FFIC » Topics » COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007

This excerpt taken from the FFIC 10-Q filed Nov 10, 2008.

COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2008 AND 2007

General. Net income decreased $0.1 million, or 0.7%, to $15.8 million for the nine months ended September 30, 2008 from $15.9 million for the nine months ended September 30, 2007. Diluted earnings per share was $0.78, a decline of $0.02, or 2.5% for the nine months ended September 30, 2008 from $0.80 for the nine months ended September 30, 2007. The return on average assets was 0.60% for the nine months ended September 30, 2008, as compared to 0.71% for the nine months ended September 30, 2007, while the return on average equity was 9.04% for the nine months ended September 30, 2008, as compared to 9.70% for the nine months ended September 30, 2007.

These results include two significant non-cash, non-operating items, that together reduced net income by $4.3 million, or $0.22 per diluted share for the nine months ended September 30, 2008. The first item was an other-than-temporary impairment charge of $14.7 million, after tax, or $0.73 per diluted share for the nine months ended September 30, 2008, to reduce the carrying amount of the Company’s investments in preferred stocks of Freddie Mac and Fannie Mae to the securities market value of $1.9 million at September 30, 2008. The second item was a net gain of $10.4 million, after tax, or $0.51 per diluted share for the nine months ended September 30, 2008, resulting from the change in the fair value of financial assets and financial liabilities carried at fair value under SFAS No.159. This change in fair value was primarily caused by widening credit spreads in the credit markets on trust preferred securities and the related junior subordinated debentures, as previously discussed.

Interest Income. Total interest and dividend income increased $19.8 million, or 14.1%, to $161.0 million for the nine months ended September 30, 2008 from $141.2 million for the nine months ended September 30, 2007. The increase in interest income is attributed to the growth in the average balance of interest-earning assets, which increased $494.3 million to $3,311.5 million, partially offset by a 20 basis point decline in the yield of interest-earning assets to 6.48% for the nine months ended September 30, 2008 from 6.68% for the nine months ended September 30, 2007. The decline in the yield of interest-earning assets was primarily due to a 17 basis point reduction in the yield of the loan portfolio combined with a $167.5 million increase in the combined average balances of the lower yielding securities portfolio and interest-earning deposits, with each having a lower yield than the average yield of total interest-earning assets. The 17 basis point reduction in the yield of the loan portfolio to 6.74% for the nine months ended September 30, 2008 from 6.91% for the nine months ended September 30, 2007 was primarily the result of adjustable rate loans adjusting down, as rates have declined throughout 2008. The yield was positively impacted by the average rate on mortgage loans originated during the past twelve months being higher than the average rate of both the existing loan portfolio and mortgage loans which were paid-in-full during the period. The yield on the mortgage loan portfolio declined 14 basis points to 6.74% for the nine months ended September 30, 2008 from 6.88% for the nine months ended September 30, 2007. The yield on the mortgage loan portfolio, excluding prepayment penalty income, declined 12 basis points to 6.60% for the nine months ended September 30, 2008 from 6.72% for the nine months ended September 30, 2007. The decline in the yield of interest-earning assets was partially offset by an increase of $326.8 million in the average balance of the loan portfolio to $2,813.1 million for the nine months ended September 30, 2008.

Interest Expense. Interest expense increased $7.6 million, or 8.6%, to $96.1 million for the nine months ended September 30, 2008 from $88.4 million for the nine months ended September 30, 2007. The increase in interest expense is attributed to a $495.3 million increase in the average balance of interest-bearing liabilities to $3,172.7 million. This increase was partially offset by a 36 basis point decline in the cost of interest-bearing liabilities to 4.04% for the nine months ended September 30, 2008 from 4.40% for the nine months ended September 30, 2007. The decrease in the cost of interest-bearing liabilities is primarily attributed to the FOMC lowering the overnight interest rate six times during the last twelve months from 4.75% at September 30, 2007 to 2.00% at September 30, 2008. Certificates of deposit, money market accounts and saving accounts decreased 40 basis points, 90 basis points and 11 basis points respectively, for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. NOW accounts increased 112 basis points for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007 due to the introduction and promotion of new products which, although carry a higher rate than other products in these types of accounts, had a lower rate during the nine months ended September 30, 2008 than the average cost of deposits. This resulted in a decrease in the cost of due to depositors of 47 basis points to 3.74% for the nine months ended September 30, 2008 compared to 4.21% for the

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PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

nine months ended September 30, 2007. The cost of borrowed funds also decreased 27 basis points to 4.70% for the nine months ended September 30, 2008 compared to 4.97% for the nine months ended September 30, 2007. The average balance of higher-costing certificates of deposit and borrowed funds increased $69.4 million and $261.5 million, respectively, for the nine months ended September 30, 2008 compared to the prior year period. In addition, the combined average balances of lower-costing savings, money market and NOW accounts increased a total of $162.1 million for the nine months ended September 30, 2008 compared to the prior year period.

Net Interest Income. For the nine months ended September 30, 2008, net interest income was $64.9 million, an increase of $12.2 million, or 23.2%, from $52.7 million for the nine months ended September 30, 2007. The increase in net interest income is attributed to an increase in the average balance of interest-earning assets of $494.3 million, to $3,311.4 million for the nine months ended September 30, 2008, combined with an increase in the net interest spread of 16 basis points to 2.44% for the nine months ended September 30, 2008 from 2.28% for the comparable period in 2007. The yield on interest-earning assets decreased 20 basis points to 6.48% for the nine months ended September 30, 2008 from 6.68% for the nine months ended September 30, 2007. However, this was more than offset by a decline in the cost of funds of 36 basis points to 4.04% for the nine months ended September 30, 2008 from 4.40% for the comparable prior year period. The net interest margin improved 12 basis points to 2.61% for the nine months ended September 30, 2008 from 2.49% for the nine months ended September 30, 2007. Excluding prepayment penalty income, the net interest margin would have been 2.50% and 2.36% for the nine month periods ended September 30, 2008 and 2007, respectively.

Provision for Loan Losses. The provision for loan losses for the nine months ended September 30, 2008 was $3.6 million, of which $3.0 million was recorded during the third quarter of 2008. There was no provision for loan losses for the nine months ended September 30, 2007. The Bank has not been directly affected by the recent increase in defaults on sub-prime mortgages as the Bank does not originate, or hold in portfolio, sub-prime mortgages. However, the Bank saw a $10.6 million, or 135% increase in non-performing loans to $18.5 million at September 30, 2008 from $7.9 million at the end of the previous quarter. This increase in non-performing loans during the third quarter of 2008 is primarily attributed to multi-family residential and one-to-four family mixed use property mortgage loans. The collateral for these loans is primarily properties located in the New York City metropolitan market, which have seen relatively stable market values over the past couple of years. Historically, the Bank has not incurred losses on these types of loans, primarily due to conservative underwriting standards that include, among other things, a loan to value ratio of 75% or less and a debt coverage ratio of at least 125%. However, given the 135% increase in non-performing loans and current economic uncertainties, management, as a result of the regular quarterly analysis of the allowance for loans losses, deemed it necessary to record a provision for possible loan losses of $3.0 million in the third quarter of 2008 and a total provision in the nine months ended September 30, 2008 of $3.6 million. Management has concluded, after increasing the provision in the current quarter, that the allowance is sufficient to absorb losses inherent in the loan portfolio. By adherence to its conservative underwriting standards the Bank has been able to minimize net losses from impaired loans with net charge-offs of $689,000, or 0.02% of average loans for the nine months ended September 30, 2008, compared to net charge-offs of $233,000, or 0.01% of average loans for the comparable period in 2007. See “-ALLOWANCE FOR LOAN LOSSES”.

Non-Interest Income. Non-interest income for the nine months ended September 30, 2008 decreased by $6.1 million, or 60.2%, to $4.1 million from $10.2 million for the nine months ended September 30, 2007. Increases of $17.7 million in the net gain attributed to changes in fair value of financial assets and financial liabilities carried at fair value under SFAS No. 159, $0.5 million in dividends received from FHLB-NY stock, and $0.4 million in income from BOLI were more than offset by the other-than-temporary impairment charge of $26.3 million recorded to reduce the carrying value of the Company’s investments in Freddie Mac and Fannie Mae preferred stocks to their market value in the third quarter of 2008 and a $0.4 million decline in loan fee income. The nine months ended September 30, 2008 includes income of $2.4 million representing a partial recovery of a loss sustained in 2002 on a WorldCom, Inc. senior note. This amount was received as a result of a class action litigation settlement, and is presented as part of other income.

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PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Non-Interest Expense. Non-interest expense was $41.2 million for the nine months ended September 30, 2008, an increase of $3.2 million, or 8.6%, from $37.9 million for the nine months ended September 30, 2007. The increase from the comparable prior year period is primarily attributed to increases of: $1.7 million in employee salary and benefits, $0.7 million in professional services, $0.4 million in data processing expense, and $0.4 million in other operating expense, each of which is primarily attributed to the growth of the Bank over the past twelve months. The efficiency ratio was 58.5% and 61.2% for the nine month periods ended September 30, 2008 and 2007, respectively.

Income before Income Taxes. Income before the provision for income taxes decreased $0.8 million, or 3.0%, to $24.2 million for the nine months ended September 30, 2008 from $25.0 million for the nine months ended September 30, 2007, for the reasons discussed above.

Provision for Income Taxes. Income tax expense decreased $0.6 million, to $8.5 million, for the nine months ended September 30, 2008 as compared to $9.1 million for the nine months ended September 30, 2007. This decrease was primarily due to reduced pre-tax income for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007. The effective tax rate was 34.9% and 36.4% for the nine-month periods ended September 30, 2008 and 2007, respectively.

This excerpt taken from the FFIC 10-Q filed Aug 11, 2008.

COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007

General. Net income increased $3.5 million, or 34.3%, to $13.7 million for the six months ended June 30, 2008 from $10.2 million for the six months ended June 30, 2007. Diluted earnings per share was $0.68, an increase of $0.17, or 33.3% for the six months ended June 30, 2008 from $0.51 for the six months ended June 30, 2007. The return on average assets was 0.79% for the six months ended June 30, 2008, as compared to 0.70% for the six months ended June 30, 2007, while the return on average equity was 11.66% for the six months ended June 30, 2008, as compared to 9.40% for the six months ended June 30, 2007.

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PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Interest Income. Total interest and dividend income increased $14.6 million, or 15.9%, to $106.8 million for the six months ended June 30, 2008 from $92.2 million for the six months ended June 30, 2007. The increase in interest income is attributed to the growth in the average balance of interest-earning assets, which increased $502.1 million to $3,262.0 million, partially offset by a 13 basis point decline in the yield of interest-earning assets to 6.55% for the six months ended June 30, 2008 from 6.68% for the six months ended June 30, 2007. The decline in the yield of interest-earning assets was primarily due to a 12 basis point reduction in the yield of the loan portfolio to 6.80% for the six months ended June 30, 2008 from 6.92% for the six months ended June 30, 2007. This decrease was primarily the result of adjustable rate loans adjusting down, as rates declined throughout the first half of 2008. The yield was positively impacted by the average rate on mortgage loans originated during the past twelve months being higher than the average rate of both the existing loan portfolio and mortgage loans which were paid-in-full during the period. The yield on the mortgage loan portfolio declined nine basis points to 6.80% for the six months ended June 30, 2008 from 6.89% for the six months ended June 30, 2007. The yield on the mortgage loan portfolio, excluding prepayment penalty income, declined seven basis points to 6.65% for the six months ended June 30, 2008 from 6.72% for the six months ended June 30, 2007. The decline in the yield of interest-earning assets was partially offset by an increase of $349.8 million in the average balance of the loan portfolio to $2,779.0 million for the six months ended June 30, 2008.

Interest Expense. Interest expense increased $7.2 million, or 12.7%, to $64.0 million for the six months ended June 30, 2008 from $56.8 million for the six months ended June 30, 2007. The increase in interest expense is attributed to a $501.2 million increase in the average balance of interest-bearing liabilities to $3,122.1 million. This increase was partially offset by a 23 basis point decline in the cost of interest-bearing liabilities to 4.10% for the three months ended June 30, 2008 from 4.33% for the three months ended June 30, 2007. The decrease in the cost of interest-bearing liabilities is primarily attributed to the FOMC lowering the overnight interest rate to 2.00% as of June 30, 2008. Certificates of deposit and money market accounts decreased 24 basis points and 67 basis points, respectively, for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. Savings accounts and NOW accounts increased 12 basis points and 124 basis points, respectively, for the six months ended June 30, 2008 compared to the six months ended June 30, 2007. This increase in the average cost of Savings and NOW accounts is due to the introduction and promotion of new products which, although carrying a higher rate than other products in these types of accounts, had a lower rate during the six months ended June 30, 2008 than the average cost of deposits. This resulted in a decrease in the cost of due to depositors of 30 basis points to 3.84% for the six months ended June 30, 2008 compared to 4.14% for the six months ended June 30, 2007. The cost of borrowed funds also decreased 22 basis points to 4.69% for the six months ended June 30, 2008 compared to 4.91% for the six months ended June 30, 2007. The average balance of higher-costing certificates of deposit and borrowed funds increased $58.9 million and $273.8 million, respectively, for the six months ended June 30, 2008 compared to the prior year period. In addition, the combined average balances of lower-costing savings, money market and NOW accounts increased a total of $165.9 million for the six months ended June 30, 2008 compared to the prior year period.

Net Interest Income. For the six months ended June 30, 2008, net interest income was $42.8 million, an increase of $7.4 million, or 21.0%, from $35.4 million for the six months ended June 30, 2007. The increase in net interest income is attributed to an increase in the average balance of interest-earning assets of $502.1 million, to $3,262.0 million for the six months ended June 30, 2008, combined with an increase in the net interest spread of 10 basis points to 2.45% for the six months ended June 30, 2008 from 2.35% for the comparable period in 2007. The yield on interest-earning assets decreased 13 basis points to 6.55% for the six months ended June 30, 2008 from 6.68% for the six months ended June 30, 2007. However, this was more than offset by a decline in the cost of funds of 23 basis points to 4.10% for the six months ended June 30, 2008 from 4.33% for the comparable prior year period. The net interest margin improved six basis points to 2.62% for the six months ended June 30, 2008 from 2.56% for the six months ended June 30, 2007. Excluding prepayment penalty income, the net interest margin would have been 2.50% and 2.42% for the six month periods ended June 30, 2008 and 2007, respectively.

Provision for Loan Losses. The provision for loan losses for the six months ended June 30, 2008 was $0.6 million. There was no provision for loan losses for the six months ended June 30, 2007. The regular quarterly review of the allowance for loan losses resulted in management’s conclusion that this provision is necessary to maintain the allowance for loan losses at a level that provides for losses inherent in the loan portfolio. In assessing the adequacy of the Company’s allowance for loan losses, management considers the Company’s historical loss experience, recent trends in losses, collection policies and collection experience, trends in the volume of non-performing loans, changes

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PART I – FINANCIAL INFORMATION
FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

in the composition and volume of the gross loan portfolio, and local and national economic conditions. By adherence to its conservative underwriting standards the Bank has been able to minimize net losses from impaired loans with net charge-offs of $299,000 for the six months ended June 30, 2008, compared to net charge-offs of $258,000 for the comparable period in 2007. See “-ALLOWANCE FOR LOAN LOSSES”.

Non-Interest Income. Non-interest income increased $0.3 million, or 5.0%, for the six months ended June 30, 2008 to $6.7 million, as compared to $6.4 million for the six months ended June 30, 2007. Increases of $0.5 million in dividends received from FHLB-NY stock and $0.3 million in income on BOLI due to the purchase of additional BOLI were partially offset by a $0.3 million decrease in gain on sale of loans and a $0.4 million decline in loan fee income. The six months ended June 30, 2008 includes income of $2.4 million representing a partial recovery of a loss sustained in 2002 on a WorldCom, Inc. senior note. This amount was received as a result of a class action litigation settlement. The changes in fair value of financial assets and financial liabilities carried at fair value under SFAS No. 159 was a loss of $1.9 million for the six months ended June 30, 2008, a decrease of $2.1 million from the $0.2 million gain recorded for the six months ended June 30, 2007.

Non-Interest Expense. Non-interest expense was $27.5 million for the six months ended June 30, 2008, an increase of $1.7 million, or 6.7%, from $25.8 million for the six months ended June 30, 2007. The increase from the comparable prior year period is primarily attributed to increases of: $0.9 million in employee salary and benefits, $0.4 million in professional services, $0.3 million in data processing expense, and $0.2 million in other operating expense each of which is primarily attributed to the growth of the Bank over the past twelve months. The efficiency ratio was 56.9% and 62.1% for the six month periods ended June 30, 2008 and 2007, respectively.

Income before Income Taxes. Income before the provision for income taxes increased $5.4 million, or 33.9%, to $21.4 million for the six months ended June 30, 2008 from $16.0 million for the six months ended June 30, 2007, for the reasons discussed above.

Provision for Income Taxes. Income tax expense increased $1.9 million, to $7.7 million, for the six months ended June 30, 2008 as compared to $5.8 million for the six months ended June 30, 2007. This increase was primarily due to higher pre-tax income for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. The effective tax rate was 36.2% and 36.3% for the six-month periods ended June 30, 2008 and 2007, respectively.

This excerpt taken from the FFIC 10-Q filed May 9, 2008.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

General. Net income increased $1.8 million, or 32.8%, to $7.2 million for the three months ended March 31, 2008 from $5.4 million for the three months ended March 31, 2007. Diluted earnings per share was $0.36, an increase of $0.09, or 33.3%, for the three months ended March 31, 2008 from $0.27 for the three months ended March 31, 2007. The return on average assets was 0.84% for the three months ended March 31, 2008, as compared to 0.75% for the three months ended March 31, 2007, while the return on average equity was 12.27% for the three months ended March 31, 2008 and 10.03% for the three months ended March 31, 2007.

Interest Income. Total interest and dividend income increased $8.6 million, or 19.3%, to $53.4 million for the three months ended March 31, 2008 from $44.8 million for the three months ended March 31, 2007. The increase in interest income is attributed to the growth in the average balance of interest-earning assets, which increased $500.4 million to $3,209.3 million, combined with a five basis point increase in the yield of interest-earning assets to 6.66% for the three months ended March 31, 2008 from 6.61% for the quarter ended March 31, 2007. The increase in the yield of interest-earning assets is primarily due to an increase of $360.2 million in the average balance of the loan portfolio to $2,732.8 million, combined with a $108.8 million increase in the average balance of the securities portfolios. The yield on the mortgage loan portfolio increased eight basis points to 6.91% for the three months ended March 31, 2008 from 6.83% for the three months ended March 31, 2007. This increase is primarily due to an increase in prepayment penalty income collected during the three months ended March 31, 2008 as compared to the three months ended March 31, 2007 and the average rate on new loans originated since March 31, 2007 being above the average rate on both the loan portfolio and loans which were paid-in-full during this period. The average note rate on mortgage loans originated in the current quarter was 6.86%. The yield on the mortgage loan portfolio, excluding prepayment penalty income was 6.73% for the three months ended March 31, 2008 the same as was recorded in the three months ended December 31, 2007 and a one basis point improvement from the 6.72% for the three months ended March 31, 2007.

Interest Expense. Interest expense increased $5.2 million, or 19.0%, to $32.7 million for the three months ended March 31, 2008 from $27.5 million for the three months ended March 31, 2007. The decrease in the cost of interest-bearing liabilities is primarily attributed to the Federal Open Market Committee (“FOMC”) lowering the overnight interest rate to 2.25% as of March 31, 2008. As result of these rate reductions by the FOMC, the Bank reduced the rate it pays on its deposit products. Certificates of deposit and money market accounts decreased two basis points and 18 basis points, respectively, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. Savings accounts and NOW accounts increased 53 basis points and 146 basis points, respectively, for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. This increase in the average cost of Savings and NOW accounts is due to the introduction and promotion of new products during the past year which, although carrying a higher rate than other products in these types of accounts, had a lower rate during the quarter ended March 31, 2008 than the average cost of total deposits. As a result of the above, there was a decrease in the cost of deposits of two basis points to 3.98% for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. The cost of borrowed funds also decreased 11 basis points to 4.74% for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. The average balance of certificates of deposit and borrowed funds increased $49.7 million and $274.8 million, respectively, for the quarter ended March 31, 2008 compared to the prior year period. In addition, the combined average balances of lower-costing savings, money market and NOW accounts increased a total of $177.3 million for the quarter ended March 31, 2008 compared to the prior year period.

Net Interest Income. For the three months ended March 31, 2008, net interest income was $20.7 million, an increase of $3.4 million, or 19.7%, from $17.3 million for the three months ended March 31, 2007. An increase in the average balance of interest-earning assets of $500.4 million, to $3,209.3 million, combined with an increase in the net interest spread of seven basis points to 2.41% for the quarter ended March 31, 2008 from 2.34% for the comparable period in 2007. The yield on interest-earning assets increased five basis points to 6.66% for the three months ended March 31, 2008 from 6.61% in the three months ended March 31, 2007. The cost of interest-bearing liabilities decreased by two basis points to 4.25% for the three months ended March 31, 2008 from 4.27% for the comparable prior year period. The net interest margin increased two basis points to 2.58% for the three months ended March 31, 2008 from 2.56% for the three months ended March 31, 2007. Excluding prepayment penalty income, the net interest margin would have been 2.44% and 2.46% for the three month periods ended March 31, 2008 and 2007, respectively.

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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. The provision for loans losses for the three months ended March 31, 2008 was $0.3 million. There was no provision for loan losses for the three months ended March 31, 2007. The regular quarterly review of the allowance for loan losses resulted in management’s conclusion that this provision is necessary to maintain the allowance for loan losses at a level that provides for losses inherent in the loan portfolio. In assessing the adequacy of the Company’s allowance for loan losses, management considers the Company’s historical loss experience, recent trends in losses, collection policies and collection experience, trends in the volume of non-performing loans, changes in the composition and volume of the gross loan portfolio, and local and national economic conditions. By adherence to its strict underwriting standards the Bank has been able to minimize net losses from impaired loans with net charge-offs of $86,000 for the three months ended March 31, 2008, compared to $73,000 for the comparable period in 2007. See “-ALLOWANCE FOR LOAN LOSSES”.

Non-Interest Income. Non-interest income increased $0.3 million, or 8.8%, for the three months ended March 31, 2008 to $4.0 million, as compared to $3.7 million for the quarter ended March 31, 2007. Increases of $0.3 million in dividends received on FHLB-NY stock, and $0.1 million in income on BOLI due to the purchase of additional BOLI, were partially offset by a $0.1 million decrease in net gain on sale of loans.  The three months ended March 31, 2008 includes income of $2.4 million representing a partial and final recovery of a portion of a loss sustained in 2002 on a WorldCom, Inc. senior note. This amount was received as a result of a class action litigation settlement. The changes in fair value of financial assets and financial liabilities carried at fair value under SFAS No. 159 was a loss of $1.6 million for the three months ended March 31, 2008, a decrease of $2.4 million from the $0.8 million gain recorded for the three months ended March 31, 2007.

Non-Interest Expense. Non-interest expense was $13.2 million for the three months ended March 31, 2008, an increase of $0.7 million, or 5.5%, from $12.5 million for the three months ended March 31, 2007. The increase from the comparable prior year period is primarily attributed to increases of: $0.3 million in employee salary and benefits, $0.2 million in professional services, and $0.2 million in data processing expense, each of which is primarily attributed to the growth of the Bank over the past twelve months. The efficiency ratio was 56.1% and 62.2% for the three month periods ended March 31, 2008 and 2007, respectively.

Income before Income Taxes. Income before the provision for income taxes increased $2.7 million, or 32.5%, to $11.2 million for the three months ended March 31, 2008 from $8.4 million for the three months ended March 31, 2007, for the reasons discussed above.

Provision for Income Taxes. Income tax expense increased $1.0 million, to $4.0 million for the three months ended March 31, 2008 as compared to $3.0 million for the three months ended March 31, 2007. This increase was primarily due to higher pre-tax income for the three months ended March 31, 2008 as compared to the three months ended March 31, 2007. The effective tax rate was 36.0% and 36.1% for the three-month periods ended March 31, 2008 and 2007, respectively.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

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