FLUSHING FINANCIAL CORP (Form: 10-Q, Received: 05/10/2006 15:23:54)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006

Commission file number 000-24272

FLUSHING FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

11-3209278

(I.R.S. Employer Identification No.)

1979 Marcus Avenue, Suite E140, Lake Success, New York 11042

(Address of principal executive offices)

(718) 961-5400

(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer ___

Accelerated filer

Non-accelerated filer ___

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes X No

The number of shares of the registrant’s Common Stock outstanding as of April 28, 2006 was 19,473,642.

TABLE OF CONTENTS

	PAGE
PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Financial Condition..............................................................	1
Consolidated Statements of Income 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 ..............................................................................................	11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ........................	21
ITEM 4. Controls and Procedures. ....................................................................................	21
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings .................................................................................................	21
ITEM 1A. Risk Factors ........................................................................................................	21
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds ..........................	21
ITEM 3. Defaults Upon Senior Securities. .........................................................................	22
ITEM 4. Submission of Matters to a Vote of Security Holders .......................................	22
ITEM 5. Other Information. ..............................................................................................	22
ITEM 6. Exhibits. .................................................................................................................	23
SIGNATURES. .....................................................................................................................	24

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Financial Condition

(Unaudited)

				March 31,	December 31,
(Dollars in thousands, except per share data)				2006	2005
ASSETS
Cash and due from banks				$31,963	$26,754
Securities available for sale:
	Mortgage-backed securities			283,428	301,194
	Other securities			41,196	36,567
Loans:
	Multi-family residential			796,989	788,071
	Commercial real estate			430,038	399,081
	One-to-four family — mixed-use property			496,306	477,775
	One-to-four family — residential			130,518	134,641
	Co-operative apartments			2,116	2,161
	Construction			57,802	49,522
	Small Business Administration			10,187	9,239
	Commercial business and other			25,078	19,362
	Net unamortized premiums and unearned loan fees			8,970	8,409
	Allowance for loan losses			(6,394)	(6,385)
			Net loans	1,951,610	1,881,876
Interest and dividends receivable				10,618	10,554
Bank premises and equipment, net				7,698	7,238
Federal Home Loan Bank of New York stock				28,047	29,622
Bank owned life insurance				36,796	26,526
Goodwill				3,905	3,905
Other assets				27,249	28,972
			Total assets	$2,422,510	$2,353,208
LIABILITIES
Due to depositors:
	Non-interest bearing			$62,305	$58,678
	Interest-bearing:
		Certificate of deposit accounts		961,884	898,157
		Savings accounts		261,049	273,753
		Money market accounts		204,299	175,247
		NOW accounts		40,477	42,029
			Total interest-bearing deposits	1,467,709	1,389,186
Mortgagors' escrow deposits				29,547	19,423
Borrowed funds				475,803	510,810
Securities sold under agreements to repurchase				188,900	178,900
Other liabilities				18,244	19,744
			Total liabilities	2,242,508	2,176,741
STOCKHOLDERS' EQUITY
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued)				-	-
Common stock ($0.01 par value; 40,000,000 shares authorized; 19,529,994
	shares and 19,466,894 shares issued at March 31, 2006 and December 31,
	2005, respectively; 19,502,512 shares and 19,465,844 shares outstanding at
	March 31, 2006 and December 31, 2005, respectively)			195	195
Additional paid-in capital				42,095	39,635
Treasury stock (27,482 shares and 1,050 shares at March 31, 2006
	and December 31, 2005, respectively)			(445)	(12)
Unearned compensation — Employee Benefit Trust				(3,457)	(4,159)
Retained earnings				148,846	146,068
Accumulated other comprehensive loss, net of taxes				(7,232)	(5,260)
			Total stockholders' equity	180,002	176,467

			Total liabilities and stockholders' equity	$2,422,510	$2,353,208

The accompanying notes are an integral part of these consolidated financial statements.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income

(Unaudited)

		For the three months
		ended March 31,
(Dollars in thousands, except per share data)		2006		2005
Interest and dividend income
Interest and fees on loans	$	32,265	$	26,265
Interest and dividends on securities:
Interest		3,700		4,362
Dividends		77		81
Other interest income		170		8
Total interest and dividend income		36,212		30,716
Interest expense
Deposits		11,510		7,683
Other interest expense		7,787		6,160
Total interest expense		19,297		13,843
Net interest income		16,915		16,873
Provision for loan losses		-		-
Net interest income after provision for loan losses		16,915		16,873
Non-interest income
Loan fee income		630		530
Banking services fee income		371		383
Net gain on sale of loans held for sale		123		-
Net gain on sale of loans		27		19
Net gain on sale of securities		81		-
Federal Home Loan Bank of New York stock dividends		379		164
Bank owned life insurance		270		279
Other income		326		140
Total non-interest income		2,207		1,515
Non-interest expense
Salaries and employee benefits		4,754		4,278
Occupancy and equipment		1,109		963
Professional services		967		940
Data processing		638		535
Depreciation and amortization of premises and equipment		367		403
Other operating expenses		1,597		1,484
Total non-interest expense		9,432		8,603
Income before income taxes		9,690		9,785
Provision for income taxes
Federal		2,941		2,994
State and local		838		822
Total taxes		3,779		3,816
Net income	$	5,911	$	5,969
Other comprehensive income, net of tax
Unrealized holding losses arising during the period	$	(1,923)	$	(3,360)
Less: reclassification adjustments for gains included in income		(49)		-
Net unrealized holding losses		(1,972)		(3,360)
Comprehensive net income	$	3,939	$	2,609
Basic earnings per share	$	0.33	$	0.34
Diluted earnings per share	$	0.33	$	0.33
Dividends per share	$	0.11	$	0.10

The accompanying notes are an integral part of these consolidated financial statements.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	For the three months
	March 31,
(In thousands)	2006	2005
OPERATING ACTIVITIES
Net income	$ 5,911	$ 5,969
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of bank premises and equipment	367	403
Origination of loans held for sale	(1,489)	-
Proceeds from sale of loans held for sale	1,619	-
Net gain on sale of loans held for sale	(123)	-
Net gain on sales of loans	(27)	(19)
Net gain on sale of securities	(81)	-
Amortization of unearned premium, net of accretion of unearned discount	263	326
Stock-based compensation expense	374	(5)
Deferred compensation	(153)	4
Excess tax benefits from stock-based payment arrangements	(15)	-
Deferred income tax benefit	(65)	(25)
Net increase in other assets and liabilities	3,893	900
Net cash provided by operating activities	10,474	7,553

INVESTING ACTIVITIES
Purchases of bank premises and equipment	(827)	(468)
Net redemptions (purchases) of Federal Home Loan Bank of New York shares	1,575	(3,200)
Purchases of securities available for sale	(9,907)	(153)
Proceeds from sales and calls of securities available for sale	6,471	-
Proceeds from maturities and prepayments of securities available for sale	13,029	21,594
Net originations and repayment of loans	(75,589)	(100,080)
Purchases of loans	(1,980)	-
Proceeds from sale of loans	6,045	1,030
Proceeds from sale of delinquent loans	1,754	751
Purchase of bank owned life insurance	(10,000)	-
Net cash used in investing activities	(69,429)	(80,526)

FINANCING ACTIVITIES
Net increase in non-interest bearing deposits	3,627	2,466
Net increase (decrease) in interest-bearing deposits	78,523	(2,527)
Net increase in mortgagors' escrow deposits	10,124	11,153
Net repayment of short-term borrowed funds	(10,000)	(11,000)
Proceeds from long-term borrowings	20,000	85,000
Repayment of long-term borrowings	(35,007)	(10,006)
Purchases of treasury stock	(2,038)	(2,436)
Excess tax benefits from stock-based payment arrangements	15	-
Proceeds from issuance of common stock upon exercise of stock options	870	867
Cash dividends paid	(1,950)	(1,745)
Net cash provided by financing activities	64,164	71,772

Net increase (decrease) in cash and cash equivalents	5,209	(1,201)
Cash and cash equivalents, beginning of period	26,754	14,661
Cash and cash equivalents, end of period	$ 31,963	$ 13,460
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid	$ 18,483	$ 13,450
Income taxes paid	225	427
Taxes paid if excess tax benefits were not tax deductible	1,028	-

The accompanying notes are an integral part of these consolidated financial statements.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

		For the three months ended
(Dollars in thousands)		March 31, 2006
Common Stock
Balance, beginning of period	$		195
Issuance upon the exercise of stock options (58,600 common shares)			-
Shares issued upon vesting of restricted stock unit awards (4,500 common shares)			-
Balance, end of period	$		195

Additional Paid-In Capital
Balance, beginning of period	$		39,635
Award of common shares released from Employee Benefit Trust (1,357 common shares)			18
Cumulative adjustment related to adoption of SFAS No. 123R			847
Shares issued upon vesting of restricted stock unit awards (4,500 common shares)			35
Vesting of restricted stock unit awards (4,500 common shares)			(35)
Forfeiture of restricted stock awards (1,260 common shares)			12
Options exercised (59,200 common shares)			436
Stock-based compensation expense			344
Stock-based income tax benefit			803
Balance, end of period	$		42,095

Treasury Stock
Balance, beginning of period	$		(12)
Purchases of common shares outstanding (125,000 common shares)			(2,011)
Issuance upon exercise of stock options (123,580 common shares)			1,988
Purchase of common shares to fund options exercised (22,002 common shares)			(371)
Repurchase of restricted stock awards to satisfy tax obligations
(1,750 common shares)			(27)
Forfeiture of restricted stock awards (1,260 common shares)			(12)
Balance, end of period	$		(445)

Unearned Compensation
Balance, beginning of period	$		(4,159)
Cumulative adjustment related to adoption of SFAS No. 123R			516
Release of shares from Employee Benefit Trust (54,805 common shares)			186
Balance, end of period	$		(3,457)

Retained Earnings
Balance, beginning of period	$		146,068
Net income			5,911
Cash dividends declared and paid			(1,950)
Stock options exercised (122,980 common shares)			(1,183)
Balance, end of period	$		148,846

Accumulated Other Comprehensive Income
Balance, beginning of period	$		(5,260)
Change in net unrealized loss on securities available for sale,
net of taxes, of approximately $1,495			(1,923)
Less: Reclassification adjustment for gains included in net income,
net of taxes, of approximately $32			(49)
Balance, end of period	$		(7,232)
Total Stockholders' Equity	$		180,002

The accompanying notes are an integral part of these consolidated financial statements .

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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 (the “Holding Company”) is the operation of its wholly-owned subsidiary, Flushing Savings Bank, FSB (the “Bank”). The consolidated financial statements presented in this Form 10-Q include the collective results of the Holding Company and the Bank, but reflect principally the Bank’s activities.

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

Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“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 2005 Annual Report on Form 10-K.

Certain reclassifications have been made to prior year amounts to conform with the current year presentation.

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-month periods ended March 31, 2006 and 2005 was computed by dividing net income by the total weighted average number of common shares outstanding, including only the vested portion of restricted stock and restricted stock unit awards. Diluted earnings per share includes the additional dilutive effect of stock options outstanding and the unvested portion of restricted stock and restricted stock unit awards during the period. Earnings per share have been computed based on the following:

		Three months ended
		March 31,
(In thousands, except per share data)		2006			2005
Net income	$	5,911		$	5,969
Divided by:
Weighted average common shares outstanding		17,766			17,478
Weighted average common stock equivalents		312			526
Total weighted average common shares and
common stock equivalents		18,078			18,004
Basic earnings per share	$	0.33		$	0.34
Diluted earnings per share	$	0.33		$	0.33
Dividends per share	$	0.11		$	0.10
Dividend payout ratio		33.33	%		29.41	%

Common stock equivalents that are antidilutive are not included in the computation of diluted earnings per share. Options to purchase 355,875 shares at an average exercise price of $17.80 were not included in the computation of diluted earnings per share for the three month period ended March 31, 2006. Unvested restricted stock and restricted stock unit awards totaling 138,670 shares at an average market price on date of grant of $17.74, were not included in the computation of diluted earnings per share for the three months ended March 31, 2006. For the three months ended March 31, 2005, options to purchase 35,750 shares, at an average price of $19.94, and unvested restricted stock and restricted stock unit awards for 17,874 shares, at an average market price on the date of grant of $19.94, were not included in the computation of diluted earnings per share.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

4.	Stock-Based Compensation

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment.” This statement revised SFAS No. 123, “Accounting for Stock Based Compensation”, and superseded APB Opinion No. 25 “Accounting for Stock Issued to Employees” and its related implementation guidance. SFAS No. 123R establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires a fair-value-based measurement method in accounting for share-based payment transactions with employees. It also requires measurement of the cost of employee services received in exchange for an award of an equity instrument based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award. The requisite service period is usually the vesting period. Prior to January 1, 2006, the Company accounted for stock-based compensation in accordance with APB No. 25, which did not require compensation cost to be recognized. The Company also followed the disclosure requirements of SFAS No. 123 and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” The Company elected to adopt SFAS No. 123R using the modified prospective method, and, accordingly, financial statement amounts for the prior period presented in this Form 10-Q have not been restated to reflect the fair value method of expensing share-based compensation.

Assuming the Company had recognized compensation cost for stock-based compensation in accordance with SFAS No. 123R prior to January 1, 2006, net income and earnings per share would have been as indicated in the table below:

		Three months ended
		March 31,
(Dollars in thousands, except share data)		2006		2005
Net income, as reported	$	5,911	$	5,969
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects		242		69
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects		(242)		(151)
Pro forma net income	$	5,911	$	5,887
Basic earnings per share:
As reported	$	0.33	$	0.34
Pro forma	$	0.33	$	0.34
Diluted earnings per share:
As reported	$	0.33	$	0.33
Pro forma	$	0.33	$	0.33

The Company’s net income, as reported, for the three months ended March 31, 2006 and 2005 includes $0.4 million and $0.1 million, respectively, of stock-based compensation costs and $0.2 million and $44,000 of income tax benefits related to the stock-based compensations plans.

The adoption of SFAS No. 123R reduced income before income taxes by $0.1 million, net income by $0.1 million, and basic and diluted earnings per share each by less than $0.01. There were no realized tax benefits. Cash used by operating activities and cash provided by financing activities for the three months ended March 31, 2006 were each increased by $15,000 as a result of the adoption of the SFAS No. 123R.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected volatility of the Company’s stock price, the risk-free interest rate over the options expected term and the annual dividend yield. The Company uses the fair value of the common stock on the date of award to measure compensation cost for restricted stock and restricted stock unit awards. Compensation cost is recognized over the vesting period of the award, using the straight line method. There were no stock option, restricted stock or restricted unit awards granted during either of the three month periods ended March 31, 2006 or 2005.

The 2005 Omnibus Incentive Plan (“Omnibus Plan”) authorizes the Compensation Committee to grant a variety of equity compensation awards. The Company has applied the shares authorized under the 1996 Restricted Stock Incentive Plan and the 1996 Stock Option Incentive Plan for use as full value awards and non-full value awards, respectively, for future awards under the Omnibus Plan. As of March 31, 2006, there were 224,331 shares available for full value awards and 756,457 shares available for non-full value awards. To satisfy stock option exercises or fund restricted stock and restricted stock unit awards, shares are issued from treasury stock, if available. Otherwise new shares are issued. All grants and awards under the 1996 Restricted Stock Incentive Plan and the 1996 Stock Option Incentive Plan prior to the effective date of the Omnibus Plan are still outstanding as issued. The Company will maintain separate pools of available shares for full value as opposed to non-full value awards, except that shares can be moved from the non-full value pool to the full value pool on a 3-for-1 basis. The exercise price per share of a stock option grant may not be less than the fair market value of the common stock of the Company on the date of grant, and may not be repriced without the approval of the Company’s stockholders. Options, stock appreciation rights, restricted stock, restricted stock units and other stock based awards granted under the Omnibus Plan are generally subject to a minimum vesting period of three years, with stock options having a 10-year contractual term. Other awards do not have a contractual term of expiration. Restricted stock unit awards include participants who have reached or are close to reaching retirement eligibility, at which time such awards fully vest. These amounts are included in stock-based compensation expense.

The Omnibus Plan provides two pools for stock-based compensation. The first pool is available for full value awards, such as restricted stock unit awards. The pool will be decreased by the number of shares granted as full value awards. The pool will be increased from time to time by the number of shares that are returned to or retained by the Company as a result of the cancellation, expiration, forfeiture or other termination of a full value award (under the Omnibus Plan or the 1996 Restricted Stock Incentive Plan); the settlement of such an award in cash; the delivery to the award holder of fewer shares than the number underlying the award, including shares which are withheld from full value awards; or the surrender of shares by an award holder in payment of the exercise price or taxes to a full value award. The Omnibus Plan will allow the Company to transfer shares from the non-full value pool to the full value pool on a 3-for-1 basis, but does not allow the transfer of shares from the full value pool to the non-full value pool.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table summarizes the Company’s full value awards at or for the quarter ended March 31, 2006:

				Weighted-Average
					Grant-Date
		Full Value Awards	Shares		Fair Value
Non-vested at December 31, 2005			197,778	$	16.16
	Granted		-		-
	Vested		(4,500)		7.77
	Forfeited		(3,495)		15.54
Non-vested at March 31, 2006			189,783	$	16.37
Vested but unissued at March 31, 2006
	and December 31, 2005		59,811	$	16.50

As of March 31, 2006, there was $2.3 million of total unrecognized compensation cost related to non-vested full value awards granted under the Omnibus Plan. That cost is expected to be recognized over a weighed-average period of 3.2 years. The total fair value of awards vested during the three months ended March 31, 2006 and 2005 was $70,000 and $129,000, respectively. The vested but unissued full value awards were made to employees and directors who are eligible for retirement. According to the terms of the Omnibus Plan, these employees and directors have no risk of forfeiture. These shares will be issued at the original contractual vesting dates.

The second pool is available for non-full value awards, such as stock options. The pool will be increased from time to time by the number of shares that are returned to or retained by the Company as a result of the cancellation, expiration, forfeiture or other termination of a non-full value award (under the Omnibus Plan or the 1996 Stock Option Incentive Plan). The second pool will not be replenished by shares withheld or surrendered in payment of the exercise price or taxes, retained by the Company as a result of the delivery to the award hold of fewer shares than the number underlying the award, or the settlement of the award in cash.

The following table summarizes certain information regarding the non-full value awards, all of which have been granted as stock options, at or for the quarter ended of March 31, 2006:

				Weighted-	Weighted-Average		Aggregate
				Average		Remaining	Intrinsic
				Exercise		Contractual	Value
		Non-Full Value Awards	Shares	Price		Term	($000) *
Outstanding at December 31, 2005			1,731,793	$ 11.56
	Granted		-	-
	Exercised		(182,180)	6.80
	Forfeited		(4,545)	13.99
Outstanding at March 31, 2006			1,545,068	$ 12.11		6.0 years	$ 8,258
Exercisable shares at March 31, 2006			1,226,743	$ 11.48		5.7 years	$ 7,331
Vested but unexercisable shares at
	March 31, 2006		128,310	$ 15.57		7.5 years	$ 243

* The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

As of March 31, 2006, there was $0.5 million of total unrecognized compensation cost related to unvested non-full value awards granted under the Omnibus Plan. That cost is expected to be recognized over a weighed-average period of 2.0 years. The vested but unexercisable non-full value awards were made to employees and directors who are eligible for retirement. According to the terms of the Omnibus Plan, these employees and directors have no risk of forfeiture. These shares will be exercisable at the original contractual vesting dates.

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company maintains a non-qualified phantom stock plan as a supplement to its profit sharing plan for officers who have achieved the level of Vice President and above. Awards are made under this plan on compensation not eligible for awards made under the profit sharing plan, due to the terms of the profit sharing plan and IRS regulations. Employees receive awards under this plan proportionate to the amount they would have received under the profit sharing plan, had the excluded compensation been eligible. The awards are made as cash awards, and then converted to common stock equivalents (phantom shares) at the then current market value of the Company’s common stock. Dividends are credited to each employee’s account in the form of additional phantom shares each time the Company pays a dividend on its common stock. Employees vest under this plan 20% per year for 5 years. Employees receive their vested interest in this plan in the form of a cash payment, after termination of employment. The Company adjusts its liability under this plan to the fair value of the shares at the end of each period.

		Phantom Stock Plan	Shares		Fair Value

Outstanding at December 31, 2005			17,630	$	15.57
	Granted		86		17.46
	Forfeited		(43)		15.57
	Distributions		(3,917)		16.38
Outstanding at March 31, 2006			13,756	$	17.46
Vested at March 31, 2006			11,770	$	17.46

The Company recorded stock-based compensation expense for the phantom stock plan of $30,000 for the three months ended March 31, 2006, and recorded a credit of $63,000 for the three months ended March 31, 2005. The total fair value of the distributions from the phantom stock plan during the three months ended March 31, 2006 and 2005 was $64,000 and $2,000, respectively.

Cash proceeds, fair value received, tax benefits and intrinsic value related to total stock options exercised during the three months ended March 31, 2006 are provided in the following table:

		Three months ended
		March 31,
(In thousands)		2006		2005
Proceeds from stock options exercised	$	870	$	867
Fair value of shares received upon exercise of stock options		371		-
Tax benefit related to stock options exercised		786		465
Intrinsic value of stock options exercised		1,770		1,050

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PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Notes to Consolidated Financial Statements

5.	Pension and Other Postretirement Benefit Plans

The following table sets forth the components of net expense for the pension and other postretirement benefit plans.

		Three months ended
		March 31,
(In thousands)		2006		2005

Employee Pension Plan:
Service cost	$	162	$	146
Interest cost		221		211
Amortization of unrecognized loss		81		40
Amortization of past service liability		-		-
Expected return on plan assets		(326)		(309)
Net employee pension expense	$	138	$	88
Outside Director Pension Plan:
Service cost	$	23	$	21
Interest cost		17		18
Amortization of unrecognized loss		4		3
Amortization of past service liability		37		37
Net outside director pension expense	$	81	$	79
Other Postretirement Benefit Plans:
Service cost	$	28	$	39
Interest cost		36		62
Amortization of unrecognized (gain)loss		(6)		16
Amortization of past service liability		(7)		(9)
Net other postretirement benefit expense	$	51	$	108

The Company previously disclosed in its consolidated financial statements for the year ended December 31, 2005 that it expects to contribute $0.9 million, $0.2 million and $0.1 million to the Employee Pension Plan, Outside Director Pension Plan and Other Post Retirement Benefit Plans, respectively, during the year ended December 31, 2006. As of March 31, 2006, the Company has contributed $36,700 to the Outside Director Pension Plan and $13,000 to the Other Postretirement Benefit Plans, for the year ending December 31, 2006. As of March 31, 2006, the Company has not made any contribution to the Employee Pension Plan for the year ending December 31, 2006. As of March 31, 2006, the Company has not revised its expected contributions for the year ending December 31, 2006.

-10-

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 (the “Holding Company”), 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. Flushing Financial Corporation’s common stock is publicly traded on the NASDAQ National Market under the symbol “FFIC”. The Bank is a consumer-oriented savings institution and conducts its business through nine banking offices located in Queens, Brooklyn, Manhattan and Nassau County. The Bank opened a new branch office in Bayside, Queens on May 1, 2006. The Company announced in December 2005, the signing of a definitive agreement to acquire Atlantic Liberty Financial Corporation (“Atlantic Liberty”), and its subsidiary Atlantic Liberty Savings, FA, based in Brooklyn, New York. The acquisition of Atlantic Liberty is expected to be completed near the end of the second quarter of 2006, subject to the approval of the shareholders of Atlantic Liberty and regulatory authorities. This acquisition will add two branches in Brooklyn in two very attractive commercial markets. We believe our larger size and greater breadth of product offerings will enable us to provide an enhanced level of service to these markets. The following discussion of financial condition and results of operations includes the collective results of the Holding Company 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) originations and purchases of one-to-four family (focusing on mixed-use properties - properties that contain both residential dwelling units and commercial units), multi-family residential and commercial real estate mortgage 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. The Company also originates certain other loans, including construction loans, Small Business Administration loans and other small business and consumer 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 and other fees, income earned on Bank Owned Life Insurance, dividends on Federal Home Loan Bank of NY (“FHLB-NY”) stock and net gains 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. However, the Company has not recorded a provision for possible loan losses since 1999. Such results also are significantly affected by general economic and competitive conditions, including changes in market interest rates, the strength of the local economy, government policies and actions of regulatory authorities.

Statements contained in this Quarterly Report relating to plans, strategies, objectives, economic performance and trends, projections of results of specific activities or investments and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, the factors set forth in the preceding paragraph and elsewhere in this Quarterly Report, and in other documents filed by the Company with the Securities and Exchange Commission from time to time, including, without limitation, the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. Forward-looking statements may be identified by terms such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “forecasts”, “potential” or “continue” or similar terms or the negative of these terms. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The Company has no obligation to update these forward-looking statements.

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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

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED

MARCH 31, 2006 AND 2005

General. Diluted earnings per share was $0.33 for each of the three month periods ended March 31, 2006 and 2005. Net income declined $0.1 million, or 1.0%, to $5.9 million for the three months ended March 31, 2006 from $6.0 million for the three months ended March 31, 2005. The return on average assets was 1.00% for the three months ended March 31, 2006, as compared to 1.15% for the three months ended March 31, 2005, while the return on average equity was 13.39% for the three months ended March 31, 2006 and 14.95% for the three months ended March 31, 2005 .

Interest Income. Total interest and dividend income increased $5.5 million, or 17.9%, to $36.2 million for the three months ended March 31, 2006 from $30.7 million for the three months ended March 31, 2005. The increase in interest income is primarily attributed to the growth in the average balance of interest-earning assets, which increased $294.1 million to $2,267.8 million. The increase in the yield of interest-earning assets is primarily due to an increase of $367.2 million in the average balance of the loan portfolio to $1,912.3 million, combined with an $87.3 million decrease in the average balance of the lower-yielding securities portfolios. However, the yield on the mortgage loan portfolio decreased 7 basis points to 6.74% for the three months ended March 31, 2006 from 6.81% for the three months ended March 31, 2005. This decrease is due to the average rate on new loans originated during 2005 being below the average rate on both the loan portfolio and loans which were paid-in-full during the period. We have seen a change in this trend during the first quarter of 2006 as the yield on originations has improved. As a result, the yield on the mortgage loan portfolio, excluding prepayment penalty income, increased 3 basis points for the three months ended March 31, 2006 compared to the three months ended December 31, 2005. In an effort to increase the yield on interest-earning assets, we continued to fund a portion of the growth in the higher-yielding mortgage loan portfolio through repayments received on the lower-yielding securities portfolio.

Interest Expense. Interest expense increased $5.5 million, or 39.4%, to $19.3 million for the three months ended March 31, 2006 from $13.8 million for the three months ended March 31, 2005. The increase in the cost of interest-bearing liabilities is primarily attributed to the Federal Reserve increasing overnight rates for fifteen consecutive meetings, which has resulted in an increase in our cost of funds. During the twelve months ended March 31, 2006, the Federal Reserve raised its targeted fed funds rate from 2.75% to 4.75%. Certificates of deposit, savings accounts and money market accounts increased 53 basis points, 95 basis points and 90 basis points, respectively, for the three months ended March 31, 2006 compared to the three months ended March 31, 2005, resulting in an increase in the cost of deposits of 76 basis points to 3.27% for the three months ended March 31, 2006 compared to the three months ended March 31, 2005. The cost of borrowed funds also increased 39 basis points to 4.51% for the three months ended March 31, 2006 compared to the three months ended March 31, 2005. This was combined with the increase in the average balance of certificates of deposit of $217.0 million, while the average balance of borrowed funds increased $91.8 million. In addition, there was a decline in the combined average balances of lower-costing savings, money market and NOW accounts totaling $31.1 million.

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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

Net Interest Income. For the three months ended March 31, 2006, net interest income was $16.9 million, the same as for the three months ended March 31, 2005. An increase in the average balance of interest-earning assets of $294.1 million, to $2,267.8 million, was offset by a decrease in the net interest spread of 46 basis points to 2.76% for the quarter ended March 31, 2006 from 3.22% for the comparable period in 2005. The yield on interest-earning assets increased 17 basis points to 6.39% for the three months ended March 31, 2006 from 6.22% in the three months ended March 31, 2005. However, this was more than offset by an increase in the cost of funds of 63 basis points to 3.63% for the three months ended March 31, 2006 from 3.00% for the comparable prior year period. The net interest margin decreased 44 basis points to 2.98% for the three months ended March 31, 2006 from 3.42% for the three months ended March 31, 2005. Excluding prepayment penalty income, the net interest margin would have been 2.82% and 3.24% for the three month periods ended March 31, 2006 and 2005, respectively.

Provision for Loan Losses. There was no provision for loan losses for either of the three-month periods ended March 31, 2006 and 2005. 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. In recent years, the Bank has seen a significant improvement in its loss experience. By adherence to its strict underwriting standards the Bank has been able to minimize net losses from impaired loans with net recoveries of $9,000 for the three months ended March 31, 2006 and no net charge-offs for the comparable period in 2005. Although the local economic conditions and real estate values in the this past year have seen a slow down and despite the growth in the loan portfolio, primarily in multi-family residential, commercial real estate, and one-to-four family mixed-use property mortgage loans, no provision for loan losses was deemed necessary for either of the three-month periods ended March 31, 2006 and 2005.

Non-Interest Income. Non-interest income increased $0.7 million, or 45.7%, for the three months ended March 31, 2006 to $2.2 million, as compared to $1.5 million for the quarter ended March 31, 2005. This was primarily attributed to increases of: $0.1 million on the gain on sale of loans held for sale, $0.1 million on the gain on sale of securities, $0.2 million in dividends received on Federal Home Loan Bank of New York (“FHLB-NY”) stock and $0.1 million in miscellaneous fees from loans which paid-in-full prior to maturity.

Non-Interest Expense. Non-interest expense was $9.4 million for the three months ended March 31, 2006, an increase of $0.8 million, or 9.6%, from $8.6 million for the three months ended March 31, 2005. The increase from the comparable prior year period is primarily attributed to increases of: $0.5 million in employee salary and benefit expenses related to additional employees and $0.1 million relating to the expensing of stock options, $0.1 million in occupancy and equipment costs primarily related to increased rental expense and $0.1 million in data processing expense. Management continues to monitor expenditures resulting in efficiency ratios of 49.5% and 46.8% for the three month periods ended March 31, 2006 and 2005, respectively.

Income before Income Taxes . Income before the provision for income taxes decreased $0.1 million, or 1.0%, to $9.7 million for the three months ended March 31, 2006 from $9.8 million for the three months ended March 31, 2005, for the reasons discussed above.

Provision for Income Taxes. Income tax expense was $3.8 million for each of the three month periods ended March 31, 2006 and 2005, as pre-tax income was essentially the same for both periods. The effective tax rate was 39.0% for each of the three-month periods ended March 31, 2006 and 2005.

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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

FINANCIAL CONDITION

Assets. Total assets at March 31, 2006, were $2,422.5 million, an increase of $69.3 million, or 2.9%, from $2,353.2 million at December 31, 2005. Total loans, net increased $69.7 million, or 3.7%, during the first quarter ended March 31, 2006 to $1,951.6 million from $1,881.9 million at December 31, 2005. At March 31, 2006, loans in process totaled $146.7 million, compared to $229.9 million at March 31, 2005 and $179.4 million at December 31, 2005.

Originations were less than the comparable prior year quarter as the continued flattening of the yield curve and uncertainty for the future led us to price more for yield than volume. The following table shows loan originations and purchases for the periods indicated.

		For the three months ended March 31,
(In thousands)		2006		2005
Multi-family residential	$	34,030	$	73,923
Commercial real estate		42,257		24,326
One-to-four family – mixed-use property		32,802		37,665
One-to-four family – residential		4,159		2,122
Construction ⁽¹⁾		14,604		6,985
Commercial business and other loans		11,994		3,906
Total	$	139,846	$	148,927

(1) Includes purchases of $1,980,000 in 2006. There were no other loan purchases during the periods indicated.

As the Bank continues to increase its loan portfolio, management continues to adhere to the Bank’s strict underwriting standards. As a result, the Bank has been able to minimize charge-offs of losses from impaired loans and maintain asset quality. Non-performing assets were $1.9 million at March 31, 2006 compared to $2.5 million at December 31, 2005 and $1.2 million at March 31, 2005. Total non-performing assets as a percentage of total assets was 0.08% at March 31, 2006 compared to 0.10% at December 31, 2005 and 0.05% as of March 31, 2005. The ratio of allowance for loan losses to total non-performing loans was 329% at March 31, 2006, compared to 260% at December 31, 2005 and 568% at March 31, 2005.

During the quarter ended March 31, 2006, mortgage-backed securities decreased $17.8 million to $283.4 million, while other securities increased $4.6 million to $41.2 million. During the first quarter of 2006, we sold 107 mortgage-backed security certificates totaling $6.4 million, which were replaced with one mortgage-backed security and a FNMA note totaling $9.7 million. We realized a net gain of $81,000 on this transaction. Principal repayments on the securities portfolio during the quarter have been reinvested in higher yielding loans. Other securities primarily consists of securities issued by government agencies and mutual or bond funds that invest in government and government agency securities.

During the quarter ended March 31, 2006, the Bank purchased an additional $10.0 million of Bank Owned Life Insurance (BOLI). The Bank utilizes BOLI to fund a substantial portion of its employee benefit costs. The tax advantages of BOLI provide a return that is comparable to, or better than, other investments.

Liabilities. Total liabilities were $2,242.5 million at March 31, 2006, an increase of $65.8 million, or 3.0%, from December 31, 2005. During the quarter ended March 31, 2006, due to depositors increased $82.2 million to $1,530.0 million, primarily as a result of an increase of $63.7 million in certificates of deposit, of which $29.4 million were new brokered deposits, while core deposits increased $18.4 million. Borrowed funds decreased $25.0 million, as the funds obtained from the brokered deposits were used to repay maturing borrowings. In addition, mortgagors’ escrow deposits increased $10.1 million during the quarter ended March 31, 2006.

Equity. Total stockholders’ equity increased $3.5 million, or 2.0%, to $180.0 million at March 31, 2006 from $176.5 million at December 31, 2005. Net income of $5.9 million for the three months ended March 31, 2006 and a $1.4 million cumulative adjustment related to the adoption of SFAS No. 123R, Share-Based Payment, were partially offset by $2.0 million in treasury shares purchased through the Company’s stock repurchase program, a net after tax decrease of $2.0 million on the market value of securities available for sale, and $2.0 million of cash dividends declared and paid during the three months ended March 31, 2006. The exercise of stock options increased stockholders’ equity by $1.7 million, including the income tax benefit realized by the Company upon the exercise of the options. Book value per share was $9.23 at March 31, 2006, compared to $9.07 per share at December 31, 2005 and $8.37 per share at March 31, 2005.

-14-

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Under its current stock repurchase program, the Company repurchased 125,000 shares during the quarter ended March 31, 2006, at a total cost of $2.0 million, or an average of $16.09 per share. At March 31, 2006, 649,650 shares remain to be repurchased under the current stock repurchase program. Through March 31, 2006, the Company had repurchased approximately 47% of the common shares issued in connection with the Company’s initial public offering at a cost of $113.8 million.

Cash flow. During the three months ended March 31, 2006, funds provided by the Company's operating activities amounted to $10.5 million. These funds, together with $64.2 million provided by financing activities, were utilized to fund net investing activities of $69.4 million. The Company's primary business objective is the origination and purchase of one-to-four family (primarily mixed-use properties), multi-family residential and commercial real estate mortgage loans. During the three months ended March 31, 2006, the net total of loan originations and purchases less loan repayments and sales was $69.8 million. Funds were also used to reduce borrowings $25.0 million and purchase a new BOLI for $10.0 million. Funds were provided by an increase of $82.2 million in due to depositors, an increase of $10.1 million in escrow deposits, and $9.6 million net increase from maturities, prepayments, sales and purchases of securities available for sale. Additional funds of $0.9 million were provided through the exercise of stock options. The Company also used funds of $2.0 million for treasury stock repurchases and $2.0 million for dividend payments during the three months ended March 31, 2006.

INTEREST RATE RISK

The consolidated statements of financial position have been prepared in accordance with generally accepted accounting principles in the United States of America, which require 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. The OTS currently places its focus on the net portfolio value, focusing on a rate shock up or down of 200 basis points. Net portfolio value is defined as the market value of assets net of the market value of liabilities. The market value of assets and liabilities is determined using a discounted cash flow calculation. The net portfolio value ratio is the ratio of the net portfolio value to the market value of assets. All changes in income and value are measured as percentage changes from the projected net interest income and net portfolio value at the base interest rate scenario. The base interest rate scenario assumes interest rates at March 31, 2006. Various estimates regarding prepayment assumptions are made at each level of rate shock. Actual results could differ significantly from these estimates. At March 31, 2006, the Company is within the guidelines set forth by the Board of Directors for each interest rate level. The following table presents the Company’s interest rate shock as of March 31, 2006.

	Projected Percentage Change In
	Net Interest		Net Portfolio		Net Portfolio
Change in Interest Rate	Income		Value		Value Ratio
-300 Basis points	1.77	%	20.15	%	10.35	%
-200 Basis points	3.25		15.51		10.14
-100 Basis points	3.69		11.15		9.92
Base interest rate	0.00		0.00		9.20
+100 Basis points	-3.00		-5.87		8.77
+200 Basis points	-6.09		-16.85		7.93
+300 Basis points	-10.97		-29.30		6.92

-15-

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

REGULATORY CAPITAL POSITION

Under Office of Thrift Supervision ("OTS") capital regulations, the Bank is required to comply with each of three separate capital adequacy standards. At March 31, 2006, the Bank exceeded each of the three OTS capital requirements and is categorized as "well-capitalized" by the OTS under the prompt corrective action regulations. Set forth below is a summary of the Bank's compliance with OTS capital standards as of March 31, 2006.

(Dollars in thousands)		Amount	Percent of Assets

Tangible Capital:
Capital level	$	174,593	7.23	%
Requirement		36,223	1.50
Excess		138,370	5.73

Leverage and Core Capital:
Capital level	$	174,593	7.23	%
Requirement		72,446	3.00
Excess		102,147	4.23

Risk-Based Capital:
Capital level	$	180,987	11.81	%
Requirement		122,575	8.00
Excess		58,412	3.81

-16-

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 March 31, 2006 and 2005, and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average balances are derived from average daily balances. The yields include amortization of fees which are considered adjustments to yields.

		For the three months ended March 31,
		2006						2005
		Average			Yield/			Average			Yield/
		Balance		Interest	Cost			Balance		Interest	Cost
Assets
Interest-earning assets:
Mortgage loans, net (1)	$	1,882,414	$	31,720	6.74	%	$	1,526,045	$	25,977	6.81	%
Other loans, net (1)		29,884		545	7.29			19,102		288	6.03
Total loans, net		1,912,298		32,265	6.75			1,545,147		26,265	6.80
Mortgage-backed securities		302,398		3,392	4.49			387,376		4,092	4.23
Other securities		37,407		385	4.12			39,682		351	3.54
Total securities		339,805		3,777	4.45			427,058		4,443	4.16
Interest-earning deposits and
federal funds sold		15,698		170	4.33			1,540		8	2.08
Total interest-earning assets		2,267,801		36,212	6.39			1,973,745		30,716	6.22
Other assets		101,395						97,021
Total assets	$	2,369,196					$	2,070,766
Liabilities and Equity
Interest-bearing liabilities:
Deposits:
Savings accounts	$	267,529		963	1.44		$	216,040		267	0.49
NOW accounts		40,425		50	0.49			46,161		57	0.49
Money market accounts		176,120		1,238	2.81			252,981		1,211	1.91
Certificate of deposit accounts		923,756		9,244	4.00			706,772		6,134	3.47
Total due to depositors		1,407,830		11,495	3.27			1,221,954		7,669	2.51
Mortgagors' escrow accounts		25,629		15	0.23			23,092		14	0.24
Total deposits		1,433,459		11,510	3.21			1,245,046		7,683	2.47
Borrowed funds		690,517		7,787	4.51			598,682		6,160	4.12
Total interest-bearing liabilities		2,123,976		19,297	3.63			1,843,728		13,843	3.00
Non interest-bearing deposits		54,086						48,335
Other liabilities		14,536						19,013
Total liabilities		2,192,598						1,911,076
Equity		176,598						159,690
Total liabilities and equity	$	2,369,196					$	2,070,766
Net interest income /
net interest rate spread			$	16,915	2.76	%			$	16,873	3.22	%
Net interest-earning assets /
net interest margin	$	143,825			2.98	%	$	130,017			3.42	%
Ratio of interest-earning assets to
interest-bearing liabilities					1.07	X					1.07	X

(1)	Loan interest income includes loan fee income (which includes net amortization of deferred fees and costs, late charges, and prepayment penalties) of approximately $0.9 million for each of the three-month periods ended March 31, 2006 and 2005.

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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

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.

	For the three months ended March 31,
(In thousands)		2006		2005
Mortgage Loans
At beginning of period	$	1,851,251	$	1,500,104
Mortgage loans originated:
Multi-family residential		34,030		73,923
Commercial real estate		42,257		24,326
One-to-four family – mixed-use property		32,802		37,665
One-to-four family – residential		4,159		2,122
Construction		12,624		6,985
Co-operative apartments		-		-
Total mortgage loans originated		125,872		145,021

Mortgage loans purchased:
Construction		1,980		-
Total acquired loans		1,980		-
Less:
Principal and other reductions		57,535		47,587
Sales		7,799		1,781
Mortgage loan foreclosures		-		-
At end of period	$	1,913,769	$	1,595,757

Commercial Business and Other Loans
At beginning of period	$	28,601	$	18,138
Other loans originated:
Small Business Administration		4,069		782
Small business		7,717		2,924
Other		208		200
Total other loans originated		11,994		3,906
Less:
Principal and other reductions		3,841		1,978
Sales		1,489		-
At end of period	$	35,265	$	20,066

-18-

PART I – FINANCIAL INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

NON-PERFORMING ASSETS

The Company reviews loans in its portfolio on a monthly basis to determine whether any problem loans require classification in accordance with internal policies and applicable regulatory guidelines. The following table sets forth information regarding all non-accrual loans, loans which are 90 days or more delinquent, and real estate owned at the dates indicated.

(Dollars in thousands)				March 31, 2006			December 31, 2005

Non-accrual mortgage loans			$	1,313		$	1,821
Other non-accrual loans				101			101
		Total non-accrual loans		1,414			1,922

Mortgage loans 90 days or more delinquent
	and still accruing			530			530
Other loans 90 days or more delinquent
	and still accruing			-			-
		Total non-performing loans		1,944			2,452

Real estate owned (foreclosed real estate)				-			-

		Total non-performing assets	$	1,944		$	2,452

Non-performing loans to gross loans				0.10	%		0.13	%
Non-performing loans to total assets				0.08	%		0.10	%

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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

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 allowance for loan losses on a quarterly basis.

The following table sets forth the activity in the Bank's allowance for loan losses for the periods indicated.

		For the three months ended March 31,
(Dollars in thousands)		2006			2005
Balance at beginning of period	$	6,385		$	6,533
Provision for loan losses		-			-
Loans charged-off:
Multi-family residential		-			-
Commercial real estate		-			-
One-to-four family – mixed-use property		-			-
One-to-four family – residential		-			-
Co-operative apartments		-			-
Construction		-			-
Commercial business and other loans		-			(1)
Total loans charged-off		-			(1)
Recoveries:
Mortgage loans		1			1
Other loans		8			-
Total recoveries		9			1
Net recoveries (charge-offs)		9			-
Balance at end of period	$	6,394		$	6,533

Ratio of net charge-offs during the period to
average loans outstanding during the period		-	%		-	%
Ratio of allowance for loan losses to loans at end of period		0.33	%		0.40	%
Ratio of allowance for loan losses to non-performing
assets at end of period		328.84	%		568.04	%
Ratio of allowance for loan losses to non-performing
loans at end of period		328.84	%		568.04	%

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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."

ITEM 4.

CONTROLS AND PROCEDURES

The Company carried out, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2006, the design and operation of these disclosure controls and procedures were effective. During the period covered by this Quarterly Report, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in the Company’s Form 10-K for the year ended December 31, 2005.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following table sets forth information regarding the shares of common stock repurchased by the Company during the quarter ended March 31, 2006.

					Maximum
				Total Number of	Number of
	Total			Shares Purchased	Shares That May
	Number			as Part of Publicly	Yet Be Purchased
	of Shares		Average Price	Announced Plans	Under the Plans
Period	Purchased		Paid per Share	or Programs	or Programs
January 1 to January 31, 2006	-	$	-	-	774,650
February 1 to February 28, 2006	125,000		16.09	125,000	649,650
March 1 to March 31, 2006	-		-	-	649,650
Total	125,000	$	16.09	125,000

The current common stock repurchase program was approved by the Company’s Board of Directors on August 17, 2004 and authorized the repurchase of 1,000,000 common shares. The repurchase program does not have an expiration date or a maximum dollar amount that may be paid to repurchase the common shares.

Amounts shown in the above column titled “Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs” do not reflect shares which may be repurchased from employees to satisfy tax withholding obligations under equity compensation plans. During the quarter ended March 31, 2006, the Company did not purchase any common shares from employees to satisfy tax obligations due from the employees upon vesting of restricted stock awards.

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PART II – OTHER INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

ITEM 5.

OTHER INFORMATION.

Not applicable.

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PART II – OTHER INFORMATION

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

ITEM 6.

EXHIBITS.

Exhibit No.		Description
	3.1	Certificate of Incorporation of Flushing Financial Corporation (1)
	3.2	Certificate of Amendment of Certificate of Incorporation of Flushing Financial Corporation (3)
	3.3	Certificate of Designations of Series A Junior Participating Preferred Stock of Flushing Financial Corporation (4)
	3.4	By-Laws of Flushing Financial Corporation (1)
	4.1	Rights Agreement, dated as of September 17, 1996, between Flushing Financial Corporation and State Street Bank and Trust Company, as Rights Agent (2)
	10.10(a)	Amended and Restated Outside Director Retirement Plan
	31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer
	31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer
	32.1	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
	32.2	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

(1) Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1,
	Registration No. 33-96488.
(2) Incorporated by reference to Exhibits filed with Form 8-K filed September 30, 1996.
(3) Incorporated by reference to Exhibits filed with Form S-8 filed May 31, 2002.
(4) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended
	September 30, 2002.

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Flushing Financial Corporation,

Dated: May 10, 2006	By: /s/John R. Buran
	John R. Buran
	President and Chief Executive Officer

Dated: May 10, 2006	By: /s/David W. Fry
	David W. Fry
	Senior Vice President, Treasurer and
	Chief Financial Officer

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

EXHIBIT INDEX

Exhibit No.		Description
	3.1	Certificate of Incorporation of Flushing Financial Corporation (1)
	3.2	Certificate of Amendment of Certificate of Incorporation of Flushing Financial Corporation (3)
	3.3	Certificate of Designations of Series A Junior Participating Preferred Stock of Flushing Financial Corporation (4)
	3.4	By-Laws of Flushing Financial Corporation (1)
	4.1	Rights Agreement, dated as of September 17, 1996, between Flushing Financial Corporation and State Street Bank and Trust Company, as Rights Agent (2)
	10.10(a)	Amended and Restated Outside Director Retirement Plan
	31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer
	31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer
	32.1	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
	32.2	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

(1) Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1,
	Registration No. 33-96488.
(2) Incorporated by reference to Exhibits filed with Form 8-K filed September 30, 1996.
(3) Incorporated by reference to Exhibits filed with Form S-8 filed May 31, 2002.
(4) Incorporated by reference to Exhibits filed with Form 10-Q for the quarter ended
	September 30, 2002.

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FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John R. Buran, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Flushing Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	Date: May 10, 2006	By: /s/John R. Buran
		John R. Buran
		President and Chief Executive Officer

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David W. Fry, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Flushing Financial Corporation;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	Date: May 10, 2006	By: /s/David W. Fry
		David W. Fry
		Senior Vice President, Treasurer and
		Chief Financial Officer

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Flushing Financial Corporation (the “Corporation”) on Form 10-Q for the period ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John R. Buran, Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

By: /s/John R. Buran

John R. Buran

Chief Executive Officer

May 10, 2006

FLUSHING FINANCIAL CORPORATION and SUBSIDIARIES

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Flushing Financial Corporation (the “Corporation”) on Form 10-Q for the period ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David W. Fry, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

By: /s/David W. Fry

David W. Fry

Chief Financial Officer

May 10, 2006

OUTSIDE DIRECTOR RETIREMENT PLAN

FLUSHING SAVINGS BANK, FSB

(Amended and Restated Effective as of November 22, 2005)

1. Purpose . The purpose of the Outside Director Retirement Plan (the “Plan”) of Flushing Savings Bank, FSB (the “Bank”) is to provide retirement benefits to Outside Directors who have provided expertise in enabling the Bank to experience successful growth and development. The Plan was adopted effective February 21, 1995 and amended effective January 1, 1997, March 21, 2000, September 19, 2000 and December 16, 2003. This restatement is effective November 22, 2005 and reflects an amendment adopted on such date.

Definitions .

(a)

“Annual Retirement Benefit” means $48,000 for any Participant whose Termination Date occurs after November 22, 2005.

(b)

“Cause” means termination for dishonesty or willful misconduct involving moral turpitude.

(c)

“Change of Control” means:

(i)

the acquisition of all or substantially all of the assets of the Bank or FFIC by any person or entity, or by any persons or entities acting in concert;

(ii)

the occurrence of any event if, immediately following such event, a majority of the members of the Board of Directors of the Bank or FFIC or of any successor corporation shall consist of persons other than Current Members (for these purposes, a “Current Member” shall mean any member of the Board of Directors of the Bank or FFIC as of the Effective Date of the Plan and any successor of a Current Member whose nomination or election has been approved by a majority of the Current Members then on the Board of Directors);

(iii)

the acquisition of beneficial ownership, directly or indirectly (as provided in Rule 13d-3 under the Securities Exchange Act of 1934 (the “Act”), or any successor rule), of 25% or more of the total combined voting power of all classes of stock of the Bank or FFIC by any person or group deemed a person under Section 13(d)(3) of the Act; or

(iv)

approval by the stockholders of the Bank or FFIC of an agreement providing for the merger or consolidation of the Bank or FFIC with

another corporation where the stockholders of the Bank or FFIC, immediately prior to the merger or consolidation, would not beneficially own, directly or indirectly, immediately after the merger or consolidation, shares entitling such stockholders to 50% or more of the total combined voting power of all classes of stock of the surviving corporation.

(d)

“Disability” means inability to serve as a director due to medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

(e)

“Effective Date” means the day on which the Plan first became effective, February 21, 1995.

(f)

“FFIC” means Flushing Financial Corporation, a Delaware corporation.

(g)

“Outside Director” means a person who is not an employee of the Bank or any of its subsidiaries, and who is elected or appointed to serve as a member of the Board of Directors (or, prior to the Bank’s conversion to a stock form of ownership, the Board of Trustees) of the Bank.

(h)

“Participant” means an Outside Director who is eligible to receive retirement benefits hereunder.

(i)

“Surviving Spouse” means the lawful spouse of an Outside Director on the date a benefit first becomes payable in accordance with the Plan.

(j)

“Termination Date” means the date of a Participant’s termination from service as a director of the Bank, by retirement, resignation, discharge or otherwise.

(k)

“Total Retirement Benefit” means the amount of a Participant’s Annual Retirement Benefit divided by 12 and multiplied by the lesser of (i) the number of months the Participant has served as an Outside Director, or (ii) 120 months.

3. Eligibility . Any person who has served as an Outside Director for five years or more and whose years of service as an Outside Director plus age equals or exceeds 55 shall be a Participant in the Plan. In addition, any person who is an Outside Director at the time of a Change of Control or who ceases to be an Outside Director by reason of Disability or death shall be a Participant in the Plan without regard to age or service requirements. Notwithstanding the preceding two sentences, any person who becomes an Outside Director after January 1, 2004 shall not be eligible to participate in the Plan. Any Outside Director who has been removed for Cause regardless of length of service shall not be a Participant in the Plan and shall have no rights to benefits hereunder.

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4. Annual Retirement Benefit . A Participant shall be paid an Annual Retirement Benefit, in equal monthly installments commencing upon his Termination Date, for the number of months equal to the lesser of: (i) the number of months the Participant has served as an Outside Director, or (ii) 120 months. A Participant’s years of service as an Outside Director of the Bank or any predecessor of the Bank prior to the Effective Date of the Plan shall be counted as years of service as an Outside Director.

5. Benefits upon Change of Control . Notwithstanding the provisions of Section 4 hereof, a Participant whose Termination Date occurs on or after a Change of Control shall be paid his entire benefit payable under this Plan in a cash lump sum. If the Participant had completed at least two years of service as an Outside Director as of his Termination Date, his benefit shall be the Annual Retirement Benefit multiplied by ten. If the Participant had completed less than two years of service as an Outside Director as of his Termination Date, his benefit shall be the Total Retirement Benefit. The cash lump sum shall be paid as soon as practicable, but not later than 30 days after the Participant’s Termination Date.

Notwithstanding the provisions of Section 4 hereof, a Participant whose Termination Date occurred before a Change of Control shall be paid in a cash lump sum the portion of his Total Retirement Benefit not previously paid to him. The cash lump sum shall be paid as soon as practicable, but not later than 30 days after the date on which the Change of Control occurred.

6. Death of a Participant . If a Participant dies, then, except as hereafter provided with respect to a Surviving Spouse, all benefits payable hereunder shall cease and such Participant’s beneficiaries, heirs or assigns shall have no right to any benefit hereunder.

If a Participant dies with a Surviving Spouse, the Surviving Spouse shall be paid, in equal monthly installments, commencing upon the first day of the month following the Participant’s death, the remaining monthly benefit installments the Participant would have received under Section 4 if he had lived to receive all such benefits payable to him under the Plan (or the Participant’s entire benefit if the Participant’s Termination Date was due to his death).

However, in the event of a Change of Control, the remaining monthly installments payable to a Surviving Spouse shall be paid in a cash lump sum, as soon as practicable, but not later than 30 days after the occurrence of Change of Control.

All payments hereunder shall cease upon the death of a Surviving Spouse. If a Participant is predeceased by a Surviving Spouse, all benefits shall cease upon the death of the Participant.

7. Limitation on Benefits . Notwithstanding any other provision of this Plan, no benefits may be paid to a Participant if a formal cease and desist order has been entered by the Office of Thrift Supervision or the Federal Deposit Insurance Company that requires such Participant to cease participating in the conduct of the affairs of the Bank.

8. Unfunded Arrangement . This Plan shall be an unfunded arrangement, and shall not relate to any specific funds of the Bank. Payments of benefits due under the Plan shall be made from the general assets of the Bank, and a Participant or Surviving Spouse shall have only

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the rights of an unsecured creditor of the Bank with respect thereto. Notwithstanding the foregoing, the Bank shall have the right in its sole discretion to provide for the funding of payments required to be made hereunder through a trust or otherwise.

9. Administration . This Plan shall be administered by the Board of Directors of the Bank, who shall have full authority to interpret the Plan and make all factual determinations necessary therefore. No member of the Board of Directors shall be liable for any act done or determination made in good faith. The construction and interpretation of any provision of the Plan by the Board of Directors, and a determination by the Board of Directors of the amount of any Participant’s benefit under the Plan, shall be final and conclusive.

10. Amendment . The Board of Directors may amend, modify, suspend or terminate this Plan at any time; provided, however, that any amendment, modification, suspension or termination shall not affect the rights of Participants to benefits which have accrued prior to the date of amendment.

11. Non-Alienation . No Outside Director (or Surviving Spouse or estate of an Outside Director) shall have the power to transfer, assign, anticipate, mortgage or otherwise encumber any rights or any amounts payable hereunder; nor shall any such rights or payments be subject to seizure for the payment of any debts, judgments, alimony, or separate maintenance, or be transferable by operation of law in the event of bankruptcy, insolvency, or otherwise.

12. Governing Law . This Plan shall be governed by the laws of the State of New York, without reference to conflicts of law principles.

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