FLUSHING FINANCIAL CORP - 10-Q Quarterly Report

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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 June 30, 2002

Commission file number 000-24272

FLUSHING FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 11-3209278
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

144-51 Northern Boulevard, Flushing, New York 11354
(Address of principal executive offices)

(718) 961-5400
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: Common Stock $0.01
par value.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No

The number of shares of the registrant's Common Stock outstanding as of July 24,
2002 was 13,110,868.

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 ..............................................................7

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ........................19

PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................................................19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..........................................19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ...................................................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...............................20
ITEM 5. OTHER INFORMATION .................................................................20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................................................21
SIGNATURES..................................................................................22

i

PART I - FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except share data) June 30, 2002 December 31, 2001
- -----------------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)

Cash and due from banks $ 15,593 $ 20,008
Federal funds sold 8,000 18,500
Securities available for sale:
Mortgage-backed securities 236,342 243,058
Other securities 65,381 62,481
Loans:
One-to-four family residential real estate loans 450,462 461,801
Multi-family real estate loans 429,513 369,651
Commercial real estate loans 228,631 214,410
Co-operative apartment loans 5,788 6,601
Construction loans 17,864 13,807
Small Business Administration loans 4,708 3,911
Consumer and other loans 3,322 2,814
Net unamortized premiums and unearned loan fees 1,150 787
Allowance for loan losses (6,580) (6,585)
--------------- --------------
Net loans 1,134,858 1,067,197
Interest and dividends receivable 8,951 7,945
Real estate owned, net - 93
Bank premises and equipment, net 5,504 5,565
Federal Home Loan Bank of New York stock 23,464 25,422
Goodwill 3,905 3,905
Other assets 43,644 33,355
--------------- --------------
Total assets $ 1,545,642 $ 1,487,529
=============== ==============
LIABILITIES
Due to depositors:
Non-interest bearing $ 33,535 $ 28,594
Interest-bearing:
Certificate of deposit accounts 502,689 467,172
Passbook savings accounts 210,022 195,855
Money market accounts 119,148 93,789
NOW accounts 35,727 33,107
--------------- --------------
Total interest-bearing deposits 867,586 789,923
Mortgagors' escrow deposits 12,256 10,065
Borrowed funds 488,175 513,435
Other liabilities 11,861 12,125
--------------- --------------
Total liabilities 1,413,413 1,354,142
--------------- --------------
STOCKHOLDERS' EQUITY
Preferred stock ($0.01 par value; 5,000,000 shares authorized) - -
Common stock ($0.01 par value; 40,000,000 shares authorized; 13,852,063
shares issued; 13,145,459 and 13,487,784 shares outstanding at
June 30, 2002 and December 31, 2001, respectively) 139 139
Additional paid-in capital 45,912 45,280
Treasury stock, at average cost (706,604 and 364,279 shares at
June 30, 2002 and December 31, 2001, respectively) (11,673) (5,750)
Unearned compensation (8,505) (7,766)
Retained earnings 103,225 99,641
Accumulated other comprehensive income, net of taxes 3,131 1,843
--------------- --------------
Total stockholders' equity 132,229 133,387
--------------- --------------
Total liabilities and stockholders' equity $ 1,545,642 $ 1,487,529
=============== ==============

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 For the six months
ended June 30, ended June 30,
--------------------- ---------------------
(In thousands, except per share data) 2002 2001 2002 2001
- ---------------------------------------------------------------------------------------------------------------------
(Unaudited)

INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 22,514 $ 20,939 $ 44,315 $ 41,382
Interest and dividends on securities:
Interest 4,028 3,832 8,124 7,878
Dividends 35 56 71 112
Other interest income 101 400 281 906
---------- --------- ---------- ---------
Total interest and dividend income 26,678 25,227 52,791 50,278
---------- --------- ---------- ---------
INTEREST EXPENSE
Deposits 6,954 7,553 13,817 14,917
Other interest expense 6,540 7,526 13,379 15,242
---------- --------- ---------- ---------
Total interest expense 13,494 15,079 27,196 30,159
---------- --------- ---------- ---------
NET INTEREST INCOME 13,184 10,148 25,595 20,119
Provision for loan losses - - - -
---------- --------- ---------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 13,184 10,148 25,595 20,119
---------- --------- ---------- ---------
NON-INTEREST INCOME
Other fee income 681 623 1,380 1,184
Net gain (loss) on sales of securities and loans (4,279) 6 (4,259) 218
Other income 702 989 1,369 1,939
---------- --------- ---------- ---------
Total non-interest income (2,896) 1,618 (1,510) 3,341
---------- --------- ---------- ---------
NON-INTEREST EXPENSE
Salaries and employee benefits 3,537 3,159 6,966 6,291
Occupancy and equipment 674 575 1,329 1,152
Professional services 697 538 1,393 1,081
Data processing 376 302 749 647
Depreciation and amortization 258 267 515 539
Other operating expenses 1,431 1,143 2,522 2,241
---------- --------- ---------- ---------
Total non-interest expense 6,973 5,984 13,474 11,951
---------- --------- ---------- ---------
INCOME BEFORE INCOME TAXES 3,315 5,782 10,611 11,509
---------- --------- ---------- ---------
PROVISION FOR INCOME TAXES
Federal 1,143 1,674 3,406 3,482
State and local 131 466 626 776
---------- --------- ---------- ---------
Total taxes 1,274 2,140 4,032 4,258
---------- --------- ---------- ---------
NET INCOME $ 2,041 $ 3,642 $ 6,579 $ 7,251
========== ========= ========== =========
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period $ (153)$ (47)$ (1,070)$ 991
Reclassification adjustments for (gains) losses included in income 2,358 -- 2,358 (62)
---------- --------- ---------- ---------
Net unrealized holding gains (losses) 2,205 (47) 1,288 929
---------- --------- ---------- ---------
COMPREHENSIVE NET INCOME $ 4,246 $ 3,595 $ 7,867 $ 8,180
========== ========= ========== =========

Basic earnings per share (1) $0.17 $0.30 $0.56 $0.59
Diluted earnings per share (1) $0.17 $0.28 $0.53 $0.57

(1) 2001 per share information is restated to reflect the three-for-two split of
the Company's common stock paid in the form of a dividend on August 30, 2001.

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 six months ended
June 30,
-------------------------------
(In thousands) 2002 2001
- ----------------------------------------------------------------------------------------------------------------------

(Unaudited)

OPERATING ACTIVITIES
Net income $ 6,579 $ 7,251
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses -- --
Depreciation and amortization of bank premises and equipment 515 539
Amortization of goodwill -- 183
Net (gain) loss on sales of securities 4,367 (99)
Net gain on sales of loans (108) (119)
Net gain on sales of real estate owned (4) (11)
Amortization of unearned premium, net of accretion of unearned discount 1,514 531
Amortization of deferred income (62) (215)
Deferred income tax provision (benefit) (208) 144
Deferred compensation 181 235
Net decrease in other assets and liabilities (1,854) (877)
Unearned compensation 557 708
-------------- --------------
Net cash provided by operating activities 11,477 8,270
-------------- --------------
INVESTING ACTIVITIES
Purchases of bank premises and equipment (454) (139)
Redemptions of Federal Home Loan Bank shares 1,958 --
Purchases of securities available for sale (69,565) (74,756)
Proceeds from sales and calls of securities available for sale 5,390 28,583
Proceeds from maturities and prepayments of securities available for sale 54,355 51,013
Net originations and repayment of loans (57,670) (60,199)
Purchases of loans (9,994) (887)
Proceeds from sales of real estate owned 97 106
-------------- --------------
Net cash used by investing activities (75,883) (56,279)
-------------- --------------
FINANCING ACTIVITIES
Net increase in non-interest bearing deposits 4,941 2,243
Net increase in interest-bearing deposits 77,663 46,245
Net increase in mortgagors' escrow deposits 2,191 3,114
Net decrease in short-term borrowed funds -- (14,232)
Proceeds from long-term borrowed funds 30,000 38,000
Repayment of long-term borrowed funds (55,260) (26,011)
Purchases of treasury stock, net (7,888) (2,880)
Cash dividends paid (2,156) (1,842)
-------------- --------------
Net cash provided by financing activities 49,491 44,637
-------------- --------------
Net decrease in cash and cash equivalents (14,915) (3,372)
Cash and cash equivalents, beginning of period 38,508 21,993
-------------- --------------
Cash and cash equivalents, end of period $ 23,593 $ 18,621
============== ==============

SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid $ 27,286 $ 30,227
Income taxes paid 5,656 4,622

Non-cash activities:
Securities sold not yet settled 10,296 --
Loans transferred through foreclosure of a related mortgage loan to real
estate owned -- 47

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 six months ended
(In thousands, except share data) June 30, 2002
- --------------------------------------------------------------------------------------------------------------

COMMON STOCK
Balance, beginning of period $ 139
No activity -
--------------------------
Balance, end of period $ 139
==========================
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period $ 45,280
Award of shares released from Employee Benefit Trust (1,936 common shares) 24
Restricted stock awards (69,075 common shares) 146
Tax benefit of unearned compensation 462
--------------------------
Balance, end of period $ 45,912
==========================
TREASURY STOCK
Balance, beginning of period $ (5,750)
Purchases of common shares outstanding (503,400 common shares) (8,551)
Repurchase of restricted stock awards (1,300 common shares) (23)
Restricted stock awards (69,075 common shares) 1,140
Forfeiture of restricted stock awards (1,200 common shares) (14)
Options exercised (94,500 common shares) 1,525
--------------------------
Balance, end of period $ (11,673)
==========================
UNEARNED COMPENSATION
Balance, beginning of period $ (7,766)
Restricted stock award expense 309
Restricted stock awards (69,075 common shares) (1,286)
Forfeiture of restricted stock awards (1,200 common shares) 14
Release of shares from Employee Benefit Trust (43,880 common shares) 224
--------------------------
Balance, end of period $ (8,505)
==========================
RETAINED EARNINGS
Balance, beginning of period $ 99,641
Net income 6,579
Options exercised (94,500 common shares) (839)
Cash dividends declared and paid (2,156)
--------------------------
Balance, end of period $ 103,225
==========================
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of period $ 1,843
Change in net unrealized gain, net of taxes of approximately $912 on securities
available for sale (1,070)
Less: Reclassification adjustment for losses included in net income, net of
taxes of approximately $2,009 2,358
--------------------------
Balance, end of period $ 3,131
==========================

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 FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The primary business of Flushing Financial Corporation is the operation of its
wholly-owned subsidiary, Flushing Savings Bank, FSB (the "Bank"). The
consolidated financial statements presented in this Form 10-Q reflect
principally the Bank's activities.

The information furnished in these interim statements reflects all adjustments
which are, in the opinion of management, necessary for a fair statement of the
results for such periods of Flushing Financial Corporation and Subsidiaries (the
"Company"). Such adjustments are of a normal recurring nature, unless otherwise
disclosed in this Form 10-Q. The results of operations in the interim statements
are not necessarily indicative of the results that may be expected for the full
year.

Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting 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 2001 Annual Report
on Form 10-K.

2. USE OF ESTIMATES

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.

3. EARNINGS PER SHARE

Basic earnings per share for the three and six month periods ended June 30, 2002
and 2001 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:

Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
(Amounts in thousands, except per share data) 2002 2001 2002 2001
- -------------------------------------------------------------------------------------------------------------

Net income $2,041 $3,642 $6,579 $7,251
Divided by:
Weighted average common shares outstanding 11,689 12,284 11,829 12,324
Weighted average common stock equivalents 619 548 584 481
Total weighted average common shares & common stock equivalents 12,308 12,832 12,413 12,805
Basic earnings per share $0.17 $0.30 $0.56 $0.59
Diluted earnings per share $0.17 $0.28 $0.53 $0.57
Dividends per share $0.09 $0.07 $0.18 $0.15
Dividend payout ratio 52.94% 25.00% 32.14% 25.00%

-5-

PART I - FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. STOCK SPLIT

On July 17, 2001, the Board of Directors of the Company declared a three-for-two
split of the Company's common stock in the form of a 50% stock dividend, payable
on August 30, 2001. Each shareholder received one additional share for every two
shares of the Company's common stock held at the record date, August 10, 2001.
Cash was paid in lieu of fractional shares. All historical share and per share
amounts reported in this Form 10-Q have been restated to reflect the
three-for-two stock split paid on August 30, 2001.

5. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets",
which is effective for fiscal years beginning after December 15, 2001. The
Statement changes the approach to how goodwill and other intangible assets are
accounted for subsequent to their recognition. Goodwill and intangible assets
that have indefinite useful lives will not be amortized but rather will be
tested at least annually for impairment. Intangible assets that have finite
useful lives will be amortized over their useful lives. The Statement provides
specific guidance on testing intangible assets that will not be amortized for
impairment. As of December 31, 2001, the Company had goodwill with a remaining
balance of $3.9 million recorded in connection with its purchase of New York
Federal Savings Bank in 1997. Annual amortization expense had been $0.4 million.
Effective January 1, 2002, the Company is no longer recording this amortization
expense, but rather is required, at least annually, to test the remaining
goodwill for impairment. The impairment test performed in connection with the
adoption of this Statement in January 2002 did not require an adjustment to the
carrying value of the goodwill.

-6-

PART I - FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Flushing Financial Corporation, a Delaware corporation, was organized in May
1994 to serve as the holding company for Flushing Savings Bank, FSB (the
"Bank"), a federally chartered, FDIC insured savings institution, originally
organized in 1929. The Bank is a consumer-oriented savings institution and
conducts its business through ten banking offices located in Queens, Brooklyn,
Manhattan, Bronx and Nassau County. Flushing Financial Corporation's common
stock is publicly traded on the Nasdaq National Market under the symbol "FFIC".
The following discussion of financial condition and results of operations
includes the collective results of Flushing Financial Corporation and the Bank
(collectively, the "Company"), but reflects principally the Bank's activities.

The Company's principal business is attracting retail deposits from the general
public and investing those deposits, together with funds generated from
operations and borrowings, primarily in (1) origination and purchases of one-to-
four family residential real estate loans (focusing on mixed-use properties -
properties that contain both residential dwelling units and commercial units),
multi-family income-producing property loans and commercial real estate loans;
(2) mortgage loan surrogates such as mortgage-backed securities; and (3) 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 income earned on its interest-earning assets
and the cost of its interest-bearing liabilities. 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, adjusted for the difference in the average balance
of interest-earning assets as 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, income earned on Bank Owned Life Insurance,
dividends on Federal Home Loan Bank of NY ("FHLB-NY") stock 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.

On July 17, 2001, the Board of Directors of the Company declared a three-for-two
split of the Company's common stock in the form of a 50% stock dividend, payable
on August 30, 2001. Each shareholder received one additional share for every two
shares of the Company's common stock held at the record date, August 10, 2001.
Cash was paid in lieu of fractional shares. All historical share and per share
amounts reported in this Form 10-Q have been restated to reflect the
three-for-two stock split paid on August 30, 2001.

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 second 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 2001 Annual Report to Stockholders and its SEC
Report on Form 10-K for the year ended December 31, 2001. Forward-looking
statements may be identified by terms such as "may", "will", "should",
-7-

PART I - FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

"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.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
JUNE 30, 2002 AND 2001

GENERAL. Diluted earnings per share decreased 39.3% to $0.17 for the three
months ended June 30, 2002 from $0.28 for the three months ended June 30, 2001.
Net income decreased $1.6 million, or 44.0%, to $2.0 million for the three
months ended June 30, 2002 from $3.6 million for the three months ended June 30,
2001. The return on average assets for the three months ended June 30, 2002
decreased to 0.53% compared to 1.05% for the three months ended June 30, 2001,
while the return on average equity for the three months ended June 30, 2002
decreased to 6.30% from 11.37% for the three months ended June 30, 2001. The
three months ended June 30, 2002 include an after tax impairment charge of $2.6
million related to the decline in the market value of a $5.1 million investment
in a Worldcom Inc. senior note due in 2004. Excluding this impairment charge,
net income would have been $4.6 million, or $0.38 per diluted share, an increase
of $0.10 per diluted share, or 35.7%, from the three months ended June 30, 2001.
Return on average assets and return on average equity, excluding the impairment
charge, would have been 1.2% and 14.3%, respectively, for the three months ended
June 30, 2002.

INTEREST INCOME. Total interest and dividend income increased $1.5 million, or
5.8%, to $26.7 million for the three months ended June 30, 2002 from $25.2
million for the three months ended June 30, 2001. This increase was primarily
the result of a $151.7 million increase in the average balance of
interest-earning assets for the three months ended June 30, 2002 as compared to
the three months ended June 30, 2001. The average balance of mortgage loans,
net, mortgage-backed securities, and other securities increased $87.8 million,
$14.5 million, and $61.0 million, respectively, for the three months ended June
30, 2002 as compared to the three months ended June 30, 2001. These increases
were partially offset by a $12.4 million decrease in the average balance of
interest earning deposits and federal funds sold for the three months ended June
30, 2002 compared to the three months ended June 30, 2001. The yield on
interest-earning assets declined 41 basis points to 7.36% for the three months
ended June 30, 2002 from 7.77% for the three months ended June 30, 2001. This
decrease is primarily due to the declining interest rate environment experienced
during 2001, as interest rates have remained stable during 2002. These declines
were partially offset by the increase in the average balance of the higher
yielding mortgage loan portfolio.

INTEREST EXPENSE. Interest expense decreased $1.6 million, or 10.5%, to $13.5
million for the three months ended June 30, 2002 from $15.1 million for the
three months ended June 30, 2001, primarily due to a 100 basis point decline in
the cost of interest-bearing liabilities to 3.97% in the three months ended June
30, 2002 from 4.97% in the three months ended June 30, 2001. This decrease was
partially offset by a $147.6 million increase in the average balance of
interest-bearing liabilities. The decrease in the cost of funds is primarily due
to the declining interest rate environment experienced during 2001, as interest
rates have remained stable during 2002. This was coupled with an increase in the
average balance of lower costing core deposits. This marks the sixth consecutive
quarter that the cost of funds has declined.

NET INTEREST INCOME. For the three months ended June 30, 2002, net interest
income increased $3.1 million, or 29.9%, to $13.2 million from $10.1 million in
the three months ended June 30, 2001. This increase in net interest income is
primarily due to a 59 basis point increase in the net interest spread and a
$151.7 million increase in the average balance of interest-earning assets. The
net interest margin increased 52 basis points to 3.64% for the three months
ended June 30, 2002 from 3.12% for the three months ended June 30, 2001.
-8-

PART I - FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PROVISION FOR LOAN LOSSES. There was no provision for loan losses for the
three-month periods ended June 30, 2002 and 2001. 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. Based on these reviews, no provision for loan losses was
deemed necessary for either of the three-month periods ended June 30, 2002 and
2001.

NON-INTEREST INCOME. Total non-interest income decreased by $4.5 million to a
net loss of $2.9 million for the three months ended June 30, 2002 from $1.6
million for the three months ended June 30, 2001. The decrease is primarily due
to a $4.4 million pretax impairment writedown of the Bank's investment in a
WorldCom, Inc. senior note. Excluding the impairment writedown, non-interest
income would have been $1.6 million for the three months ended June 30, 2002,
unchanged from the three months ended June 30, 2001. Higher fee income from loan
fees and banking services were offset by reduced dividends received on FHLB-NY
stock.

NON-INTEREST EXPENSE. Non-interest expense was $7.0 million for the three months
ended June 30, 2002, an increase of $1.0 million, or 16.5%, from $6.0 million
for the three months ended June 30,2001. The increase from the prior year period
is attributable to the Bank's continued focus on expanding its current product
offerings to enhance its ability to serve its customers. This resulted in
increases in salaries and benefits and professional services, which includes
advertising. Management continues to monitor expenditures resulting in an
improvement in the efficiency ratio to 47.6% for the three months ended June 30,
2002 from 50.2% for the three months ended June 30, 2001.

INCOME BEFORE INCOME TAXES. Total income before the provision for income taxes
decreased $2.5 million, or 42.7%, to $3.3 million for the three months ended
June 30, 2002 as compared to $5.8 million for the three months ended June 30,
2001, as the increase in net interest income was offset by the impairment
writedown and an increase in non-interest expense.

PROVISION FOR INCOME TAXES. Income tax expense was $1.3 million for the three
months ended June 30, 2002 compared to $2.1 million for the three months ended
June 30, 2001 This decrease is due to the $2.5 million decrease in income before
income taxes.

COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED
JUNE 30, 2002 AND 2001

GENERAL. Diluted earnings per share decreased 7.0% to $0.53 for the six months
ended June 30, 2002 from $0.57 for the six months ended June 30, 2001. Net
income for the six months ended June 30, 2002 decreased 9.3% to $6.6 million
from the $7.3 million reported for the six months ended June 30, 2001. The
return on average assets for the six months ended June 30, 2002 was 0.86%
compared to 1.06% for the six months ended June 30, 2001, while the return on
average equity for the six months ended June 30, 2002 was 10.06% compared to
11.38% for the six months ended June 30, 2001. Excluding the impairment charge
discussed above, net income for the six months ended June 30, 2002 would have
been $9.2 million, or $0.74 per diluted share, an increase of $0.17 per diluted
share, or 29.8%, from the six months ended June 30, 2001. Return on average
assets and return on average equity, excluding the impairment charge, would have
been 1.2% and 14.0%, respectively, for the six months ended June 30, 2002.

-9-

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 $2.5 million, or
5.0%, to $52.8 million for the six months ended June 30, 2002 from $50.3 million
for the six months ended June 30, 2001. This increase was primarily the result
of a $152.0 million increase in the average balance of interest-earning assets
for the six months ended June 30, 2002 as compared to the six months ended June
30, 2001. The average balance of mortgage loans, net, mortgage-backed securities
and other securities increased $83.4 million, $14.0 million and $56.1 million,
respectively, for the six months ended June 30, 2002 as compared to the six
months ended June 30, 2001. These increases were partially offset by a $2.0
million decrease in the average balance of interest-earning deposits and federal
funds sold for the six months ended June 30, 2002 compared to the six months
ended June 30, 2001. The yield on interest-earning assets declined 47 basis
points to 7.35% for the six months ended June 30, 2002 from 7.82% for the six
months ended June 30, 2001. This decrease is primarily due to the declining
interest rate environment experienced during 2001, as interest rates have
remained stable during 2002. These declines were partially offset by the
increase in the average balance of the higher yielding mortgage loan portfolio.

INTEREST EXPENSE. Interest expense decreased $3.0 million, or 9.8%, to $27.2
million for the six months ended June 30, 2002 from $30.2 million for the six
months ended June 30, 2001, primarily due to a 99 basis point decline in the
cost of interest-bearing liabilities to 4.03% in the six months ended June 30,
2002 from 5.02% in the six months ended June 30, 2001. This decrease was
partially offset by a $147.7 million increase in the average balance of
interest-bearing liabilities. The decrease in the cost of funds is primarily due
to the declining interest rate environment experienced during 2001, as interest
rates have remained stable during 2002. This was coupled with an increase in the
average balance of lower costing core deposits.

NET INTEREST INCOME. For the six months ended June 30, 2002, net interest income
increased $5.5 million, or 27.2%, to $25.6 million from $20.1 million in the six
months ended June 30, 2001. This increase in net interest income is primarily
due to a 52 basis point increase in the net interest spread and a $152.0 million
increase in the average balance of interest-earning assets. The net interest
margin increased 43 basis points to 3.56% for the six months ended June 30, 2002
from 3.13% for the six months ended June 30, 2001.

PROVISION FOR LOAN LOSSES. There was no provision for loan losses for the
six-month periods ended June 30, 2002 and 2001. 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. Based on these reviews, no provision for loan losses was
deemed necessary for either of the six-month periods ended June 30, 2002 and
2001.

NON-INTEREST INCOME. Total non-interest income decreased by $4.8 million to a
net loss of $1.5 million for the six months ended June 30, 2002 from $3.3
million for the six months ended June 30, 2001. The decrease is primarily due to
the $4.4 million pretax impairment writedown of the Bank's investment in a
WorldCom, Inc. senior note. Excluding the impairment writedown, non-interest
income would have been $3.3 million for the six months ended June 30, 2002,
unchanged from the six months ended June 30, 2001. Higher fee income from loan
fees and banking services were offset by reduced dividends received on FHLB-NY
stock.

NON-INTEREST EXPENSE. Non-interest expense was $13.5 million for the six months
ended June 30, 2002, an increase of $1.5 million, or 12.7%, from $12.0 million
for the six months ended June 30, 2001. The increase from the prior year period
is attributable to the Bank's continued focus on expanding its current product
offerings to enhance its ability to serve its customers. This resulted in
increases in salaries and benefits and professional services, which includes
advertising. Management continues to monitor expenditures resulting in an
improvement in the efficiency ratio to 47.4% for the six months ended June 30,
2002 from 50.4% for the six months ended June 30, 2001.
-10-

PART I - FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INCOME BEFORE INCOME TAXES. Total income before the provision for income taxes
decreased $0.9 million, or 7.8%, to $10.6 million for the six months ended June
30, 2002 as compared to $11.5 million for the six months ended June 30, 2001, as
the increase in net interest income was offset by the impairment writedown and
an increase in non-interest expense.

PROVISION FOR INCOME TAXES. Income tax expense was $4.0 million for the six
months ended June 30, 2002 compared to $4.3 million for the six months ended
June 30, 2001. This decrease is due to the $0.9 million decrease in income
before income taxes.

FINANCIAL CONDITION

ASSETS. Total assets at June 30, 2002 were $1,545.6 million, a $58.1 million
increase from December 31, 2001. During the six months ended June 30, 2002, loan
originations and purchases were $47.6 million for 1-4 family residential real
estate loans ($38.1 million in mixed-use), $79.6 million for multi-family real
estate loans, $26.0 million for commercial real estate loans and $7.0 million in
construction loans. During the six months ended June 30, 2001, loan originations
and purchases were $46.8 million for 1-4 family residential real estate loans
($20.6 million in mixed-use), $28.1 million for multi-family real estate loans,
$40.3 million for commercial real estate loans and $3.4 million in construction
loans. Total loans, net, increased $67.7 million during the six months ended
June 30, 2002 to $1,134.9 million from $1,067.2 million at December 31, 2001.

As the Company continues to increase its loan portfolio, management continues to
adhere to the Bank's strict underwriting standards. As a result, the Company has
been able to minimize charge-offs of losses from impaired loans and maintain
asset quality. Non-performing assets were $1.1 million at June 30, 2002 compared
to $2.4 million at December 31, 2001 and $1.8 million at June 30, 2001. Total
non-performing assets as a percentage of total assets were 0.07% at June 30,
2002 compared to 0.16% at December 31, 2001 and 0.13% at June 30, 2001. The
ratio of allowance for loan losses to total non-performing loans was 586% at
June 30, 2002 compared to 284% at December 31, 2001 and 371% at June 30, 2001.

LIABILITIES. Total liabilities increased $59.3 million to $1,413.4 million at
June 30, 2002 from $1,354.1 million at December 31, 2001. Due to depositors
increased $82.6 million as certificate of deposit accounts increased $35.5
million while lower costing core deposits increased $47.1 million. As a result
of the increase in deposits, borrowed funds were reduced $25.3 million during
the six months ended June 30, 2002.

EQUITY. Total stockholders' equity decreased $1.2 million to $132.2 million at
June 30, 2002 from $133.4 million at December 31, 2001. Net income of $6.6
million for the six months ended June 30, 2002 and an increase of $1.3 million
in the net unrealized gains in the market value of securities available for sale
were offset by $8.6 million in treasury shares purchased through the Company's
stock repurchase plans and $2.2 million in cash dividends paid during the six
month period. In addition, the exercise of stock options increased stockholders'
equity by $0.7 million. Book value per share is $10.06 per share at June 30,
2002 compared to $9.89 per share at December 31, 2001 and $9.57 at June 30,
2001.

Under its stock repurchase program, the Company repurchased 503,400 shares for
the six months ended June 30, 2002, leaving 699,000 shares to be repurchased
under the current stock repurchase programs.

-11-

PART I - FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CASH FLOW. During the six months ended June 30, 2002, funds provided by the
Company's operating activities amounted to $11.5 million. These funds, together
with $49.5 million provided by financing activities and funds available at the
beginning of the year, were utilized to fund net investing activities of $75.9
million. The Company's primary business objective is the origination and
purchase of 1-4 family residential, multi-family and commercial real estate
loans. During the six months ended June 30, 2002, the net total of loan
originations less loan repayments was $57.7 million, and the total amount of
real estate loans purchased was $10.0 million. The Company also invests in other
securities including mortgage loan surrogates such as mortgage-backed
securities. During the six months ended June 30, 2002, the Company purchased a
total of $69.6 million in securities available for sale. Funds for investment
were also provided by $54.4 million in maturities and prepayments of securities
available for sale. The Company also used funds of $7.9 million for net treasury
stock repurchases and $2.2 million in dividend payments during the six months
ended June 30, 2002.

INTEREST RATE RISK

The consolidated statements of financial position 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 June 30, 2002. Various estimates regarding prepayment assumptions are
made at each level of rate shock. Actual results could differ significantly from
these estimates. The Company is within the guidelines set forth by the Board of
Directors for each interest rate level.

Projected Percentage Change In
------------------------------------
Net Interest Net Portfolio Net Portfolio
Change in Interest Rate Income Value Value Ratio
- ---------------------------------------------------------------------------------------

- -300 Basis points - 4.12% 4.52% 10.65% 4.0.3312
- -200 Basis points - 0.74 2.07 10.64 0.7524
- -100 Basis points - 0.12 1.23 10.78
Base interest rate - - 10.88
+100 Basis points - 1.85 - 11.82 9.89
+200 Basis points - 6.26 - 27.17 8.45
+300 Basis points - 10.92 - 42.33 6.92

-12-

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 June 30, 2002, 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 June 30, 2002.

(Dollars in thousands) Amount Percent of Assets
- -------------------------------------------------------------------------------------

TANGIBLE CAPITAL:
Capital level $114,952 7.50%
Requirement 22,978 1.50
Excess 91,974 6.00

CORE CAPITAL:
Capital level $114,952 7.50%
Requirement 45,956 3.00
Excess 68,996 4.50

RISK-BASED CAPITAL:
Capital level $121,533 13.27%
Requirement 73,279 8.00
Excess 48,254 5.27

-13-

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 month periods ended June 30, 2002 and 2001, 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 June 30,
---------------------------------------------------------------
2002 2001
------------------------------ ------------------------------
Average Interest Average Average Interest Average
(Dollars in thousands) Balance Yield/Cost Balance Yield/Cost
- -----------------------------------------------------------------------------------------------------------

ASSETS
Interest-earning assets:
Mortgage loans, net $1,107,636 $22,386 8.08% $1,019,852 $20,783 8.15%
Other loans, net 6,927 128 7.39 6,110 156 10.21
------------------------------ ------------------------------
Total loans, net 1,114,563 22,514 8.08 1,025,962 20,939 8.16
------------------------------ ------------------------------
Mortgage-backed securities 235,016 3,316 5.64 220,538 3,622 6.57
Other securities 77,570 747 3.85 16,571 266 6.42
------------------------------ ------------------------------
Total securities 312,586 4,063 5.20 237,109 3,888 6.56
------------------------------ ------------------------------
Interest-earning deposits and
federal funds sold 23,478 101 1.72 35,890 400 4.46
------------------------------ ------------------------------
Total interest-earning assets 1,450,627 26,678 7.36 1,298,961 25,227 7.77
-------------------- --------------------
Other assets 86,212 84,662
---------- ----------
Total assets $1,536,839 $1,383,623
========== ==========
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Passbook accounts $208,343 895 1.72 $186,923 965 2.07
NOW accounts 35,957 90 1.00 30,472 145 1.90
Money market accounts 113,997 681 2.39 63,975 594 3.71
Certificate of deposit account 490,424 5,274 4.30 414,750 5,837 5.63
------------------------------ ------------------------------
Total due to depositors 848,721 6,940 3.27 696,120 7,541 4.33
Mortgagors' escrow deposits 18,037 14 0.31 16,255 12 0.30
------------------------------ ------------------------------
Total deposits 866,758 6,954 3.21 712,375 7,553 4.24
Borrowed funds 494,284 6,540 5.29 501,024 7,526 6.01
------------------------------ ------------------------------
Total interest-bearing liabilities 1,361,042 13,494 3.97 1,213,399 15,079 4.97
-------------------- --------------------
Other liabilities 46,201 42,110
---------- ----------
Total liabilities 1,407,243 1,255,509
Equity 129,596 128,114
---------- ----------
Total liabilities and equity $1,536,839 $1,383,623
========== ==========
Net interest income/net interest spread $13,184 3.39% $10,148 2.80%
==================== ====================
Net interest-earning assets /
net interest margin $89,585 3.64% $85,562 3.12%
========== ========== ========== ==========
Ratio of interest-earning assets to
interest-bearing liabilities 1.07X 1.07X
========== ==========

-14-

PART I - FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

AVERAGE BALANCES (continued)

The following table sets forth certain information relating to the Company's consolidated statements of financial
condition and consolidated statements of operations for the six month periods ended June 30, 2002 and 2001, 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 six months ended June 30,
---------------------------------------------------------------
2002 2001
------------------------------ ------------------------------
Average Interest Average Average Interest Average
(Dollars in thousands) Balance Yield/Cost Balance Yield/Cost
- -----------------------------------------------------------------------------------------------------------

ASSETS
Interest-earning assets:
Mortgage loans, net $1,088,485 $44,078 8.10% $1,005,088 $41,106 8.18%
Other loans, net 6,613 237 7.17 6,027 276 9.16
------------------------------ ------------------------------
Total loans, net 1,095,098 44,315 8.09 1,011,115 41,382 8.19
------------------------------ ------------------------------
Mortgage-backed securities 236,027 6,751 5.72 222,070 7,451 6.71
Other securities 72,230 1,444 4.00 16,120 539 6.69
------------------------------ ------------------------------
Total securities 308,257 8,195 5.32 238,190 7,990 6.71
------------------------------ ------------------------------
Interest-earning deposits and
federal funds sold 33,787 281 1.66 35,791 906 5.06
------------------------------ ------------------------------
Total interest-earning assets 1,437,142 52,791 7.35 1,285,096 50,278 7.82
-------------------- --------------------
Other assets 88,196 85,870
---------- ----------
Total assets $1,525,338 $1,370,966
========== ==========
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Passbook accounts $204,164 1,745 1.71 $186,591 1,915 2.05
NOW accounts 34,812 173 0.99 30,166 285 1.89
Money market accounts 107,494 1,273 2.37 54,647 962 3.52
Certificate of deposit account 482,498 10,594 4.39 411,217 11,722 5.70
------------------------------ ------------------------------
Total due to depositors 828,968 13,785 3.33 682,621 14,884 4.36
Mortgagors' escrow deposits 15,512 32 0.41 13,775 33 0.48
------------------------------ ------------------------------
Total deposits 844,480 13,817 3.27 696,396 14,917 4.28
Borrowed funds 504,523 13,379 5.30 504,863 15,242 6.04
------------------------------ ------------------------------
Total interest-bearing liabilities 1,349,003 27,196 4.03 1,201,259 30,159 5.02
-------------------- --------------------
Other liabilities 45,558 42,305
---------- ----------
Total liabilities 1,394,561 1,243,564
Equity 130,777 127,402
---------- ----------
Total liabilities and equity $1,525,338 $1,370,966
========== ==========
Net interest income/net interest spread $25,595 3.32% $20,119 2.80%
==================== ====================
Net interest-earning assets /
net interest margin $88,139 3.56% $83,837 3.13%
========== ========== ========== ==========
Ratio of interest-earning assets to
interest-bearing liabilities 1.07X 1.07X
========== ==========

-15-

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.

Six Months Ended
------------------------------------------------
(In thousands) June 30, 2002 June 30, 2001
- ------------------------------------------------------------------------------------------------------

MORTGAGE LOANS
At beginning of period $1,066,270 $985,953
Mortgage loans originated:
One-to-four family residential real estate 46,781 45,738
Co-operative apartment 194 136
Multi-family real estate 79,623 28,084
Commercial real estate 16,646 40,271
Construction 6,960 3,375
--------------------- ---------------------
Total mortgage loans originated 150,204 117,604
--------------------- ---------------------
Mortgage loans purchased:
One-to-four family residential real estate 674 876
Commercial real estate 9,315 -
--------------------- ---------------------
Total acquired loans 9,989 876
--------------------- ---------------------
Less:
Principal and other reductions 94,205 57,898
Mortgage loan foreclosures - 47
--------------------- ---------------------
At end of period $1,132,258 $1,046,488
===================== =====================

OTHER LOANS
At beginning of period $6,725 $6,548

Other loans originated:
Small Business Administration 2,944 2,115
Small business loans 855 336
Other loans 864 1,013
--------------------- ---------------------
Total other loans originated 4,663 3,464
--------------------- ---------------------
Less:
Sales 1,825 656
Principal and other reductions 1,533 2,271
--------------------- ---------------------
At end of period $8,030 $7,085
===================== =====================

-16-

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) June 30, 2002 December 31, 2001
- ----------------------------------------------------------------------------------------------

Non-accrual mortgage loans $1,001 $2,203
Other non-accrual loans 122 117
------------------- -------------------
Total non-accrual loans 1,123 2,320

Mortgage loans 90 days or more delinquent
and still accruing - -
Other loans 90 days or more delinquent
and still accruing - -
------------------- -------------------
Total non-performing loans 1,123 2,320

Real estate owned (foreclosed real estate) - 93
------------------- -------------------
Total non-performing assets $1,123 $2,413
=================== ===================

Non-performing loans to gross loans 0.10% 0.22%
Non-performing assets to total assets 0.07% 0.16%

-17-

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.

Six Months Ended
--------------------------------------------------
(Dollars in thousands) June 30, 2002 June 30, 2001
- --------------------------------------------------------------------------------------------------------------

Balance at beginning of period $6,585 $6,721
Provision for loan losses - -
Loans charged-off:
One-to-four family residential real estate - 1
Co-operative apartment - -
Multi-family real estate - 2
Commercial estate - -
Construction - -
Other 10 82
---------------------- ---------------------
Total loans charged-off 10 85
---------------------- ---------------------
Recoveries:
Mortgage loans 1 5
Other loans 4 7
---------------------- ---------------------
Total recoveries 5 12
---------------------- ---------------------
Balance at end of period $6,580 $6,648
====================== =====================

Ratio of net charge-offs during the year to
average loans outstanding during the period 0.00% 0.01%
Ratio of allowance for loan losses to loans at end of period 0.58% 0.63%
Ratio of allowance for loan losses to non-performing
assets at end of period 586.01% 370.73%
Ratio of allowance for loan losses to non-performing
loans at end of period 586.01% 370.73%

-18-

PART I - FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 3. QUANTITATIVE AND QUALITATIVE 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.

At the Annual Meeting of Stockholders held on May 21, 2002, the stockholders
approved an amendment to the Company's certificate of incorporation to increase
the number of shares of common stock authorized from 20,000,000 to 40,000,000.
This increase in authorized shares allows the Board of Directors, as it deems
advisable, to issue common shares to meet the Company's business needs, which
may include, without limitation, financings, establishing strategic
relationships with corporate partners, providing equity incentives to employees,
officers or directors, or effecting stock splits or dividends, without further
vote of the stockholders of the Company, except as may be required by law or
Nasdaq.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

-19-

PART I - FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

At the Company's Annual Meeting of Stockholders held on May 21, 2002, as
contemplated by the Company's definitive proxy material for the meeting, certain
matters were submitted to a vote of stockholders. The following table summarizes
the results of voting with respect to each matter.

For Against Abstain
----------- -------------- ----------
Election of Directors (three directors
were elected to serve until the 2004
Annual Meeting of Stockholders and
until their successors are elected and
qualified).
Michael J. Hegarty 11,499,963 -- 217,594

John O. Mead 11,492,744 -- 224,813

Michael J. Russo 11,493,565 -- 223,992

Approval of amendment to the
Company's certificate of incorporation
to increase the number of shares of 10,608,419 1,022,877 86,261
common stock authorized to
40,000,000

Ratification of appointment of 11,535,455 103,453 78,649
PricewaterhouseCoopers LLP as the
independent auditors of the Company

ITEM 5. OTHER INFORMATION.

On May 31, 2002, the Company filed Form S-8 to register the additional shares
authorized for issuance under the 1996 Stock Option Incentive Plan and the 1996
Restricted Stock Incentive Plan, as approved by the stockholders at the Annual
Meeting of Stockholders held on May 22, 2001.

20-

PART I - FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

a) EXHIBITS.

Exhibit 99.1 Certification pursuant to 18 U.S.C section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley act of 2002 by the Chief Executive
Officer.

Exhibit 99.2 Certification pursuant to 18 U.S.C section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley act of 2002 by the Chief Financial
Officer.

b) REPORTS ON FORM 8-K.

On June 28, 2002, the Company filed Form 8-K which disclosed the Company's
exposure to WorldCom, Inc. The Company announced it has a $5.1 million
investment in a senior note issued by WorldCom, Inc. The Company stated that due
to the change in the market value of the WorldCom senior note, the Company
anticipated recording an impairment charge of approximately $4.4 million. On an
after-tax basis, this impairment charge would be approximately $2.6 million, or
$0.21 per diluted share, for the quarter ending June 30, 2002. The Company
recorded this impairment charge in the quarter ended June 30, 2002.

On July 11, 2002, the Company filed Form 8-K to report the Company had issued
$20.0 million of floating rate capital securities through a newly created
special purpose trust formed by the Company.

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FLUSHING FINANCIAL CORPORATION AND SUBSIDIARIES
SIGNATURESBSIDIARIES

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: August 13, 2002 By: /s/Michael J. Hegarty
- ---------------------- --------------------------------------
Michael J. Hegarty
President and Chief Executive Officer

Dated: August 13, 2002 By: /s/Monica C. Passick
- ---------------------- --------------------------------------
Monica C. Passick
Senior Vice President, Treasurer and
Chief Financial Officer

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