Flushing Financial Corporation Annual Report 2003

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FY2003 Annual Report · Flushing Financial Corporation

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F l u s h i n g F i n a n c i a l C o r p o ra t i o n

2003 Annual R eport

Creating
value

Flushing Financial Corporation, a Delaware corporation, was formed in May 1994

to serve as the holding company for Flushing Savings Bank, FSB, a federally

chartered, FDIC-insured savings institution originally organized in 1929.

The Bank is a customer-oriented, full-service community bank primarily engaged

in attracting deposits from residents and businesses in the local communities of

Queens, Nassau, Brooklyn, Manhattan and the Bronx and investing such deposits

and other available funds primarily in originations of multi-family mortgage

loans, commercial real estate loans and one-to-four family residential loans.

Flushing Financial Corporation’s common stock is publicly traded on the Nasdaq
National Market(cid:2) under the symbol “FFIC.”

Additional information on Flushing Financial Corporation may be obtained by

visiting the Company’s web site at www.flushingsavings.com.

w hy i n ve s t i n
F l u s h i n g F i n a n c i a l C o r p o ra t i o n ?

Sustained five year EPS growth of 23%

Ability to grow Core Deposits in a vibrant multi-cultural market

Generator of higher yielding loans thru niche development

Historically strong asset quality and reserve coverage

Efficient Capital Management

Emphasis on Shareholder Value

f i n a n c i a l h i g h l i g h t s

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’99 ’00 ’01 ’02 ’03

(Dollars in thousands, except per share data)

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At or for the Year Ended December 31,

Selected Financial Data
Total assets
Loans receivable, net
Securities available for sale
Certificate of deposit accounts
Other deposit accounts
Stockholders’ equity
Dividends paid per common share
Book value per share

Selected Operating Data
Net interest income
Net income
Basic earnings per share
Diluted earnings per share

Financial Ratios
Return on average assets
Return on average equity
Net interest spread
Interest rate margin
Efficiency ratio
Equity to total assets
Non-performing assets to total assets
Allowance for possible loan losses to gross loans
Allowance for possible loan losses to non-performing loans

2003

2002

$1,910,751
1,269,521
535,709
593,760
576,149
146,762
0.28
7.61

$
$

60,163
21,678
1.27
1.22

$1,652,958
1,169,560
358,984
543,330
468,495
131,386
0.24
6.95

$
$

52,342
16,263(1)
0.93(1)
0.90(1)

1.21%

1.03%(1)

15.93
3.37
3.56
47.00
7.68
0.04
0.51
960.86

12.57(1)
3.32
3.55
47.41
7.95
0.26
0.56
183.23

(1) Excluding the $2.6 million after-tax impairment charge for a WorldCom, Inc. senior note recorded during the second quarter
of 2002, these amounts for 2002 would have been as follows: net income $18,843, basic earnings per share $1.08, diluted
earnings per share $1.04, return on average assets 1.20%, return on average equity 14.56%.

t o o u r s h a re h o l d e rs

2003 was a challenging and rewarding year for Flushing Financial. We posted record

earnings of $1.22 per share, up significantly from last year. This marked our 7th straight

year of earnings per share growth as a public company. In addition, our management and

staff surpassed several key performance levels. Net income exceeded $20 million annu-

ally for the first time. Our 15.93% return on average equity for the year put us among an

elite group of high performing banks as we broke the 15% annual ROAE mark for the

first time. 2003 was also the first year that Flushing exceeded 1.2%
return on average assets. Loan quality remained pristine, while our

loan portfolio grew 9%. Assets grew to $1.9 billion an increase of

16% over 2002. At year end, non-performing assets stood at a very

comfortable $682 thousand or .05% of total assets. Loan originations

hit a new high as we grew the portfolio to $1.2 billion. We achieved

growth in deposits of 16% as we brought in $157 million in customer

balances. Behind these results was a focus on our vision, our cus-

tomers and our strategy, that served us exceedingly well during this

challenging time.

In 2003 our industry was forced to deal with the specter of margin

compression as the Federal Reserve continued to keep interest rates

at historically low levels. Customers recast their loans at increasingly

lower rates as an unprecedented boom in loan refinance activity per-

sisted throughout the year. Faced with the risk of declining margins,

we held to the strategy that has served us well in prior years. By

concentrating on higher yielding niche loan markets and allowing

the runoff of lower yielding loans we were able to preserve margin

and improve spread for the year. Our focus on building core deposit

relationships in our multi-ethnic communities enabled us to further

reduce funding costs while growing our deposit base.

A sustained pattern of business growth requires investment to enhance

our franchise value, and Flushing Financial recognized that need in

2003. In the fourth quarter we opened an attractive, state-of-the-art

branch to enter the fertile multi-cultural market of Astoria, Queens.

Additionally, in 2003 we completed a major overhaul of our technology.

We upgraded our branch hardware and software, our network and

our internal administrative systems. We invested heavily in staff

Top Photo: Michael J. Hegarty
President and Chief Executive Officer

Bottom Photo: John R. Buran
Executive Vice President and
Chief Operating Officer

Right Photo: Gerard P. Tully, Sr.
Chairman of the Board

Creating Value:

this year. In December we declared a 3-for-2

stock split. During the year we also increased

our cash dividend by 22%.

training to acquaint our people with the new system

shareholders and we believe we’ve had a remark-

capabilities. We completed these initiatives ever

able history of doing so. We have sustained a

mindful of the bottom line, both today and tomor-

five-year earnings per share growth rate of 23%

We are in the business of creating value for our

row. We not only maintained but improved our

annual efficiency ratio to 47%.

As regulatory guidelines to improve corporate
governance and financial reporting emerged

from Sarbanes-Oxley legislation, the Board and

management made a considerable investment of

time and energy to ensure compliance, reviewing

and demonstrated an ability to grow deposits in a

vibrant multi-cultural market. We have transitioned

our loan business from its dependency on lower

yielding conventional mortgages to higher yielding

niches while maintaining loan quality and low loss

levels throughout our years as a public company.

Ever cognizant of your need for better returns on

shareholder invested capital we have bought back

and improving existing controls, policies, committee

over 43% of the stock issued in our initial public

charters, and Board and committee memberships.

The Board stands committed to the level of diligent

offering in 1995, while regularly increasing dividends.

stewardship that has marked our history and enabled

This year we celebrate our 75th anniversary as a

the delivery of consistently strong business results. It

bank. Our company was born during the Great

is toward that end that during the year we added

Depression and the resiliency, creativity and com-

two new Board Members, John J. McCabe and John

mitment that it took to survive in that environment

R. Buran. Mr. McCabe is Chief Investment Strategist

has enabled us to thrive in this one. In closing, on

for Shay Assets Management and co-manager of

behalf of the Board and the executive management

two of the nation’s highly rated Equity Mutual Funds.

Mr. Buran is our Chief Operating Officer and has

team, we would like to thank our employees for

their continued hard work and our shareholders

played a key role in implementing our long-term

for their continued support.

strategy to build a stronger, customer-oriented,

full-service community bank.

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It was quite an exciting year and our performance

Gerard P. Tully, Sr.

did not go unnoticed. In the middle of the year,

our ongoing commitment to excellence was

recognized by financial services research firm

SNL Financial as we finished 11th out of the top

100 thrifts nationwide across a wide variety of per-

formance measures including return on equity,

Michael J. Hegarty

return on assets and efficiency. We were thrilled

John R. Buran

that the market noticed our performance as well

and rewarded us with a 70% return on our stock

c re a t i n g va l u e i n re t a i l b a n k i n g

Value in retail banking is all about how you connect with the people and the

businesses in your community. That’s what we did when we opened our 11th

branch in the multi-ethnic market of Astoria—not far from our center of branch

concentration in Queens. It is a community of small shops and sidewalk din-

ing, only 4 stops from Manhattan on an elevated train line. We connected with

the people first by speaking their language—7 languages to be exact, in

a 10-person branch. Our staff has the face and customs of the community—

because we recruit from the community. Our location was convenient to the

customer—we’re the closest branch to the train station. Our Astoria ATM’s

are well lit, inviting, multi-lingual and surcharge free for both our customers

and non-customers.

We connected to the business community, helping

business leaders with important non-profit ventures

at the local school, and holiday street lighting. We

worked creatively to finance real estate acquisitions

and projects in the community while developing a

solid business deposit base. We staged branch

opening events using local businesses. We worked

with the local press and politicians to underscore

our long-term commitment to the Astoria community.

We trained our staff for months before the opening

so that they would be ready to offer the best in finan-

cial services. Finally, we built a branch that was mod-

ern, comfortable and inviting. We offered value to the

Astoria customer and they in turn rewarded us with

our most successful branch opening to date.

Creating Value: “It is our approach to our
multi-cultural markets that has enabled us to
grow deposit balances 70% or $480 million
since the end of 2000.”

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Our success in Astoria was, however, only

one of the many ways we created value in

our Retail Banking Franchise. Attention to our

customers’ needs across our branch network

allowed us to increase share in every market

we serve. It is our approach to our multi-

cultural markets that has enabled us to grow

deposit balances 70% or $480 million since

the end of 2000 with an even more impressive

growth of 100% or $289 million in lower

costing core deposit balances during the

same time period. All but $9 million of that growth came from

an increase in same branch sales activity without the help of

new branch openings. By concentrating on our

multi-ethnic strategy and providing our staff with

the best in training and support, we’ve created

more value in our existing retail branches, and

created a template for future branch openings.

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c re a t i n g va l u e i n l e n d i n g

How do you know when you’re creating value in real estate

lending? When your customers come back to you time and time

again. Take the case of the family of real estate investors that has

12 different multi-family loans with us. The family comes back

to us time and time again to meet with our knowledgeable loan

officers. Our multi-family and commercial business is a custom

shop where we take great pride in understanding our customers,

their projects and their economic value. Our decision-makers,

loan officers, management and loan committee members all have

extensive knowledge of this market and a willingness to work

creatively to do deals that make economic sense. Whether it is a

not-for-profit seeking to restructure financing on its valuable real

estate holdings or an entrepreneur who has created

a profitable business in parking lots in our crowded

city, Flushing Savings Bank is willing to provide the

special structures and tailored payment terms that

add value to the customer’s project.

Creating Value: “Our residential business
is a specialty niche business focusing primarily
on mixed-use properties.”

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Our residential business is a specialty niche

business focusing primarily on mixed-use

properties. Usually smaller in size than our

multi-family and commercial loans, mixed-

use loans have become an increasingly

important part of our business. Very popular

in the boroughs of New York City, the mixed-

use property consists of one or more stores

with several apartments above. The mixed-

use property is the bedrock of New York

neighborhoods. It’s where the borough resi-

dent may live, work, shop for groceries, get

her nails done and drop off the dry cleaning.

Financing mixed-use properties puts us at the

heart of the communities we serve. Being at

the heart of the communities we serve and

creating value for our customers has created

value for Flushing Savings Bank. Our new

loan originations grew more than 30% last

year hitting an all time high of $412 million.

Creating Value: “But the most important
investment that we continue to make is in
talented people…”

During 2003, we invested capital to create value for the future of Flushing

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Financial. We’ve described our new branch earlier in this report and we will

continue to evaluate entry into new productive markets. In 2003, we also

invested in an updated branch teller and customer service system, which we

expect will augment the flow of customer information, reduce customer waiting

time, and improve staff professionalism. Through this past year’s investment in

a new network, we believe we will enhance security and safeguard customer

information, while speeding transactions. Our investment in on-line training will

help provide more customer contact time, while ensuring a more standardized

level of knowledge across our staff in the future. Our continuing investment

in the Internet and on-line banking will help to ensure that our customers

can find up-to-date products and services at Flushing Savings Bank. Our

investment in an updated loan system will mean quicker turn-

around times on loans for our customers. In the coming year

we expect to make other investments that will help create value

for the future. These include a new decision support system

that will help us better manage interest rate risk and product

profitability and a move of our executive headquarters to make

room for our continued growth. We will also continue our efforts

to find prime locations in our targeted growth markets to expand

our branch system. In 2004 we will begin a program of renova-

tion of our existing branches to ensure our continued franchise

growth. But the most important investment that we continue

to make is in talented people—selecting them, training them,

coaching them, and rewarding them for their performance.

c o r p o ra t e i n fo r m a t i o n

Flushing Financial Corporation and Subsidiaries

Executive Management

Gerard P. Tully, Sr.
Chairman of the Board

Michael J. Hegarty
President & Chief Executive Officer

John R. Buran
Executive Vice President &
Chief Operating Officer

Monica C. Passick
Senior Vice President, Treasurer &
Chief Financial Officer

Henry A. Braun
Senior Vice President

Robert L. Callicutt
Senior Vice President

Francis W. Korzekwinski
Senior Vice President

Anna M. Piacentini
Senior Vice President &
Corporate Secretary

Board of Directors

Gerard P. Tully, Sr.
Chairman
Real estate development
and management

Michael J. Hegarty
President & Chief Executive Officer

James D. Bennett
Attorney in Nassau County, New York

John R. Buran
Executive Vice President &
Chief Operating Officer

Louis C. Grassi
Managing Partner of Grassi & Co.,
CPAs, P.C.

John J. McCabe
Chief Strategist for Shay Assets Management

John O. Mead
Retired fabric manufacturer and marketer

Vincent F. Nicolosi
Attorney in Bayside, New York

Franklin F. Regan, Jr.
Attorney in Flushing, New York

John E. Roe, Sr.
Chairman of City Underwriting Agency, Inc.
Insurance Brokers

Michael J. Russo
Consulting Engineer, President and
Director of Operations for Northeastern
Aviation Corp.

Corporate Headquarters

Flushing Savings Bank, FSB
144-51 Northern Boulevard
Flushing, New York 11354
718-961-5400
facsimile 718-539-1025
www.flushingsavings.com

Retail Branch Locations

Flushing
144-51 Northern Boulevard

159-18 Northern Boulevard

188-08 Hollis Court Boulevard

44-43 Kissena Boulevard

Astoria
31-16 30th Avenue

Bayside
61-54 Springfield Boulevard

New Hyde Park
661 Hillside Avenue

In-Store Branch
(Stop & Shop Supermarket)
653 Hillside Avenue

Bay Ridge
7102 Third Avenue

Manhattan
33 Irving Place

Bronx
In-Store Branch
(Stop & Shop Supermarket)
753 Co-Op City Boulevard

Mortgage Originations
Flushing Savings Bank, FSB and
New York Federal Division
144-51 Northern Boulevard
718-961-5400

Small Business Lending
33 Irving Place
212-477-9424

s h a re h o l d e r i n fo r m a t i o n

Flushing Financial Corporation and Subsidiaries

Annual Meeting

Transfer Agent and Registrar

Legal Counsel

The Annual Meeting of Shareholders
of Flushing Financial Corporation
will be held at 2:00 PM, May 18, 2004,
at the La Guardia Marriott located
at 102-05 Ditmars Boulevard,
East Elmhurst, New York 11369

Stock Listing

Nasdaq National Market(cid:3)
Symbol “FFIC”

EquiServe Trust Company NA
P. O. Box 43010
Providence, Rhode Island 02940-3010
1-800-426-5523
www.Equiserve.com

Independent Certified
Public Accountants

PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
646-471-4000

Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
212-837-6000

Shareholder Relations

Van Negris & Company, Inc.
1120 Avenue of the Americas
4th Floor–Suite 4100
New York, New York 10021
212-626-6730

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Flushing Financial Corporation
144-51 Northern Blvd.
Flushing, New York 11354

3345-AR-04