-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D5jCLKe+IcnkqTrdW0KuLVgGSxbBhwm9VHpCmq2jCSJReSVkKj5Bp15Ca/8H8T6G VmDCpr0RJ+lhtaqevY6fag== 0000923139-00-000002.txt : 20000509 0000923139-00-000002.hdr.sgml : 20000509 ACCESSION NUMBER: 0000923139-00-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLUSHING FINANCIAL CORP CENTRAL INDEX KEY: 0000923139 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 113209278 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24272 FILM NUMBER: 621543 BUSINESS ADDRESS: STREET 1: 144-51 NORTHERN BLVD CITY: FLUSHING STATE: NY ZIP: 11354 BUSINESS PHONE: 7189615400 10-Q 1 FLUSHING FINANCIAL CORP. FORM 10-Q, 3/31/00 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 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 incorporation or organization) Identification No.) 144-51 Northern Boulevard, Flushing, New York 11354 (Address of principal executive offices) (718) 961-5400 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE. Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK $0.01 PAR VALUE. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No The number of shares of the registrant's Common Stock outstanding as of April 21, 2000 was 9,574,713 shares. TABLE OF CONTENTS PAGE 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...............................................6 ITEM 3. Qualitative and Quantitative Disclosures About Market Risk.........16 PART II. -- OTHER INFORMATION ITEM 1. Legal Proceedings..................................................16 ITEM 2. Changes in Securities and Use of Proceeds..........................16 ITEM 3. Defaults Upon Senior Securities....................................16 ITEM 4. Submission of Matters To A Vote of Security Holders ...............16 ITEM 5. Other Information..................................................16 ITEM 6. Exhibits and Reports on Form 8-K...................................16 SIGNATURES..................................................................17 EXHIBITS....................................................................18 i PART I -- FINANCIAL INFORMATION FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Financial Condition
(Dollars in thousands, except share data) March 31, 2000 December 31, 1999 - ----------------------------------------------------------------------------------------------------- ASSETS (Unaudited) Cash and due from banks $ 11,872 $ 29,059 Federal funds sold and overnight interest-earning deposits 17,780 5,875 Securities available for sale: Mortgage-backed securities 272,561 269,022 Other securities 15,823 15,994 Loans: 1-4 Family residential mortgage loans 430,977 414,194 Multi-family mortgage loans 318,264 310,594 Commercial real estate loans 141,216 137,072 Co-operative apartment loans 8,824 8,926 Construction loans 7,044 6,198 Small Business Administration loans 2,986 2,369 Consumer and other loans 3,094 3,379 Net unamortized premiums and unearned loan fees 53 (28) Allowance for loan losses (6,790) (6,818) ------------- ------------ Net loans 905,668 875,886 Interest and dividends receivable 7,177 6,812 Real estate owned, net 60 368 Bank premises and equipment, net 6,102 6,202 Federal Home Loan Bank of New York stock 23,088 22,592 Goodwill 4,546 4,638 Other assets 13,030 13,081 ------------- ------------ Total assets $ 1,277,707 $ 1,249,529 ============= ============ LIABILITIES Due to depositors: Non-interest bearing $ 22,792 $ 20,490 Interest-bearing 634,579 635,428 Mortgagors' escrow deposits 15,142 11,023 Borrowed funds 461,753 451,831 Other liabilities 24,196 12,581 ------------- ------------ Total liabilities 1,158,462 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; 9,580,471 and 9,725,971 shares outstanding at March 31, 2000 and December 31, 1999, respectively) 114 114 Additional paid-in capital 75,969 75,952 Treasury stock (1,775,207 and 1,629,707 shares at March 31, 2000 and December 31, 1999, respectively) (27,234) (25,308) Unearned compensation (8,849) (9,142) Retained earnings 83,578 81,056 Accumulated other comprehensive income (4,333) (4,496) ------------- ------------ Total stockholders' equity 119,245 118,176 ------------- ------------ Total liabilities and stockholders' equity $ 1,277,707 $ 1,249,529 ============= ============ The accompanying notes are an integral part of these consolidated financial statements.
-1- PART I -- FINANCIAL INFORMATION FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Income
For the three months ended March 31, ------------------------ (In thousands, except per share data) 2000 1999 - ----------------------------------------------------------------------------------------- (Unaudited) INTEREST AND DIVIDEND INCOME Interest and fees on loans $ 18,036 $ 15,891 Interest and dividends on securities: Interest 4,991 4,632 Dividends 67 58 Other interest income 182 175 --------- -------- Total interest and dividend income 23,276 20,756 --------- -------- INTEREST EXPENSE Deposits 6,420 6,219 Other interest expense 6,700 5,067 --------- -------- Total interest expense 13,120 11,286 --------- -------- NET INTEREST INCOME 10,156 9,470 Provision for loan losses -- 24 --------- -------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 10,156 9,446 --------- -------- NON-INTEREST INCOME Other fee income 524 458 Net gain on sales of securities and loans 35 120 Other income 517 412 --------- -------- Total non-interest income 1,076 990 --------- -------- NON-INTEREST EXPENSE Salaries and employee benefits 2,954 2,784 Occupancy and equipment 517 513 Professional services 592 596 Data processing 331 296 Depreciation and amortization 264 256 Other operating expenses 1,090 1,161 --------- -------- Total non-interest expense 5,748 5,606 --------- -------- INCOME BEFORE INCOME TAXES 5,484 4,830 --------- -------- PROVISION FOR INCOME TAXES Federal 1,675 1,510 State and local 409 301 --------- -------- Total taxes 2,084 1,811 --------- -------- NET INCOME $ 3,400 $ 3,019 ========= ======== OTHER COMPREHENSIVE INCOME, NET OF TAX Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during period $ 163 $ (419) Less: reclassification adjustments for gains included in income -- (35) --------- -------- Net unrealized holding gains (losses) 163 (454) --------- -------- COMPREHENSIVE NET INCOME $ 3,563 $ 2,565 ========= ======== Basic earnings per share $0.40 $0.32 Diluted earnings per share $0.39 $0.31 The accompanying notes are an integral part of these consolidated financial statements.
-2- PART I -- FINANCIAL INFORMATION FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES Consolidated Statements of Cash Flows
For the three months ended March 31, -------------------------------- (In thousands) 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- (Unaudited) CASH FLOWS PROVIDED BY OPERATING ACTIVITIES Net income $ 3,400 $ 3,019 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses -- 24 Depreciation and amortization of bank premises and equipment 264 256 Amortization of goodwill 92 92 Net gain on sales of securities -- (64) Net gain on sales of loans (35) (56) Net gain on sales of real estate owned (110) -- Amortization of unearned premium, net of accretion of unearned discount 397 874 Amortization of deferred income (216) (240) Deferred income tax provision (benefit) 106 (176) Deferred compensation 41 31 Net increase in other assets and liabilities 1,040 984 Unearned compensation 372 307 ------------ ------------ Net cash provided by operating activities 5,351 5,051 ------------ ------------ CASH FLOWS USED IN INVESTING ACTIVITIES Purchases of bank premises and equipment (164) (107) Purchases of Federal Home Loan Bank shares (496) (386) Purchases of securities available for sale (2,286) (32,510) Proceeds from sales and calls of securities available for sale -- 7,540 Proceeds from maturities and prepayments of securities available for sale 8,989 34,909 Net originations and repayment of loans (23,351) (15,816) Purchases of loans (6,361) (5,319) Proceeds from sales of real estate owned 418 -- ------------ ------------ Net cash used by investing activities (23,251) (11,689) ------------ ------------ CASH FLOWS PROVIDED BY FINANCING ACTIVITIES Net increase (decrease) in non-interest bearing deposits 2,302 (4,152) Net decrease in interest-bearing deposits (849) (5,743) Net increase in mortgagors' escrow deposits 4,119 5,629 Net decrease in short-term borrowed funds (20,000) -- Net increase in long-term borrowed funds 29,922 18,651 Purchases of treasury stock, net (2,004) (8,694) Cash dividends paid (872) (762) ------------ ------------ Net cash provided by financing activities 12,618 4,929 ------------ ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (5,282) (1,709) Cash and cash equivalents, beginning of period 34,934 22,734 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 29,652 $ 21,025 ============ ============ SUPPLEMENTAL CASH FLOW DISCLOSURE Interest paid $ 12,719 $ 11,399 Income taxes paid 79 1,773 Non-cash activities: Purchase of securities not yet settled 9,988 -- The accompanying notes are an integral part of these consolidated financial statements.
-3- PART I -- FINANCIAL INFORMATION FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
For the three months ended (Dollars in thousands) March 31, 2000 - --------------------------------------------------------------------------------------------------------- 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 (1,189 common shares) 7 Tax benefit of unearned compensation 10 --------------------- Balance, end of period $ 75,969 ===================== TREASURY STOCK Balance, beginning of period $ (25,308) Purchases of common shares outstanding (150,500 shares) (2,004) Restricted stock awards (5,000 common shares) 78 --------------------- Balance, end of period $ (27,234) ===================== UNEARNED COMPENSATION Balance, beginning of period $ (9,142) Restricted stock award expense 276 Restricted stock award (5,000 shares) (72) Release of shares from Employee Benefit Trust (11,553 common shares) 89 --------------------- Balance, end of period $ (8,849) ===================== RETAINED EARNINGS Balance, beginning of period $ 81,056 Net income 3,400 Restricted stock awards (5,000 common shares) (6) Cash dividends declared and paid (872) --------------------- Balance, end of period $ 83,578 ===================== ACCUMULATED OTHER COMPREHENSIVE INCOME Balance, beginning of period $ (4,496) Change in net unrealized gain (loss), net of taxes of approximately $139 on securities available for sale 163 --------------------- Balance, end of period $ (4,333) ===================== The accompanying notes are an integral part of these consolidated financial statements.
-4- 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 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 quarters ended March 31, 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:
March 31, -------------------- (Amounts in thousands except per share data) 2000 1999 - ----------------------------------------------------------------------------------- Net income $3,400 $3,019 Divided by: Weighted average common shares outstanding 8,512 9,509 Weighted average common stock equivalents 126 198 Total weighted average common shares & common stock equivalents 8,638 9,707 Basic earnings per share $0.40 $0.32 Diluted earnings per share $0.39 $0.31 Dividends paid per share $0.10 $0.08 Dividend payout ratio 25.6% 25.8%
-5- 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 nine banking offices located in Queens, Brooklyn, Manhattan, Bronx and Nassau County. Flushing Financial Corporation's common stock is publicly traded on the Nasdaq National Market under the symbol "FFIC". The following discussion of financial condition and results of operations include the collective results of Flushing Financial Corporation and the Bank (collectively, the "Company"), but reflects principally the Bank's activities. The Company's principal business is attracting retail deposits from the general public and investing those deposits, together with 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 and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, the factors set forth in the preceding paragraph and elsewhere in this Quarterly Report, and in other documents filed by the Company with the Securities and Exchange Commission from time to time, including, without limitation, the Company's 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. -6- PART I -- FINANCIAL INFORMATION FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 GENERAL. Net income for the quarter ended March 31, 2000 increased 12.6% to $3.4 million, or $0.39 per diluted share, from the $3.0 million, or $0.31 per diluted share, earned in the quarter ended March 31, 1999. The return on average assets for the first quarter of 2000 increased to 1.10% from 1.06% for the comparable 1999 period, while the return on average equity for the first quarter of 2000 increased to 11.71% from 9.28% for the comparable 1999 period. INTEREST INCOME. Total interest and dividend income increased $2.5 million, or 12.1%, to $23.3 million for the three months ended March 31, 2000 from $20.8 million for the three months ended March 31, 1999. This increase was primarily the result of a $108.3 million increase in the average balance of interest-earning assets for the quarter ended March 31, 2000 as compared to the quarter ended March 31, 1999. The average balance of mortgage loans, net increased $125.1 million in the first quarter of 2000 as compared to the first quarter of 1999, which was partially offset by a $19.7 million decrease in the average balance of mortgage-backed securities for the first quarter of 2000 compared to the first quarter of 1999. The yield on interest-earning assets increased 15 basis points to 7.83% for the first quarter of 2000 from 7.68% for the first quarter of 1999. The improvement in the yield on interest earning assets is primarily attributed to the increase in the average balance of mortgage loans and an increase of 86 basis points in the yield on mortgage-backed securities, both of which, however, were partially offset by a 23 basis point decrease in the yield on mortgage loans. INTEREST EXPENSE. Interest expense increased $1.8 million, or 16.3%, to $13.1 million for the three months ended March 31, 2000 from $11.3 million for the three months ended March 31, 1999, primarily due to an increase of $117.5 million in the average balance of interest-bearing liabilities. The cost of interest-bearing liabilities increased 17 basis points to 4.81% for the quarter ended March 31, 2000 from 4.64% for the quarter ended March 31, 1999 as certificates of deposit renewed at higher rates and the Bank increased its use of higher costing borrowed funds to fund asset growth. NET INTEREST INCOME. For the three months ended March 31, 2000, net interest income increased $0.7 million, or 7.2%, to $10.2 million from $9.5 million in the three months ended March 31, 1999, for reasons stated above. The net interest margin declined eight basis points to 3.42% for the three months ended March 31, 2000 from 3.50% for the comparable 1999 period. However, the net interest margin of 3.42% for the quarter ended March 31, 2000 reflects a four basis point improvement over the 3.38% level for the prior quarter ended December 31, 1999, as the yield on interest-earning assets increased eight basis points while the cost of funds increased two basis points from the prior quarter. PROVISION FOR LOAN LOSSES. There was no provision for loan losses for the three months ended March 31, 2000 compared to $24,000 for the three months ended March 31, 1999. The allowance for loan losses was $6.8 million at March 31, 2000 and December 31, 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. -7- 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 increased by 8.7% to $1,076,000 for the three months ended March 31, 2000 from $990,000 for the three months ended March 31, 1999. The increase is due primarily to higher fee income from mortgage originations and banking services and an increase in dividends received on Federal Home Loan Bank of New York stock. NON-INTEREST EXPENSE. Non-interest expense increased by $142,000, or 2.5%, to $5.7 million for the three months ended March 31, 2000 as compared to $5.6 million for the three months ended March 31, 1999. Salaries and benefits increased $170,000. Other operating expenses decreased $71,000, primarily due to gains realized on the sales of real estate owned. Management continues to monitor expenditures resulting in efficiency ratios, which exclude distortions from non-recurring items, of 51.2% and 52.9% for the three months ended March 31, 2000 and 1999, respectively. INCOME BEFORE INCOME TAXES. Total income before provision for income taxes increased $0.7 million, or 13.5%, to $5.5 million for the three months ended March 31, 2000 as compared to $4.8 million for the three months ended March 31, 1999, primarily due to the increase in net interest income. PROVISION FOR INCOME TAXES. Income tax expense increased $273,000 to $2.1 million for the three months ended March 31, 2000 as compared to $1.8 million for the three months ended March 31, 1999, primarily as a result of the increase in income before income taxes. FINANCIAL CONDITION ASSETS. Total assets at March 31, 2000 were $1.28 billion, an increase of $28.2 million from December 31, 1999. During the first quarter of 2000, loan originations and purchases were $26.7 million for 1-4 family residential mortgage loans, $16.5 million for multi-family real estate loans, $8.6 million for commercial real estate loans and $0.8 million in construction loans. During the first quarter of 1999, loan originations and purchases were $24.7 million for 1-4 family residential mortgage loans, $14.4 million for multi-family real estate loans, $10.4 million for commercial real estate loans and $1.3 million in construction loans. Total loans, net, increased $29.8 million during the first quarter of 2000 to $905.7 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 $2.0 million at March 31, 2000 compared to $3.6 million at December 31, 1999 and $3.5 million at March 31, 1999. Total non-performing assets as a percentage of total assets were 0.16% at March 31, 2000 compared to 0.29% at December 31, 1999 and 0.31% at March 31, 1999. The ratio of allowance for loan losses to total non-performing loans was 348.66% at March 31, 2000 compared to 213.29% at December 31, 1999 and 200.95% at March 31, 1999. LIABILITIES. Total liabilities increased $27.1 million to $1.16 billion at March 31, 2000 from $1.13 billion at December 31, 1999. The change in total liabilities was due primarily to an increase in FHLB borrowings of $9.9 million during the first quarter of 2000 bringing FHLB borrowings to $461.8 million at March 31, 2000. Other liabilities increased $11.6 million primarily due to a security purchase at quarter end that settled the first week of the following quarter. -8- PART I -- FINANCIAL INFORMATION FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations EQUITY. Total stockholders' equity increased $1.0 million to $119.2 million at March 31, 2000 from $118.2 million at December 31, 1999. The increase is primarily due to $3.4 million in net income for the three months ended March 31, 2000, offset by $2.0 million in treasury shares purchased through the Company's stock repurchase plans, and $0.9 million in cash dividends paid during the current quarter. Quarterly dividends per share were increased to $0.10 per share for the first quarter of 2000 from $0.08 per share in the fourth quarter of 1999. Book value per share improved to $12.45 per share at March 31, 2000 from $12.15 per share at December 31, 1999 and $12.14 at March 31, 1999. Under its stock repurchase programs, the Company repurchased 150,500 shares during the quarter, leaving 238,445 shares to be repurchased under the current stock repurchase program at March 31, 2000. LIQUIDITY. The Bank, as a federal savings bank, is subject to Office of Thrift Supervision ("OTS") guidelines regarding liquidity requirements. Pursuant to these requirements, the Bank is required to maintain an average daily balance of liquid assets (cash and certain securities with detailed maturity limitations and marketability requirements) equal to a monthly average of not less than a specified percentage of its net withdrawable deposit accounts plus short-term borrowings. This liquidity requirement may be changed from time to time by the OTS to any amount within the range of 4% to 10% depending upon economic conditions and the savings flows of member institutions, and is currently 4%. Monetary penalties may be imposed by the OTS for failure to meet these liquidity requirements. At March 31, 2000 and December 31, 1999, the Bank's liquidity ratio, computed in accordance with the OTS requirement was 9.44% 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. CASH FLOW. During the first quarter of 2000, funds provided by the Company's operating activities amounted to $5.4 million. These funds, together with $12.6 million provided by financing activities and funds available at the beginning of the quarter, were utilized to fund net investing activities of $23.3 million. The Company's primary business objective is the origination and purchase of residential, multi-family and commercial real estate loans. During the quarter ended March 31, 2000, the net total of loan originations less loan repayments was $23.4 million, and the total amount of real estate loans purchased was $6.4 million. The Company also invests in other securities including mortgage loan surrogates such as mortgage-backed securities. During the quarter ended March 31, 2000, the Company purchased a total of $2.3 million in securities available for sale. Funds for investment were also provided by $9.0 million in sales, calls, maturities, and prepayments of securities available for sale, and $29.9 million of net increased borrowings from the FHLB-NY with original maturities greater than one year. The Company also used funds of $2.0 million for treasury stock repurchases and $0.9 million in dividend payments during the quarter ended March 31, 2000 . -9- 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 March 31, 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 for Net Interest Income and the Net Portfolio Value Ratio. However, for Net Portfolio Value, the Company does not meet the guidelines established by the Board of Directors for plus 100 and 300 basis points, which exceed the Board's guidelines of minus 15% and minus 45%. During the quarter ended March 31, 2000, measures were taken to reduce the Company's interest rate risk exposure, which are reflected in the reductions seen in the changes in Net Interest Income. The Company was able to reduce its exposure to interest rate fluctuations during a period of rising interest rates. The Company will continue to monitor its interest rate risk exposure and take additional steps to bring all measurements within guidelines.
PROJECTED PERCENTAGE CHANGE IN ------------------------------ Change in Interest Rate Net Interest Net Portfolio Net Portfolio Income Value Value Ratio - ------------------------------------------------------------------------------ - -300 Basis points 2.40% 22.36% 13.92% - -200 Basis points 4.95 19.79 13.95 - -100 Basis points 4.27 13.83 13.59 Base interest rate -- -- 12.35 +100 Basis points -5.28 -16.72 10.69 +200 Basis points -11.32 -33.68 8.85 +300 Basis points -17.66 -49.67 6.98
-10- PART I -- FINANCIAL INFORMATION FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations REGULATORY CAPITAL POSITION Under Office of Thrift Supervision ("OTS") capital regulations, the Bank is required to comply with each of three separate capital adequacy standards. At March 31, 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 March 31, 2000.
(Dollars in thousands) Amount Percent of Assets - ---------------------------------------------------------------------------- TANGIBLE CAPITAL: Capital level $106,242 8.37% Requirement 19,029 1.50 Excess 87,213 6.87 CORE CAPITAL: Capital level $106,242 8.37% Requirement 50,745 4.00 Excess 55,497 4.37 RISK-BASED CAPITAL: Capital level $113,033 15.97% Requirement 56,639 8.00 Excess 56,394 7.97
-11- PART I -- FINANCIAL INFORMATION FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations AVERAGE BALANCES Net interest income represents the difference between income on interest-earning assets and expense on interest- bearing liabilities. Net interest income depends upon the relative amount of interest-earning assets and interest- bearing liabilities and the interest rate earned or paid on them. The following table sets forth certain information relating to the Company's consolidated statements of financial condition and consolidated statements of operations for the three months ended March 31, 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.
For the three months ended March 31, ---------------------------------------------------------------- 2000 1999 ---------------------------------------------------------------- (Dollars in thousands) Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost - ------------------------------------------------------------------------------------------------------------------- ASSETS Interest-earning assets: Mortgage loans, net $ 882,135 $17,884 8.11% $ 757,061 $15,788 8.34% Other loans 5,816 152 10.45 4,511 103 9.13 Mortgage-backed securities 273,288 4,770 6.98 292,989 4,486 6.12 Other securities 16,319 288 7.06 12,967 204 6.29 Interest-earning deposit and federal funds sold 11,573 182 6.29 13,308 175 5.26 ------------------------------- ------------------------------- Total interest-earning assets 1,189,131 23,276 7.83 1,080,836 20,756 7.68 ------------------ ------------------ Non-interest earning assets 51,671 54,327 ---------- ---------- Total assets $1,240,802 $1,135,163 ========== ========== LIABILITIES AND EQUITY Interest-bearing liabilities: Passbook accounts $ 193,718 1,000 2.06 $202,552 1,037 2.05 NOW accounts 26,823 127 1.89 26,053 123 1.89 Money market accounts 41,606 339 3.26 30,851 214 2.77 Certificate of deposit accounts 371,447 4,944 5.32 368,129 4,826 5.24 Mortgagors' escrow deposits 12,582 10 0.32 9,543 19 0.80 Borrowed funds 444,555 6,700 6.03 336,136 5,067 6.03 ------------------------------- ------------------------------- Total interest-bearing liabilities 1,090,731 13,120 4.81 973,264 11,286 4.64 ------------------ ------------------ Other liabilities 33,949 31,711 ---------- ---------- Total liabilities 1,124,680 1,004,975 Equity 116,122 130,188 ---------- ---------- Total liabilities and equity $1,240,802 $1,135,163 ========== ========== Net interest income/Interest rate spread $10,156 3.02% $ 9,470 3.04% ================== ================== Net interest-earning assets/ Net interest margin $ 98,400 3.42% $ 107,572 3.50% ========== ===== ========== ===== Ratio of interest-earning assets to interest-bearing liabilities 1.09x 1.11x ===== =====
-12- 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.
Three Months Ended ----------------------------------------- (In thousands) March 31, 2000 March 31, 1999 - ----------------------------------------------------------------------------------------- MORTGAGE LOANS At beginning of period $876,984 $754,065 Mortgage loans originated: One-to-four family 20,378 19,078 Cooperative 65 300 Multi-family real estate 16,545 14,364 Commercial real estate 8,560 10,420 Construction 846 1,288 ------------------ ------------------ Total mortgage loans originated 46,394 45,450 ------------------ ------------------ Acquired loans: Loans purchased 6,295 5,281 ------------------ ------------------ Total acquired loans 6,295 5,281 ------------------ ------------------ Less: Principal reductions 23,348 29,477 Mortgage loans sold -- -- Mortgage loan foreclosures -- -- ------------------ ------------------ At end of period $906,325 $775,319 ================== ================== OTHER LOANS At beginning of period $5,748 $4,515 Other loans originated: Small Business Administration 700 499 Small business loans 140 770 Other loans 273 223 ------------------ ------------------ Total other loans originated 1,113 1,492 ------------------ ------------------ Less: Sales -- 515 Principal reductions 756 493 Charge-offs 25 -- ------------------ ------------------ At end of period $6,080 $4,999 ================== ==================
-13- 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.
(Dollars in thousands) March 31, 2000 December 31, 1999 - ------------------------------------------------------------------------------ Non-accrual mortgage loans $1,865 $3,157 Other non-accrual loans 82 39 -------------- -------------- Total non-accrual loans 1,947 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 1,947 3,196 Real estate owned (foreclosed real estate) 60 368 -------------- -------------- Total non-performing assets $2,007 $3,564 ============== ============== Non-performing loans to gross loans 0.21% 0.36% Non-performing assets to total assets 0.16% 0.29%
-14- 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.
Three Months Ended ------------------------------------------ (Dollars in thousands) March 31, 2000 March 31, 1999 - ---------------------------------------------------------------------------------------------------------------- Balance at beginning of period $6,818 $6,762 Provision for loan losses -- 24 Loans charged-off: One-to-four family 3 -- Co-operative -- -- Multi-family -- -- Commercial -- -- Construction -- -- Other 25 5 ------------------ ------------------ Total loans charged-off 28 5 ------------------ ------------------ Recoveries: Mortgage loans -- 138 Other loans -- -- ------------------ ------------------ Total recoveries -- 138 ------------------ ------------------ Balance at end of period $6,790 $6,919 ================== ================== Ratio of net charge-offs (recoveries) during the year to average loans outstanding during the period 0.00% (0.02)% Ratio of allowance for loan losses to loans at end of period 0.74% 0.89% Ratio of allowance for loan losses to non-performing assets at end of period 338.23% 196.54% Ratio of allowance for loan losses to non-performing loans at end of period 348.66% 200.95%
-15- 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. During the quarter ended March 31, 2000, the Board of Directors approved an increase of 25% in the quarterly common stock dividend from $0.08 per share in the fourth quarter of 1999 to $0.10 per share in the first quarter of 2000. 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. -16- FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Flushing Financial Corporation, Dated: May 5, 2000 By: /s/ Michael J. Hegarty ------------ ------------------------ Michael J. Hegarty President and Chief Executive Officer Dated: May 5 , 2000 By: /s/ Monica C. Passick ------------- ----------------------- Monica C. Passick Senior Vice President, Treasurer and Chief Financial Officer -17- FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES EXHIBIT INDEX Exhibit No. Description 27 Financial Data Schedule. -18- EX-27 2 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the Condensed Consolidated Statement of Financial Condition at March 31, 2000 (unaudited), and the Condensed Statement of Income for the three months ended March 31, 2000 (unaudited), and is qualified in its entirety by reference to such financial statements. 1,000 DEC-31-2000 JAN-01-2000 MAR-31-2000 3-MOS 11,872 17,780 0 0 288,384 0 0 912,458 6,790 1,277,707 672,513 86,144 24,196 375,609 0 0 114 119,131 1,277,707 18,036 5,058 182 23,276 6,420 13,120 10,156 0 0 5,748 5,484 5,484 0 0 3,400 0.40 0.39 7.83 1,947 0 0 0 6,818 28 0 6,790 6,790 0 0
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