UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) Quarterly Report Pursuant to Section 13 or 15(d) of
[X] the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ______ to _______
Commission File No.: 0-29826
LONG ISLAND FINANCIAL CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-3453684
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Suffolk Square, Islandia, New York 11722
--------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
(516) 348-0888
----------------------------------------------------
(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; Yes ( x ) No ( ).
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The registrant had 1,776,326 shares of Common Stock outstanding as of May 7,
1999.
<PAGE>
Form 10-Q
LONG ISLAND FINANCIAL CORP.
INDEX
Page
PART I - CONSOLIDATED FINANCIAL INFORMATION Number
ITEM 1. Consolidated Financial Statements - Unaudited
Consolidated Balance Sheets at March 31, 1999
and December 31, 1998 2
Consolidated Statements of Earnings for the Three Months Ended
March 31, 1999 and 1998 3
Consolidated Statement of Changes in Stockholders' Equity
for the Three Months Ended March 31, 1999 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 5-6
Notes to Unaudited Consolidated Financial Statements 7-9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-18
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk 18-19
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 20
ITEM 2. Changes in Securities 20
ITEM 3. Defaults Upon Senior Securities 20
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 20
Signatures 21
- - --------------------------------------------------------------------------------
Statements contained in this Form 10-Q which are not historical facts are
forward- looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risk and uncertainties which could cause actual results to differ materially
from those projected. Such risks and uncertainties include potential changes in
interest rates, competitive factors in the financial services industry, general
economic conditions, the effect of new legislation and other risks detailed in
documents filed by the Company with the Securities and Exchange Commission from
time to time.
- - --------------------------------------------------------------------------------
1
<PAGE>
PART I - CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements - Unaudited
<TABLE>
<CAPTION>
LONG ISLAND FINANCIAL CORP.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
March 31, December 31,
1999 1998
-------- ------------
Assets:
<S> <C> <C> <C>
Cash and due from banks................................................. $ 6,262 13,170
Interest earning deposits............................................... 222 269
Federal funds sold...................................................... 10,800 8,050
------ ------
Total cash and cash equivalents........................... 17,284 21,489
Securities held-to-maturity, net
(estimated fair value of $576 and $665, respectively).................. 574 664
Securities available-for-sale........................................... 143,457 145,155
Loans receivable, net................................................... 97,828 94,144
Premises and equipment, net............................................. 2,206 1,975
Accrued interest receivable............................................. 2,183 1,614
Prepaid expenses and other assets....................................... 7,314 1,502
------- -------
Total assets.............................................. $ 270,846 266,543
======= =======
Liabilities and Stockholders' Equity:
Deposits:
Demand deposits..................................................... $ 30,461 36,605
Savings deposits.................................................... 21,545 12,476
NOW and money market deposits....................................... 47,224 71,689
Time certificates issued in excess of $100,000...................... 29,168 18,998
Other time deposits................................................. 79,046 78,099
------- -------
Total deposits............................................ $ 207,444 217,867
======= =======
Borrowed funds.......................................................... 39,000 24,000
Accrued expenses and other liabilities .............................. 2,972 2,808
------- -------
Total liabilities......................................... 249,416 244,675
======= =======
Stockholders' equity:
Common stock (par value $.01 per share, authorized
10,000,000 shares, issued and outstanding
1,776,326 and 1,771,306 shares, respectively)..................... 18 18
Surplus .......................................................... 20,185 20,126
Accumulated surplus................................................. 1,746 1,659
Accumulated other comprehensive income:
Net unrealized (depreciation) appreciation in available-for-
sale securities, net of tax....................................... (519) 65
-------- -------
Total stockholders' equity................................ 21,430 21,868
-------- -------
Total liabilities and stockholders' equity................ $ 270,846 266,543
======== ========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
LONG ISLAND FINANCIAL CORP.
Consolidated Statements of Earnings
(Unaudited)
(In thousands, except share data)
For the Three Months
Ended March 31,
---------------------
1999 1998
-------- --------
<S> <C> <C> <C>
Interest income:
Interest earning deposits $ 2 4
Federal funds sold 138 99
Securities 2,348 1,910
Interest and fees on loans 2,063 1,822
----- -----
Total interest income 4,551 3,835
----- -----
Interest expense:
Savings deposits 131 22
NOW and money market deposits 325 228
Time certificates issued in excess of $100,000 342 454
Other time deposits 1,134 1,247
Borrowed funds 442 115
----- -----
Total interest expense 2,374 2,066
----- -----
Net interest income 2,177 1,769
Provision for possible loan losses 150 90
----- -----
Net interest income after provision
for possible loan losses 2,027 1,679
Other operating income:
Service charges on deposit accounts 143 77
Mortgage banking operations 143 -
Other 31 35
----- -----
Total other operating income 317 112
Other operating expenses:
Salaries and employee benefits 939 573
Occupancy expense 135 85
Premises and equipment expense 174 109
Other 574 420
----- -----
Total other operating expenses 1,822 1,187
----- -----
Income before provision for income taxes 522 604
Provision for income taxes 190 242
----- -----
Net income $ 332 362
----- -----
Basic and diluted earnings per share $ 0.19 0.21
===== =====
Weighted average shares outstanding 1,775,991 1,760,432
--------- ---------
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
LONG ISLAND FINANCIAL CORP.
Consolidated Statement of Changes in Stockholders' Equity
For the Three Months Ended March 31, 1999
(Unaudited)
(In thousands, except share data)
Accumulated
other
Common Accumulated comprehensive
stock Surplus surplus income Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 18 20,126 1,659 65 21,868
Dividend reinvestment and stock
purchase plan, issued 5,020 shares - 59 - - 59
Dividends declared on common
stock ($.08 per common share) - - (142) - (142)
Corporate reorganization costs (103) - (103)
Comprehensive income: (1)
Net income for the period - - 332 - 332
Other comprehensive income,
net of tax:
Unrealized depreciation in available-
for-sale securities, net of
reclassification adjustment (2) - - - (584) (584)
------ ------- ------ ------- -------
Total comprehensive income (loss) (252)
Balance at March 31, 1999 $ 18 20,185 1,746 (519) 21,430
------ ------- ------ ------- -------
<FN>
(1) The Company's comprehensive income for the three months ended March 31, 1998 was $299,000.
(2) Disclosure of reclassification amount:
March 31, 1999
Comprehensive income items, net of tax ------------------
Unrealized (loss) in available-for-sale securities, (584)
arising during the period
Less: Reclassification adjustment for gains included in income -
--------------
Net unrealized depreciation (584)
See accompanying notes to unaudited consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
LONG ISLAND FINANCIAL CORP.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
For the Three Months
Ended March 31,
---------------------
1999 1998
---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 332 362
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Provision for possible loan losses 150 90
Depreciation and amortization 138 76
Amortization of premiums, net
of discount accretion (46) 68
Proceeds and gains from sales of loans held-for-
sale, net of originations 1,103 -
Net deferred loan origination fees 54 33
Deferred income taxes (35) 30
Changes in asset and liability accounts:
Accrued interest receivable (569) (33)
Accrued expenses and other liabilities 210 681
Prepaid expenses and other assets (5,408) (179)
Net cash (used in) provided by ------- ------
operating activities (4,071) 1,128
------- ------
Cash flows from investing activities:
Purchases of securities available-for-sale (113,068) (103,126)
Proceeds from maturities of securities 108,695 88,500
Principal repayments on securities 5,208 3,549
Loan originations and principal
repayments on loans, net (4,991) (2,456)
Purchase of premises and equipment (369) (295)
------- --------
Net cash used in investing activities (4,525) (13,828)
------- --------
Cash flows from financing activities:
Net decrease in demand deposit
accounts, NOW accounts, money
market and savings accounts (21,540) (34,791)
Net increase in certificates of deposit 11,117 18,466
Payments for cash dividends (142) (140)
Net increase in borrowings 15,000 14,000
Proceeds from shares issued under the
dividend reinvestment plan 59 44
Corporate reorganization costs (103) -
Net cash provided by (used in) -------- --------
financing activities 4,391 (2,421)
-------- --------
Net decrease in cash and cash equivalents (4,205) (15,121)
Cash and cash equivalents at beginning of period 21,489 29,764
------- --------
Cash and cash equivalents at end of period $ 17,284 14,643
======= ========
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
(Continued)
LONG ISLAND FINANCIAL CORP.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
For the Three Months
Ended March 31,
---------------------
1999 1998
--------- -------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 2,212 1,649
===== =====
Income taxes $ - 29
===== =====
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
6
<PAGE>
LONG ISLAND FINANCIAL CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Long Island Financial Corp. (the "Company") and its wholly-owned
subsidiary, Long Island Commercial Bank (the "Bank"). Significant intercompany
accounts and transactions have been eliminated in consolidation.
The unaudited consolidated financial statements included herein reflect all
normal recurring adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods presented. The
results of operations for the three months ended March 31,1999 are not
necessarily indicative of the results of operations that may be expected for the
entire fiscal year. Certain information and note disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain reclassifications
have been made to prior year amounts to conform to the current year
presentation.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto, included
in the Company's 1998 Annual Report on Form 10-K.
2. REORGANIZATION
At a special meeting on December 8, 1998, the stockholders of Long Island
Commercial Bank approved a Plan of Acquisition dated as of September 15, 1998,
which subsequently became effective January 28, 1999, and as a result of which:
(i) the Bank became a wholly-owned subsidiary of Long Island Financial Corp., a
Delaware corporation; and (ii) all of the outstanding shares of the Bank's
common stock were converted, subject to dissenter's rights, on a one-for-one
basis, into outstanding shares of the common stock of Long Island Financial
Corp. No stockholders asserted dissenter's rights. This transaction is
hereinafter referred to as the "Reorganization".
The Reorganization created a bank holding company structure which provides
greater operating flexibility by allowing the Company to conduct a broader range
of business activities and permits the Board of Directors of the Company to
determine whether to conduct such activities in the Bank or in separate
subsidiaries of the Company. Finally, the reorganization will permit expansion
into a broader range of financial services and other business activities that
are not currently permitted to the Bank as a New York state-chartered commercial
bank. Such activities include, among others, operating non-bank depository
institutions or engaging in financial and investment advisory services,
securities brokerage and management consulting activities. Costs to effect the
Reorganization amounting to $103,000 were charged against accumulated surplus.
7
<PAGE>
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. SFAS No. 133 is effective for fiscal
years beginning after June 15, 1999 and does not require restatement of prior
periods. Management of the Company believes the implementation of SFAS No. 133
will not have a material impact on the Company's financial condition or results
of operations.
4. SECURITIES
The following table sets forth certain information regarding amortized cost and
estimated fair values of the securities held-to-maturity and available-for-sale
as of the dates indicated:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
----------------------------------------------------
Estimated Estimated
Amortized fair Amortized fair
cost value cost value
-----------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Held-to-maturity, net:
Mortgage-backed securities:
CMO $ 574 576 664 665
====== ====== ====== ======
Available-for-sale:
U.S. Government and Agency Obligations $ 73,073 72,246 78,994 78,980
Mortgage-backed securities:
GNMA 46,847 46,658 39,864 39,771
FHLMC 1,903 1,934 2,453 2,487
FNMA 4,866 4,881 6,060 6,097
Municipal obligations 12,854 12,936 12,855 13,002
Other debt securities 183 183 199 199
------- ------- ------- -------
Total debt securities 139,726 138,838 140,425 140,536
Equity securities - FHLB stock 4,619 4,619 4,619 4,619
------- ------- ------- -------
Total securities available-for-sale $ 144,345 143,457 145,044 145,155
======= ======= ======= =======
</TABLE>
8
<PAGE>
5. LOANS RECEIVABLE, NET
Loans receivable, net consist of the following as of the dates indicated:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial loans $ 30,103 30.2 % $ 30,853 32.1 %
Commercial real estate loans 62,375 62.6 53,990 56.2
Automobile loans 5,546 5.6 8,262 8.6
Consumer loans 1,229 1.2 1,396 1.5
Residential real estate loans held-for-sale 383 .4 1,486 1.6
------ ----- ------ -----
99,636 100.0 % 95,987 100.0 %
Less:
Unearned income $ 232 362
Deferred fees, net 464 410
Allowance for possible loan losses 1,112 1,071
------ ------
97,828 94,144
====== ======
</TABLE>
6. RECENT DEVELOPMENTS
On March 9, 1999, the Board of Directors of the Company declared a quarterly
dividend of eight cents ($0.08) per common share. The dividend was paid on April
1, 1999 to shareholders' of record as of March 24, 1999.
7. SUBSEQUENT EVENT
On April 15, 1999 the Board of Directors of the Company, approved the repurchase
of up to 10% of it's Common Stock outstanding from time to time in the open
market or through private purchases depending on market conditions.
9
<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
General
Long Island Commercial Bank, the subsidiary of Long Island Financial Corp., is a
New York state-chartered commercial bank, founded in 1989, which is engaged in
commercial banking in Islandia, New York and the surrounding communities in
Suffolk and Nassau counties. The Bank offers a broad range of commercial and
consumer banking services, including loans to and deposit accounts for small and
medium-sized businesses, professionals, high net worth individuals and
consumers. The Bank is an independent local bank, emphasizing personal attention
and responsiveness to the needs of its customers. The Bank's senior management
has substantial banking experience, and senior management and the Board of
Directors of the Bank have extensive commercial and personal ties to the
communities in Nassau and Suffolk Counties, New York.
The Bank's goal is to increase its lending, especially commercial lending and
extend its deposit base. Management believes this can best be accomplished by
the expansion of its branch network. At March 31, 1999, the Bank operates six
branches in Nassau and Suffolk Counties. The Bank plans on opening more branches
in its market area and expects to have a network of up to 10 branches in place
by December 31, 2000. With an expanded branch network in place, the Bank
believes it can increase its lending and deposit bases by emphasizing personal
attention and responsiveness to the needs of its customers. Lending growth will
be funded by deposits, which may include seasonal municipal deposits.
During 1998, the Bank began originating residential real estate loans primarily
in its market area of Nassau and Suffolk counties. Currently, the Bank sells
residential real estate loans together with the servicing rights to these loans
on a non-recourse basis to institutional investors. The Bank limits its exposure
to interest rate fluctuations and credit risk on these loans by obtaining, at
the point of origination, a commitment from an institutional investor to
purchase that loan from the Bank. Furthermore, by selling the servicing rights
to the loans, the Bank avoids the associated risks and expenses of managing and
servicing a loan portfolio. Mortgage banking income is generated from the
premiums received on the sale of loans and servicing rights, coupled with fees
charged and interest earned during the period the Bank holds the loans for sale.
Financial Condition
The Company's total assets were $270.8 million as of March 31, 1999,
representing a 1.6% increase over total assets reported as of December 31, 1998.
A contributing factor to the growth in total assets was an increase of $3.7
million, or 3.9%, in loans receivable, net, despite runoff in the automobile
loan portfolio of $2.7 million or 32.9% during the quarter ended March 31, 1999.
Prepaid expenses and other assets grew by $5.8 million primarily as a result of
the purchase of bank owned life insurance, covering the directors and executive
officers of the Bank. The purchase of this insurance provides benefits to both
the Bank and the covered employees. Future increases in the cash surrender value
of the insurance will be reflected in other operating income.
Offsetting asset growth was a decline in cash and cash equivalents of $4.2
million, or 19.6%, attributable to the timing of seasonal municipal deposits
which were not on deposit at March 31, 1999.
10
<PAGE>
Total deposits decreased $10.4 million, or 4.8%, from $217.9 million at December
31, 1998 to $207.4 million at March 31, 1999, primarily reflecting a decrease in
NOW and money market deposits. The decrease in NOW and money market deposits of
$24.5 million, or 34.1%, from $71.7 million at December 31, 1998 to $47.2
million at March 31, 1999 is attributable to the timing of seasonal municipal
deposits, which were not on deposit at March 31, 1999. In addition, the decrease
in demand deposits of $6.1 million, or 16.8% was also attributable to the effect
of the seasonal municipal deposits. The effect of these declines were offset in
part by a $10.2 million increase in time deposits in excess of $100,000. Savings
deposits increased by $9.1 million, or 72.7%, from December 31, 1998 to March
31, 1999, as a result of new products offering competitive rates to higher
balance accounts while reducing the Company's overall cost of funds.
Borrowed funds increased by $15.0 million, or 62.5%, from $24.0 million at
December 31, 1998 to $39.0 million at March 31, 1999, resulting from the
continuation of the Company's leveraging strategy in the first quarter of 1999.
Stockholders' equity amounted to $21.4 million at March 31, 1999 compared to
$21.9 million at December 31, 1998. This decline was primarily attributable to a
decrease in the unrealized appreciation in available-for- sale securities, net
of tax of approximately $584,000, offset in part by net income of $332,000.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
upon the volume of interest-earning assets and interest-bearing liabilities and
the interest rates earned or paid on them.
The following table sets forth certain information relating to the Company's
average balance sheets and its statements of earnings for the three months ended
March 31, 1999 and 1998, and reflects the average yield on interest-earning
assets and average cost of interest-bearing liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense,
annualized, by the average balance of interest-earning assets or
interest-bearing liabilities, respectively. Average balances are derived from
average daily balances. Average balances and yields include non-accrual loans.
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------
1999 1998
---- ----
Average Average
Average Yield / Average Yield /
Balance Interest Cost Balance Interest Cost
----------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Federal funds sold and
interest-earning deposits $ 12,140 $ 140 4.61 % $ 7,551 $ 103 5.46 %
Securities held-to-maturity and
available-for-sale, net (5) 145,294 2,210 6.08 114,679 1,910 6.66
Municipal obligations (4) 12,854 206 6.41 - - -
Loans receivable, net (1) 96,883 2,063 8.52 79,832 1,822 9.13
------- ----- ------- -----
Total interest-earning assets 267,171 4,619 6.92 202,062 3,835 7.59
----- -----
Non-interest-earning assets 17,054 10,861
------- -------
Total assets $ 284,225 $ 212,923
======= =======
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Savings deposits $ 16,791 $ 131 3.12 $ 3,485 $ 22 2.53
NOW and money market deposits 68,116 325 1.91 39,919 228 2.28
Certificates of deposit 106,489 1,476 5.54 114,842 1,701 5.92
------- ----- ------- -----
Total interest-bearing deposits 191,396 1,932 4.04 158,246 1,951 4.93
Borrowed funds 36,458 442 4.85 8,375 115 5.49
------- ----- ------- -----
Total interest-bearing liabilities 227,854 2,374 4.17 166,621 2,066 4.96
Other non-interest bearing liabilities 34,619 ----- 24,813 -----
------- -------
Total liabilities 262,473 191,434
Stockholders' Equity 21,752 21,489
Total liabilities and stockholders' ------- -------
equity $ 284,225 $ 212,923
======= =======
Net interest income/interest rate spread (2)(4) $ 2,245 2.75 % $ 1,769 2.63 %
===== ==== ===== ====
Net interest margin (3) 3.36 % 3.50 %
==== ====
Ratio of interest-earning assets to
interest-bearing liabilities 117.26 % 121.27 %
====== ======
<FN>
(1) Amount is net of residential real estate loans held-for-sale, deferred
loan fees and allowance for possible loan losses and includes non-performing loans.
(2) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average
interest-earning assets.
(4) Interest income and yields are presented on a fully-taxable equivalent
basis using the Federal statutory income tax rate of 34%.
(5) Securities held-to-maturity and available-for-sale, net exclude municipal
obligations.
</FN>
</TABLE>
12
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
March 31, 1999 and 1998
General
Net income for the three months ended March 31, 1999 decreased by $30,000, or
8.3%, to $332,000 from $362,000 for the corresponding period in 1998. The
decrease was attributable to an increase in other operating expenses of
$635,000, or 53.5%, despite increases in other operating income of $205,000, or
183.0%, and net interest income of $408,000, or 23.1%.
Interest Income
Interest income, on a fully-taxable equivalent basis, increased $784,000,
or 20.4%, from $3.8 million for the three months ended March 31, 1998 to $4.6
million for the three months ended March 31, 1999. This was attributable to an
increase in the average balance of total interest-earning assets of $65.1
million, or 32.2%, from $202.1 million for the three months ended March 31,
1998. The average balance of securities held-to-maturity and available-for-sale,
net (exclusive of municipal obligations) increased $30.6 million, or 26.7%, with
a decrease in the average yield from 6.66% for the three months ended March 31,
1998 to 6.08% for the comparable period in 1999. The Company began purchasing
municipal obligations in the second quarter of 1998, because the taxable
equivalent yields on these securities were attractive. For the three months
ended March 31, 1999 the average balance of municipal obligations was $12.9
million, with a tax equivalent yield of 6.41%. The average balance of loans
receivable, net increased $17.1 million, or 21.4% from $79.8 million for the
three months ended March 31, 1998 compared to $96.9 million for the same period
in 1999. The average yield on loans receivable, net decreased 61 basis points
from 9.13% for the three months ended March 31, 1998 to 8.52% for the comparable
period in 1999. This decrease reflects the Company's growth in the commercial
real estate portfolio at lower rates as a result of increased competitive
pricing in 1999.
Interest Expense
Interest expense increased $308,000, or 14.9% from $2.1 million for the three
months ended March 31, 1998 to $2.4 million for the three months ended March 31,
1999. This was attributable to an increase in the average balance of total
interest-bearing liabilities for the period of $61.2 million, or 36.7%, to
$227.9 million for the three months ended March 31, 1999 from $166.6 million for
the comparable 1998 period. The growth reflected an increase in the average
balance of interest-bearing deposits of $33.2 million, or 21.0%, coupled with an
increase in the average balances of borrowed funds of $28.1 million, or 335.3%.
The average rate paid on interest-bearing deposits decreased 89 basis points for
the three month period ended March 31, 1999 to 4.04% in comparison to 4.93% for
the same period in 1998. The decrease reflects the growth in lower cost deposits
as a result of increased sales efforts in late 1998 and early 1999. The average
balance of savings deposits has increased by $13.3 million, or 381.8%, and the
average balance of NOW and money market deposits has increased by $28.2 million,
or 70.6%. These increases reflect the introduction of new deposit products and
services, as well as an increased emphasis on sales throughout the Company. In
addition, the average balance of certificates of deposit has decreased by $8.4
million as the Company continues to focus on reducing its cost of funds. In
addition, the average cost of borrowed funds also decreased 64 basis points to
4.85% for the three months ended March 31, 1999 from 5.49% for the comparable
period in 1998 due to increased borrowings throughout 1998 and 1999, at lower
market rates.
13
<PAGE>
Net Interest Income
Net interest income on a fully-taxable equivalent basis increased by $476,000,
or 26.9%, from $1.8 million for the three months ended March 31, 1998 to $2.2
million for the three months ended March 31, 1999. The average cost of total
interest-bearing liabilities for the period decreased 79 basis points to 4.17%
in 1999 from 4.96% in 1998. The average yield on interest-earning assets
decreased by 67 basis points to 6.92% in 1999 from 7.59% in 1998. The net
interest rate spread increased by 12 basis points from 2.63% in 1998 to 2.75% in
1999.
Provision for Possible Loan Losses
The Company's provision for possible loan losses was $150,000 for the three
months ended March 31, 1999, compared to $90,000 for the same period in 1998.
This increase generally reflects the growth within the loan portfolio, the
average balance of which increased by $17.1 million, or 21.4%, to $96.9 million
for the three months ended March 31, 1999. Management of the Company assesses
the adequacy of the allowance for possible loan losses based on evaluating known
and inherent risks in the loan portfolio and upon management's continuing
analysis of the factors underlying the quality of the loan portfolio. While
management believes that, based on information currently available, the
Company's allowance for possible loan losses is sufficient to cover losses
inherent in its loan portfolio at this time, no assurances can be given that the
Company's level of allowance for possible loan losses will be sufficient to
cover future possible loan losses incurred by the Company or that future
adjustments to the allowance for possible loan losses will not be necessary if
economic and other conditions differ substantially from the economic and other
conditions used by management to determine the current level of the allowance
for possible loan losses. Management may in the future increase its level of
allowance for possible loan losses as a percentage of total loans and
non-performing loans in the event it increases the level of commercial real
estate, commercial, construction or consumer lending as a percentage of its
total loan portfolio. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Company's allowance
for possible loan losses.
The following table sets forth information regarding non-accrual loans, loans
delinquent 90 days or more and still accruing interest at the dates indicated.
It is the Company's general policy to discontinue accruing interest on all loans
which are past due 90 days or when, in the opinion of management, such
suspension is warranted. When a loan is placed on non-accrual status, the
Company ceases the accrual of interest owed and previously accrued interest is
charged against interest income. Loans are generally returned to accrual status
when principal and interest payments are current, there is reasonable assurance
that the loan will be fully collectible and a consistent record of performance
has been demonstrated.
14
<PAGE>
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
----------------- -------------------
(In thousands)
<S> <C> <C> <C>
Non-accrual loans:
Commercial and industrial loans $ 282 366
Automobile loans 8 37
Consumer loans 90 108
---- ----
Total non-accrual loans 380 511
Loans contractually past due 90 days or
more, other than non-accruing (2) - -
---- ----
Total non-performing loans $ 380 511
==== ====
Allowance for possible loan losses as a percentage
of loans (1) 1.12 % 1.12 %
Allowance for possible loan losses as a percentage
of total non-performing loans 292.63 % 209.59 %
Non-performing loans as a percentage of loans (1) .38 % .54 %
- - ------------------
<FN>
(1) Loans include loans receivable, net excluding the allowance for possible
loan losses.
(2) Excludes $210,000 and $378,000 of loans which have matured, however, are current with respect
to scheduled periodic principal and/or interest payments. The Company is in the process of
renewing these obligations and/or awaiting anticipated repayment.
</FN>
</TABLE>
Other Operating Income
Other operating income increased $205,000, or 183.0%, to $317,000 for the three
months ended March 31, 1999 compared to $112,000 for the three months ended
March 31, 1998. The increase was primarily attributable to the establishment of
the Company's residential mortgage department in May 1998 and fee income
associated with the origination and sale of residential mortgages. Such fees
amounted to approximately $143,000 for the three months ended March 31, 1999. In
addition, service charges on deposit accounts increased by $66,000, or 85.7%,
reflecting the growth in the Company's depositor base and an overall increase in
the Company's fee schedule.
Other Operating Expense
Other operating expenses increased $635,000, or 53.5%, from $1.2 million for the
three months ended March 31, 1998. Salaries and employee benefits increased by
$366,000, or 63.9%, to $939,000 for the three months ended March 31, 1999,
reflecting a substantial increase in staff in connection with the Company's
branch expansion, opening of a residential mortgage department, continued
internal growth, and the strengthening of the Company's middle-management to
support the planned growth. The number of full time equivalent employees
increased from 51 at March 31, 1998 to 70, or 37%, at March 31, 1999. Occupancy
expense for the three months ended March 31, 1999 was $135,000, compared to
$85,000 for the 1998 period, an increase of $50,000, or 58.8%, reflecting the
branch expansion and main office expansion to support operations growth. The
branch expansion also contributed to the growth in expenses in other categories
of other operating expenses.
15
<PAGE>
Income taxes
Total income tax expense decreased $52,000, or 21.5%, from $242,000 for the
three months ended March 31, 1998 to $190,000 for the three months ended March
31, 1999. The decrease is attributable to a decrease in income before provision
for income taxes of $82,000, or 13.6%, combined with the purchase of
approximately $12.9 million of tax exempt municipal obligations in 1998.
Liquidity
Liquidity management for the Company requires that funds be available to pay all
deposit withdrawal and maturing financial obligations and meet credit funding
requirements promptly and fully in accordance with their terms. Over a very
short time frame, for most banks, including the Bank, maturing assets provided
only a limited portion of the funds required to pay maturing liabilities. The
balance of the funds required is provided by liquid assets and the acquisition
of additional liabilities, making liability management integral to liquidity
management in the short term.
The primary investing activities of the Company are the purchase of securities
available-for-sale and the originations of loans. During the three months ended
March 31, 1999 and 1998, the Company's purchases of securities were all
classified available-for-sale and totaled $113.1 million and $103.1 million,
respectively. Loan originations net of principal repayments on loans, totaled
$3.5 million and $2.5 million, for the three months ended March 31, 1999 and
1998, respectively. These activities were funded primarily by borrowings and
principal repayments and maturities on securities.
The Company maintains levels of liquidity that it considers adequate to meet its
current needs. The Company's principal sources of cash include incoming
deposits, the repayment of loans and conversion of investment securities. When
cash requirements increase faster than cash is generated, either through
increased loan demand or withdrawal of deposited funds, the Company can arrange
for the sale of loans and liquidate available-for-sale securities and access its
lines of credit, totaling $3.5 million with unaffiliated financial institutions
which enable it to borrow federal funds on an unsecured basis. In addition, the
Company has available lines of credit with the Federal Home Loan Bank of New
York (FHLB) equal to 8.0% of the Company's assets, which enable it to borrow
funds on a secured basis. The Company could also engage in other borrowings,
including reverse repurchase agreements.
At March 31, 1999, the Company's borrowings consisted of convertible advances
from the FHLB. The convertible feature of these advances allows the FHLB, at a
specified call date and quarterly thereafter, to convert these advances into
replacement funding for the same or lesser principal amount, based on any
advance then offered by the FHLB, at then current market rates. If the FHLB
elects to convert these advances, the Bank may repay any portion of the advances
without penalty. These convertible advances are secured by various
mortgage-backed and callable agency securities. At March 31, 1999, convertible
advances outstanding were as follows:
<TABLE>
<CAPTION>
Interest Call Contractual
Amount Rate Date Maturity
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 14,000,000 5.49% 02/19/2003 02/19/2008
$ 10,000,000 4.24% 10/08/2000 10/08/2008
$ 15,000,000 4.59% 01/21/2002 01/21/2009
</TABLE>
16
<PAGE>
Management of the Company has set minimum liquidity level of 10% as a target.
The Company's average liquid assets (cash and due from banks, federal funds
sold, interest earning deposits with other financial institutions and investment
securities available-for-sale, less securities pledged as collateral) as a
percentage of average assets of the Company during the three months ended March
31, 1999 was 21.4%. The Company's strategic plan is to build its core business
by generating and maintaining banking relationships with small and medium-sized
privately owned businesses, professional firms and high net worth individuals
within its market area.
Capital Resources
The Bank is subject to the risk based capital guidelines administered by the
banking regulatory agencies. The risk based capital guidelines are designed to
make regulatory capital requirements more sensitive to differences in risk
profiles among banks to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Under the guidelines, assets and
off-balance sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk weighted assets and off-balance sheet items. The
guidelines currently require all banks to maintain a minimum ratio of total risk
based capital to total risk weighted assets of 8%, including a minimum ratio of
Tier 1 capital to total risk weighted assets of 4% and a Tier 1 capital to
average adjusted assets of 4%. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators, that, if undertaken, could have a direct material effect on the
Bank's financial statements. As of December 31, 1998, the most recent
notification from the federal banking regulators categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. Under
the capital adequacy guidelines, a well capitalized institution must maintain a
minimum total risk based capital to total risk weighted assets ratio of at least
10%, a minimum Tier 1 capital to total risk weighted assets ratio of at least
6%, a minimum leverage ratio of at least 5% and not be subject to any written
order, agreement or directive. There are no conditions or events since such
notification that management believes have changed this classification.
In accordance with the requirements of FDIC and the New York State Banking
Department, the Bank must meet certain measures of capital adequacy with respect
to leverage and risk-based capital. As of March 31, 1999, the Bank exceeded
those requirements with a leverage capital ratio, and risk-based capital ratio
and total-risk based capital ratio of 7.69%, 16.56% and 17.41%, respectively.
Year 2000
The Company has initiated a program, consistent with guidelines issued by the
Federal Financial Institutions Examination Council (FFIEC), to prepare the
Company's computer systems and software applications for the year 2000. As of
December 31, 1998, phases one and two of the FFIEC guidelines have been
completed on schedule. The Company uses purchased software products for all of
its internal transaction processing applications; therefore, no significant
internal programming is necessary to prepare these systems to handle
transactions in the year 2000. The majority of the Company's efforts in
preparation for year 2000 processing relate to testing purchased and outsourced
processing systems, as well as updating databases.
17
<PAGE>
The Company's primary application, which handles processing of loans, deposits,
and general ledger, has been certified as year 2000 compliant by the vendor. As
of December 31, 1998, the Company has completed extensive testing of all
critical internal applications and the test results have not indicated any year
2000 related issues. As part of our ongoing efforts to assess and minimize
potential risks associated with the year 2000, management has completed an
evaluation of its customer base and is continuing its efforts with such
customers to discuss the status of their year 2000 readiness.
As of March 31,1999, the Bank had developed its business resumption plan
considering the potential impact of disruptions in all critical and non-critical
applications from within and from third-party business partners and
infrastructure providers, despite the Company having completed reasonable
testing and certification of its internal computer systems. The plan will be
tested by June 30, 1999.
Monitoring and managing the year 2000 project results in additional direct and
indirect costs to the Company. Direct costs include potential charges by
third-party software vendors for product enhancements and costs involved in
testing software products for the year 2000 compliance. Indirect costs
principally consist of the time devoted by existing employees in monitoring
software vendor progress, testing enhanced software products and the development
of the business resumption plan. The Company does not believe that such costs
will have a material effect on results of operations. Both direct and indirect
costs of addressing the year 2000 issue will be charged to earnings as incurred.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The principal objective of the Company's interest rate management is to evaluate
the interest rate risk inherent in certain balance sheet accounts, determine the
level of risk appropriate given the Company's business strategy, operating
environment, capital and liquidity requirements and performance objectives, and
manage the risk consistent with the Board of Directors approved guidelines.
Through such management, the Company seeks to reduce the vulnerability of it
operations to changes in interest rates. The Board has directed the Investment
Committee to review the Company's interest rate risk position on a quarterly
basis.
Funds management is the process by which the Company seeks to maximize the
profit potential which is derived from the spread between the rates earned on
interest-earning assets and the rates paid on interest- bearing liabilities
through the management of various balance sheet components. It involves
virtually every aspect of the Company's management and decision-making process.
Accordingly, the Company's results of operations and financial condition are
largely dependent on the movements in the market interest rates and its ability
to manage its assets and liabilities in response to such movements.
At March 31, 1999, 78.2% of the Company's gross loans had adjustable interest
rates and its loan portfolio had an average weighted maturity of 7.1 years. At
such date, $29.3 million, or 20.3%, of the Company's securities had adjustable
interest rate, and its securities portfolio had a weighted average maturity of
5.8 years. At March 31, 1999, the Company had $57.0 million of certificates of
deposit with maturities of one year or less and $29.2 million of deposits over
$100,000, which tend to be less stable sources of funding as compared to core
deposits and represented 39.9% of the Company's interest- bearing liabilities.
Due to the Company's level of shorter term certificates of deposit, the
Company's cost of funds may increase at a greater rate in a rising rate
environment than if it had a greater amount of core deposits which, in turn, may
adversely affect net interest income and net income. Accordingly, in a
18
<PAGE>
rising interest rate environment, the Company's interest-bearing liabilities may
adjust upwardly more rapidly than the yield on its adjustable-rate loans,
adversely affecting the Company's net interest rate spread, net interest income
and net income.
The Company's interest rate sensitivity is monitored by management through the
use of a quarterly interest rate risk analysis model which evaluates (i) the
potential change in the net interest income over the succeeding four quarter
period and (ii) the potential change in the fair market value of equity of the
Company ("Net Economic Value of Equity"), which would result from an
instantaneous and sustained interest rate change of zero and plus or minus 200
basis point increments.
At March 31, 1999, the effect of instantaneous and sustained interest rate
changes on the Company's net interest income and Net Economic Value of Equity
are as follows:
<TABLE>
<CAPTION>
Change in Potential Change in Potential Change in
Interest Rates Net Interest Income Net Economic Value of Equity
in Basis Points $ Change % Change $ Change % Change
--------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
200 $ 1,327 13.64 % $ (9,420) (41.25) %
100 725 7.45 (3,964) (17.36)
Static - - - -
(100) (1,183) (12.16) 5,143 22.52
(200) (2,537) (26.08) 8,751 38.32
</TABLE>
19
<PAGE>
PART II - OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
( a ) The Company's Annual Meeting of Stockholders was held on April 22, 1999.
( b ) Not applicable.
( c ) At such meeting, the shareholders approve the following matters:
1. The election of the following individuals as Directors for a term of 3 years
each:
<TABLE>
<CAPTION>
Votes Votes Broker
For Withheld Abstentions Non-Votes
<S> <C> <C> <C> <C>
Harvey Auerbach 1,363,148 119,250 - -
Perry B. Duryea 1,363,398 119,000 - -
Frank J. Esposito 1,363,348 119,050 - -
Roy M. Kern 1,363,598 118,800 - -
Douglas C. Manditch 1,363,598 118,800 - -
</TABLE>
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.0 Statement Re: Computation of Per Share Earnings
27.0 Financial Data Schedule
(b) Reports on Form 8-K
On April 30, 1999, the Registrant filed a Form 8-K, which
included a copy of the Company's press release announcing
earnings for the quarter ended March 31, 1999, and the
repurchase of up to 10% of its Common Stock outstanding.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized.
LONG ISLAND FINANCIAL CORP.
(Registrant)
Date: May 14, 1999 By: /S/ Douglas C. Manditch
------------------------
Douglas C. Manditch
President and
Chief Executive Officer
Date: May 14, 1999 By: /S/ Thomas Buonaiuto
------------------------
Thomas Buonaiuto
Vice President and
Treasurer
21
<PAGE>
Exhibit 11.0 Computation Of Per Share Earnings
Long Island Commercial Bank
Statement Re: Computation of Per Share Earnings
(In thousands, except for share amounts)
Three Months Ended
March 31, 1999
--------------
Net income............................................... $ 332
Weighted average common shares outstanding............... 1,775,991
Basic and diluted earnings per common and common
share equivalents........................................ $ .19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001070517
<NAME> LONG ISLAND FINANCIAL CORP.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 17,284
<INT-BEARING-DEPOSITS> 222
<FED-FUNDS-SOLD> 10,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 143,457
<INVESTMENTS-CARRYING> 574
<INVESTMENTS-MARKET> 576
<LOANS> 97,828
<ALLOWANCE> 1,112
<TOTAL-ASSETS> 270,846
<DEPOSITS> 207,444
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,972
<LONG-TERM> 39,000
0
0
<COMMON> 18
<OTHER-SE> 21,412
<TOTAL-LIABILITIES-AND-EQUITY> 270,846
<INTEREST-LOAN> 2,063
<INTEREST-INVEST> 2,348
<INTEREST-OTHER> 140
<INTEREST-TOTAL> 4,551
<INTEREST-DEPOSIT> 1,932
<INTEREST-EXPENSE> 2,374
<INTEREST-INCOME-NET> 2,177
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,822
<INCOME-PRETAX> 522
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 332
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
<YIELD-ACTUAL> 2.75
<LOANS-NON> 380
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,071
<CHARGE-OFFS> 112
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 1,112
<ALLOWANCE-DOMESTIC> 1,112
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
