% at
September 30, 2000 compared to 0.29% at December 31, 1999 and 0.47% at September
30, 1999. The ratio of allowance for loan losses to total non-performing loans
was 570.61% at September 30, 2000 compared to 213.29% at December 31, 1999 and
130.72% at September 30, 1999.
LIABILITIES. Total liabilities increased $65 million to $1.20 billion at
September 30, 2000 from $1.13 billion at December 31, 1999. The change in total
liabilities was due primarily to increases in borrowings and deposits of $46.9
million and $17.0 million, respectively, during the nine months ended September
30, 2000.
EQUITY. Total stockholders' equity increased $5.0 million to $123.2 million at
September 30, 2000 from $118.2 million at December 31, 1999. The increase is
primarily due to $9.2 million in net income for the nine months ended September
30, 2000 and an improvement of $2.5 million in the net unrealized loss in the
market value of securities available for sale, partially offset by $5.4 million
in treasury shares purchased through the Company's stock repurchase plans and
$2.6 million in cash dividends paid during the nine month period. Quarterly
dividends per share were increased to $0.10 per share for the first three
quarters of 2000 from $0.08 per share in the fourth quarter of 1999. Book value
per share improved to $13.17 per share at September 30, 2000 from $12.15 per
share at December 31, 1999 and $12.11 per share at September 30, 1999.
Under its stock repurchase program, the Company repurchased 387,516 shares for
the nine months ended September 30, 2000, leaving 467,000 shares to be
repurchased under the current stock repurchase program.
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, 2000 and December 31, 1999, the Bank's liquidity
ratio, computed in accordance with the OTS requirement was 11.94% and 9.72%,
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.
-11-
<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, 2000, funds provided by
the Company's operating activities amounted to $10.4 million. These funds,
together with $56.9 million provided by financing activities and $21.5 million
of cash and cash equivalents available at the beginning of the year, were
utilized to fund net investing activities of $88.8 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, 2000, the net total of loan originations less loan
repayments was $85.2 million, and the total amount of real estate loans
purchased was $15.6 million. The Company also invests in other securities
including mortgage loan surrogates such as mortgage-backed securities. During
the nine months ended September 30, 2000, the Company purchased a total of $12.3
million in securities available for sale. The Company also realized $20.2
million from the sale of securities available for sale, and purchased $20.0
million of Bank Owned Life Insurance. Funds for investment were also provided by
$27.0 million in prepayments of securities available for sale, and $46.9 million
of net increased borrowings. The Company also used funds of $5.4 million for
treasury stock repurchases and $2.6 million in dividend payments during the nine
months ended September 30, 2000.
-12-
<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
generally accepted accounting principles, 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 rates. 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 such assets were sold, or, in the case of securities
classified as available-for-sale, decreases in the Company's stockholders'
equity, if such securities were retained.
The Company manages the mix of interest-earning assets and interest-bearing
liabilities on a continuous basis to maximize return and adjust its exposure to
interest rate risk. 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 market value of assets and
liabilities is determined using a discounted cash flow calculation. 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, 2000. Various estimates regarding prepayment assumptions
are made at each level of rate shock. Actual results could differ significantly
from these estimates. The Company is within the guidelines set forth by the
Board of Directors for each interest rate level.
Projected Percentage Change In
----------------------------------
Net Interest Net Portfolio Net Portfolio
Change in Interest Rate Income Value Value Ratio
--------------------------------------------------------------------------------
-300 Basis points 5.12% 11.08% 12.05%
-200 Basis points 5.88 13.30 12.54
-100 Basis points 4.47 11.66 12.61
Base interest rate -- -- 11.65
+100 Basis points -6.02 -14.89 10.28
+200 Basis points -12.54 -30.10 8.75
+300 Basis points -19.40 -44.36 7.22
-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, 2000, 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, 2000.
(Dollars in thousands) Amount Percent of Assets
--------------------------------------------------------------------------------
TANGIBLE CAPITAL:
Capital level $102,887 7.86%
Requirement 19,635 1.50
Excess 83,252 6.36
CORE CAPITAL:
Capital level $102,887 7.86%
Requirement 39,269 3.00
Excess 63,618 4.86
RISK-BASED CAPITAL:
Capital level $109,599 14.06%
Requirement 62,349 8.00
Excess 47,250 6.06
-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, 2000 and 1999, 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,
------------------------------------------------------------------------------
2000 1999
-------------------------------------- --------------------------------------
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 $964,618 $19,608 8.13% $815,962 $16,784 8.23%
Other loans 7,293 187 10.26 5,997 156 10.41
Mortgage-backed securities 261,719 4,579 7.00 286,434 4,784 6.68
Other securities 16,316 288 7.06 21,548 316 5.87
Interest-earning deposits and
federal funds sold 7,933 148 7.46 10,942 159 5.81
------------------------------------- -------------------------------------
Total interest-earning assets 1,257,879 24,810 7.89 1,140,883 22,199 7.78
------------------------- ------------------------
Non-interest earning assets 58,900 50,018
------------ ------------
Total assets $1,316,779 $1,190,901
============ ============
LIABILITIES AND EQUITY
----------------------
Interest-bearing liabilities:
Passbook accounts $188,285 979 2.08 $200,380 1,044 2.08
NOW accounts 27,959 132 1.89 25,843 124 1.92
Money market accounts 43,572 372 3.42 38,784 308 3.18
Certificate of deposit accounts 391,879 5,566 5.68 361,645 4,729 5.23
Mortgagors' escrow deposits 11,908 28 0.94 9,140 15 0.66
Borrowed funds 499,280 7,786 6.24 398,543 6,038 6.06
------------------------------------- -------------------------------------
Total interest-bearing liabilities 1,162,883 14,863 5.11 1,034,335 12,258 4.74
------------------------- ------------------------
Other liabilities 34,672 36,582
------------ ------------
Total liabilities 1,197,555 1,070,917
Equity 119,224 119,984
------------ ------------
Total liabilities and equity $1,316,779 $1,190,901
============ ============
Net interest income/Interest rate spread $9,947 2.78% $9,941 3.04%
========================= =========================
Net interest-earning assets /
Net interest margin $94,996 3.16% $106,548 3.49%
============ ============= ============ ============
Ratio of interest-earning assets to
interest-bearing liabilities 1.08x 1.10x
============= ============
</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, 2000 and 1999, 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,
------------------------------------------------------------------------------
2000 1999
-------------------------------------- --------------------------------------
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 $923,979 $56,210 8.11% $786,347 $48,900 8.29%
Other loans 6,548 504 10.26 5,311 393 9.87
Mortgage-backed securities 270,261 14,194 7.00 288,385 13,838 6.40
Other securities 16,317 863 7.05 18,714 819 5.84
Interest-earning deposits and
federal funds sold 8,958 468 6.97 11,229 463 5.50
------------------------------------- -------------------------------------
Total interest-earning assets 1,226,063 72,239 7.86 1,109,986 64,413 7.74
------------------------- ------------------------
Non-interest earning assets 54,237 52,213
------------ ------------
Total assets $1,280,300 $1,162,199
============ ============
LIABILITIES AND EQUITY
----------------------
Interest-bearing liabilities:
Passbook accounts $190,906 2,959 2.07 $201,650 3,124 2.07
NOW accounts 27,649 393 1.90 26,381 375 1.90
Money market accounts 42,906 1,077 3.35 34,713 778 2.99
Certificate of deposit accounts 381,362 15,716 5.49 364,355 14,269 5.22
Mortgagors' escrow deposits 13,548 64 0.63 10,842 55 0.68
Borrowed funds 472,063 21,740 6.14 364,057 16,395 6.00
------------------------------------- -------------------------------------
Total interest-bearing liabilities 1,128,434 41,949 4.96 1,001,998 34,996 4.66
------------------------- ------------------------
Other liabilities 34,573 34,917
------------ ------------
Total liabilities 1,163,007 1,036,915
Equity 117,293 125,284
------------ ------------
Total liabilities and equity $1,280,300 $1,162,199
============ ============
Net interest income/Interest rate spread $30,290 2.90% $29,417 3.08%
========================= =========================
Net interest-earning assets /
Net interest margin $97,629 3.29% $107,988 3.53%
============ ============= ============ ============
Ratio of interest-earning assets to
interest-bearing liabilities 1.09x 1.11x
============= ============
</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, 2000 September 30, 1999
--------------------------------------------------------------------------------
<S> <C> <C>
MORTGAGE LOANS
--------------
At beginning of period $876,984 $754,065
Mortgage loans originated:
One-to-four family 65,107 64,669
Cooperative 185 300
Multi-family real estate 46,408 64,973
Commercial real estate 33,368 30,369
Construction 4,504 6,121
---------- ----------
Total mortgage loans originated 149,572 166,432
---------- ----------
Acquired loans:
Loans purchased 15,508 9,599
---------- ----------
Total acquired loans 15,508 9,599
---------- ----------
Less:
Principal and other reductions 65,498 94,417
Mortgage loan foreclosures 226 339
---------- ----------
At end of period $976,340 $835,340
========== ==========
OTHER LOANS
-----------
At beginning of period $ 5,748 $ 4,515
Other loans originated:
Small Business Administration 2,228 2,152
Small business loans 690 2,367
Other loans 1,461 810
---------- ----------
Total other loans originated 4,379 5,329
---------- ----------
Less:
Sales 767 1,689
Principal and other reductions 2,659 1,758
---------- ----------
At end of period $ 6,701 $ 6,397
========== ==========
</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, 2000 December 31, 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual mortgage loans $1,095 $3,157
Other non-accrual loans 81 39
-------- --------
Total non-accrual loans 1,176 3,196
Mortgage loans 90 days or more delinquent
and still accruing -- --
Other loans 90 days or more delinquent
and still accruing -- --
-------- --------
Total non-performing loans 1,176 3,196
Real estate owned (foreclosed real estate) 236 368
-------- --------
Total non-performing assets $1,412 $3,564
======== ========
Non-performing loans to gross loans 0.12% 0.36%
Non-performing assets to total assets 0.11% 0.29%
</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, 2000 September 30, 1999
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of period $6,818 $6,762
Provision for loan losses -- 36
Loans charged-off:
One-to-four family 3 11
Co-operative -- --
Multi-family -- --
Commercial -- --
Construction -- --
Other 103 3
-------------------------- --------------------------
Total loans charged-off 106 14
-------------------------- --------------------------
Recoveries:
Mortgage loans -- 153
Other loans -- --
-------------------------- --------------------------
Total recoveries -- 153
-------------------------- --------------------------
Balance at end of period $6,712 $6,937
========================== ==========================
Ratio of net charge-offs(recoveries) during the year to
average loans outstanding during the period 0.01% (0.02)%
Ratio of allowance for loan losses to loans at end of period 0.68% 0.82%
Ratio of allowance for loan losses to non-performing
assets at end of period 475.41% 123.01%
Ratio of allowance for loan losses to non-performing 570.61% 130.72%
loans at end of period
</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
----------- --------------------------------------------------------------
10.2(a) Amended and Restated Employment Agreement between Flushing
Savings Bank, FSB and Certain Officers
10.3(d) Amended and Restated Employment Agreement between Flushing
Financial Corporation and Certain Officers
10.4(a) Form of Special Termination Agreement as Amended.
10.5(a) Amended and Restated Employee Severance Compensation Plan of
Flushing Savings Bank, FSB
10.6(c) Amended and Restated Outside Director Retirement Plan
10.6(d) Amended and Restated Flushing Savings Bank, FSB Outside
Director Deferred Compensation Plan.
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 7, 2000 By: /s/ Michael J. Hegarty
---------------- --------------------------------
Michael J. Hegarty
President and Chief Executive Officer
Dated: November 7, 2000 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
----------- --------------------------------------------------------------
10.2(a) Amended and Restated Employment Agreement between Flushing
Savings Bank, FSB and Certain Officers
10.3(d) Amended and Restated Employment Agreement between Flushing
Financial Corporation and Certain Officers
10.4(a) Form of Special Termination Agreement as Amended.
10.5(a) Amended and Restated Employee Severance Compensation Plan of
Flushing Savings Bank, FSB
10.6(c) Amended and Restated Outside Director Retirement Plan
10.6(d) Amended and Restated Flushing Savings Bank, FSB Outside
Director Deferred Compensation Plan.
27. Financial data schedule
-22-
