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 June 30, 2000
OR
( X ) 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
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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 11749
--------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(631) 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 1,598,826 shares of Common Stock outstanding as of August 11,
2000.
<PAGE>
Form 10-Q
LONG ISLAND FINANCIAL CORP.
INDEX
Page
PART I - FINANCIAL INFORMATION Number
ITEM 1. Consolidated Financial Statements - Unaudited
Consolidated Balance Sheets at June 30, 2000
and December 31, 1999 2
Consolidated Statements of Earnings for the Three Months
and Six Months Ended June 30, 2000 and 1999 3
Consolidated Statement of Changes in Stockholders' Equity
for the Six Months Ended June 30, 2000 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 23
ITEM 2. Changes in Securities and Use of Proceeds 23
ITEM 3. Defaults Upon Senior Securities 23
ITEM 4. Submission of Matters to a Vote of Security Holders 23
ITEM 5. Other Information 23
ITEM 6. Exhibits and Reports on Form 8-K 23
Signatures 24
================================================================================
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
risks 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>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
------- ---------------------------------
LONG ISLAND FINANCIAL CORP.
Consolidated Balance Sheets
(In thousands, except share data)
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Assets:
Cash and due from banks................................................... $ 5,721 9,301
Interest earning deposits................................................. 1,329 204
Federal funds sold........................................................ - 18,300
-------- -------
Total cash and cash equivalents................................. 7,050 27,805
Securities held-to-maturity (fair value of $319 and $338, respectively)... 339 341
Securities available-for-sale, at fair value.............................. 121,380 169,808
Loans, net of unearned income and deferred fees........................... 134,025 121,311
Less allowance for loan losses............................................ (1,913) (1,475)
------- -------
Total loans, net................................................ 132,112 119,836
Premises and equipment, net............................................... 1,894 2,089
Accrued interest receivable............................................... 1,864 2,062
Bank owned life insurance................................................. 6,059 5,921
Prepaid expenses and other assets......................................... 4,356 3,192
------- -------
Total assets.................................................... $275,054 331,054
======= =======
Liabilities and Stockholders' Equity:
Deposits:
Demand deposits...................................................... $ 38,873 36,191
Savings deposits..................................................... 30,641 28,444
NOW and money market deposits........................................ 36,755 103,126
Time certificates issued in excess of $100,000....................... 26,970 18,242
Other time deposits.................................................. 75,558 83,737
------- -------
Total deposits.................................................. 208,797 269,740
Borrowed funds............................................................ 44,516 39,500
Accrued expenses and other liabilities.................................... 3,514 3,471
------- -------
Total liabilities............................................... 256,827 312,711
------- -------
Stockholders' equity:
Common stock (par value $.01 per share; 10,000,000 shares,
authorized; 1,776,326 shares issued; 1,626,326 and 1,6,326
outstanding, respectively)......................................... 18 18
Surplus.............................................................. 20,185 20,185
Accumulated surplus.................................................. 3,327 2,587
Accumulated other comprehensive loss................................. (3,620) (2,984)
Treasury stock at cost, (150,000 shares)............................. (1,683) (1,463)
------- -------
Total stockholders' equity...................................... 18,227 18,343
------- -------
Total liabilities and stockholders' equity...................... $275,054 331,054
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
2
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<TABLE>
<CAPTION>
LONG ISLAND FINANCIAL CORP.
Consolidated Statements of Earnings
(Unaudited)
(In thousands, except share data)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 2,925 2,164 5,633 4,227
Securities 2,321 2,334 5,028 4,682
Federal funds sold 4 122 15 260
Earning deposits 4 2 8 4
----- ----- ------ -----
Total interest income 5,254 4,622 10,684 9,173
----- ----- ------ -----
Interest expense:
Savings deposits $ 279 171 545 302
NOW and money market deposits 310 289 650 614
Time certificates issued in excess of $100,000 314 316 557 660
Other time deposits 1,229 1,112 2,456 2,244
Borrowed funds 604 503 1,483 945
----- ----- ----- ------
Total interest expense 2,736 2,391 5,691 4,765
----- ----- ----- ------
Net interest income 2,518 2,231 4,993 4,408
Provision for loan losses - 150 150 300
----- ----- ----- ------
Net interest income after provision
for loan losses 2,518 2,081 4,843 4,108
----- ----- ----- -----
Other operating income:
Service charges on deposit accounts $ 221 167 421 310
Net gain on sale of securities - 88 - 88
Mortgage banking operations 47 182 99 325
Other 160 159 287 190
----- ----- ----- ------
Total other operating income 428 596 807 913
Other operating expenses:
Salaries and employee benefits 1,056 1,002 2,086 1,941
Occupancy expense 142 145 276 280
Premises and equipment expense 200 175 392 349
Other 717 594 1,390 1,168
----- ----- ----- -----
Total other operating expenses 2,115 1,916 4,144 3,738
Income before income taxes 831 761 1,506 1,283
Income taxes 282 262 505 452
----- ----- ------ ------
Net income $ 549 499 1,001 831
===== ===== ===== ======
Basic and diluted earnings per share $ 0.33 0.28 0.61 0.47
===== ===== ====== ======
Weighted average shares outstanding 1,639,293 1,776,326 1,642,810 1,776,160
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
LONG ISLAND FINANCIAL CORP.
Consolidated Statement of Changes in Stockholders' Equity
For the Six Months Ended June 30, 2000
(Unaudited)
(In thousands, except share data)
Accumulated
Other
Common Accumulated Comprehensive Treasury
Stock Surplus Surplus Loss Stock Total
------ ------- ----------- ------------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 18 20,185 2,587 (2,984) (1,463) 18,343
Comprehensive income:
Net income - - 1,001 - - 1,001
Other comprehensive income (loss),
net of tax:
Unrealized loss in available-
for-sale securities, net of
reclassification adjustment - - - (636) - (636)
----- ------ ----- ----- ----- ------
Total comprehensive income - - - - - 365
Common stock repurchased (20,000 shares) (220) (220)
Dividends declared ($.16 per common share) - - (261) - - (261)
----- ------ ---- ----- ----- ------
Balance at June 30, 2000 $ 18 20,185 3,327 (3,620) (1,683) 18,227
===== ====== ===== ===== ===== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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<TABLE>
<CAPTION>
LONG ISLAND FINANCIAL CORP.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
For the Six Months
Ended June 30,
------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,001 831
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 150 300
Depreciation and amortization 376 282
Amortization of premiums, net of discount accretion (851) (122)
Gain on sales of securities - (88)
Loans originated for sale, net of proceeds
from sales and gains 282 451
Net deferred loan origination fees 47 74
Deferred income taxes (56) (71)
Changes in assets and liability account:
Accrued interest receivable 198 (213)
Accrued expenses and other liabilities 43 260
Prepaid expenses and other assets (794) 216
------- -------
Net cash provided by operating activities 396 1,920
------- -------
Cash flows from investing activities:
Purchases of securities available-for-sale (344,651) (226,838)
Proceeds from sales of securities available-for-sale - 12,777
Proceeds from maturities of securities 389,600 211,195
Principal repayments on securities 3,244 9,576
Loan originations net of principal repayments (12,755) (11,836)
Purchase of premises and equipment (181) (505)
Purchase of bank owned life insurance - (5,715)
------- -------
Net cash provided by (used in) investing activities 35,257 (11,346)
------- -------
Cash flows from financing activities:
Net decrease in demand deposit, savings, NOW,
and money market accounts (61,492) (23,962)
Net increase in certificates of deposit 549 2,535
Net increase in borrowed funds 5,016 15,000
Payments for cash dividends (261) (284)
Purchase of treasury stock (220) -
Corporate reorganization costs - (115)
Proceeds from shares issued under the dividend
reinvestment and stock purchase plan - 59
------- ------
Net cash (used in) provided by financing activities (56,408) (6,767)
------- ------
Net decrease in cash and cash equivalents (20,755) (16,193)
Cash and cash equivalents at beginning of period 27,805 21,489
------- -------
Cash and cash equivalents at end of period $ 7,050 5,296
======= =======
(Continued)
</TABLE>
5
<PAGE>
LONG ISLAND FINANCIAL CORP.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
For the Six Months
Ended June 30,
------------------
2000 1999
---- ----
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 5,738 5,074
===== =====
Income taxes $ 1,080 -
===== =====
See accompanying notes to consolidated financial statements.
6
<PAGE>
LONG ISLAND FINANCIAL CORP.
NOTES TO 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 accompanying 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 six-month period ended June
30, 2000 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 1999 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 stockholder 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.
7
<PAGE>
<TABLE>
<CAPTION>
3. 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:
June 30, 2000 December 31, 1999
-------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Mortgage-backed securities:
CMO $ 339 319 341 338
======= ======= ======= =======
Available-for-sale:
U.S. Government and Agency Obligations $ 77,515 72,977 122,423 118,907
Mortgage-backed securities:
GNMA 39,332 37,760 41,136 39,580
FHLMC 1,180 1,192 1,350 1,369
FNMA 3,053 2,995 3,599 3,571
Municipal obligations 1,167 1,130 1,166 1,143
Other debt securities - - 92 91
------- ------- ------- -------
Total debt securities 122,247 116,054 169,766 164,661
Equity securities - FHLB stock 5,326 5,326 5,147 5,147
------- ------- ------- -------
Total securities available-for-sale $127,573 121,380 174,913 169,808
======= ======= ======= =======
</TABLE>
4. LOANS, NET
Loans, net consist of the following as of the dates indicated:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and industrial loans $ 41,724 31.0 % $ 34,057 27.9 %
Commercial real estate loans 91,071 67.6 84,133 69.0
Automobile loans - - 1,463 1.2
Consumer loans 1,115 0.8 1,250 1.0
Residential real estate loans held-for-sale 737 0.6 1,019 0.9
------- ----- ------- -----
134,647 100.0 121,922 100.0
Less:
Unearned income 6 42
Deferred fees, net 616 569
Allowance for loan losses 1,913 1,475
------- -------
$132,112 $119,836
======= =======
</TABLE>
8
<PAGE>
5. RECENT DEVELOPMENTS
On May 24, 2000 the Board of Directors of the Company declared a quarterly
dividend of eight cents ($0.08) per common share. The dividend was paid on July
3, 2000, to shareholders' of record as of June 23, 2000.
On April 15, 1999, the Company announced the commencement of a program to
repurchase up to 10% of it's outstanding common stock. No time limit has been
placed on the duration of the stock repurchase program. Subject to applicable
securities laws, such purchases will be made at times and in amounts the Company
deems appropriate and may be discontinued at any time. As of June 30, 2000,
150,000 shares had been repurchased by the Company at an aggregate cost of $1.7
million.
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 of
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.
Financial Condition
The Company's total assets were $275.1 million as of June 30, 2000, compared to
$331.1 million at December 31, 1999. The decline in cash and cash equivalents of
$20.8 million, or 74.6%, was attributable to seasonal municipal deposits which
were not on deposit at June 30, 2000. Loans, net, increased $12.3 million, or
10.2%, from $119.8 million at December 31, 1999, to $132.1 million at June 30,
2000, reflecting a $14.6 million increase in commercial real estate and
commercial and industrial loans, offset in part by a $1.5 million decrease in
the automobile loan portfolio. Securities available-for-sale decreased $48.4
million or 28.5% as a portion of the proceeds of the maturing short term U.S.
Government and agency obligations purchased in December 1999 were used to pay
the maturing seasonal municipal deposits. Prepaid expenses and other assets
increased $ 1.2 million as a result of an increase in deferred tax benefits
relating to the securities portfolio and increases in estimated federal and
state income taxes payable.
Total deposits decreased $60.9 million, or 22.6%, from $269.7 million at
December 31, 1999 to $208.8 million at June 30, 2000, primarily reflecting a
decrease in NOW and money market deposits. The decrease in NOW and money market
deposits of $66.4 million, or 64.4%, from $103.1 million at December 31, 1999 to
$36.8 million at June 30, 2000, is attributable to the timing of seasonal
municipal deposits which were not on deposit at June 30, 2000. The effects of
those declines were offset in part by a $2.7 million, or 7.4% increase in core
demand deposits and a $2.2 million, or 7.7%, increase in core savings deposits
from December 31, 1999 to June 30, 2000.
Total stockholders' equity decreased $116,000 to $18.2 million at June 30, 2000
primarily due to a $636,000 increase in accumulated other comprehensive loss on
securities available-for-sale, dividends declared of $261,000, and the
repurchase of 20,000 shares, or $220,000, of common stock. Offsetting these
events was net income of $1.0 million for the six months ended June 30, 2000.
10
<PAGE>
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 tables sets forth certain information relating to the Company's
consolidated average balance sheets and its consolidated statements of earnings
for the three months and six months ended June 30, 2000, and 1999, 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 although they are not material.
11
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<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------------------------------------------
2000 1999
-------------------------------- --------------------------------
Average Average
Average Yield / Average Yield /
Interest Cost Balance Interest Cost Balance
-------- ---- ------- -------- ---- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold and
interest-earning deposits $ 512 $ 8 6.25 % $ 10,417 $ 124 4.76 %
Securities held-to-maturity and
available-for-sale, net (1) 145,048 2,309 6.37 151,330 2,307 6.10
Municipal obligations (2) 1,167 17 5.83 2,578 40 6.21
Loans receivable, net (3) 129,630 2,925 9.03 100,818 2,164 8.59
------- ----- ------- -----
Total interest-earning assets 276,357 5,259 7.61 265,143 4,635 6.99
Non-interest-earning assets (4) 18,520 20,367
------- -------
Total assets $294,877 $285,510
======= =======
Interest-bearing liabilities:
Savings deposits $ 30,214 $ 279 3.69 $ 21,737 $ 171 3.15
NOW and money market deposits 52,767 310 2.35 60,395 289 1.91
Certificates of deposit 103,625 1,543 5.96 104,567 1,428 5.46
------- ----- ------- -----
Total interest-bearing deposits 186,606 2,132 4.57 186,699 1,888 4.05
Borrowed funds 46,610 604 5.18 41,195 503 4.88
------- ----- ------- -----
Total interest-bearing liabilities 233,216 2,736 4.69 227,894 2,391 4.20
Other non-interest bearing liabilities 43,554 36,507
------- -------
Total liabilities 276,770 264,401
Stockholders' Equity 18,107 21,109
------- -------
Total liabilities and
stockholders' equity $294,877 $285,510
======= =======
Net interest income/
interest rate spread (5) $2,523 2.92 % $2,244 2.79 %
===== ---- ===== ====
Net interest margin (6) 3.65 % 3.39 %
---- ====
Ratio of interest-earning assets to
interest-bearing liabilities 1.18 1.16
==== ====
(1) Securities, net exclude municipal obligations.
(2) Interest income and yields are presented on a fully-taxable equivalent basis
using the Federal statutory income tax rate of 34%.
(3) Amount is net of residential real estate loans held-for-sale, deferred loan
fees, allowance for loan losses and includes non-performing loans.
(4) Unrealized gains/(losses) on available-for-sale securities are recorded in
other assets.
(5) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(6) Net interest margin represents net interest income divided by average
interest-earning assets.
</TABLE>
12
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<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------------------------------------
2000 1999
-------------------------------- -------------------------------
Average Average
Average Yield / Average Yield /
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold and
interest-earning deposits $ 729 $ 23 6.31 % $ 11,274 $ 264 4.68 %
Securities, net (1) 160,789 5,004 6.22 148,280 4,516 6.09
Municipal obligations (2) 1,167 34 5.83 7,688 240 6.24
Loans receivable, net (3) 126,100 5,633 8.93 98,861 4,227 8.55
------- ------ ------- -----
Total interest-earning assets 288,785 10,694 7.41 266,103 9,247 6.95
Non-interest-earning assets (4) 17,985 18,769
------- -------
Total assets 306,770 $284,872
======= =======
Interest-bearing liabilities:
Savings deposits $ 29,774 $ 545 3.66 $ 19,278 $ 302 3.13
NOW and money market deposits 56,924 650 2.28 64,234 614 1.91
Certificates of deposit 103,556 3,013 5.82 105,522 2,904 5.50
------- ------ ------- -----
Total interest-bearing deposits 190,254 4,208 4.42 189,034 3,820 4.04
Borrowed funds 56,507 1,483 5.25 38,840 945 4.87
------- ------ ------- -----
Total interest-bearing liabilities 246,761 5,691 4.61 227,874 4,765 4.18
Other non-interest bearing liabilities 41,930 35,569
------- -------
Total liabilities 288,691 263,443
Stockholders' Equity 18,079 21,429
------- -------
Total liabilities and
stockholders' equity 306,770 $284,872
======= =======
Net interest income/
interest rate spread (5) $ 5,003 2.80 % $4,482 2.77 %
====== ==== ===== ====
Net interest margin (6) 3.46 % 3.37 %
==== ====
Ratio of interest-earning assets to
interest-bearing liabilities 1.17 1.17
==== ====
(1) Securities, net exclude municipal obligations.
(2) Interest income and yields are presented on a fully-taxable equivalent basis
using the Federal statutory income tax rate of 34%.
(3) Amount is net of residential real estate loans held-for-sale, deferred loan
fees and allowance for loan losses and includes non-performing loans.
(4) Unrealized gains/(losses) on available-for-sale securities are recorded in
other assets.
(5) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(6) Net interest margin represents net interest income divided by average
interest-earning assets.
</TABLE>
13
<PAGE>
Comparison of Operating Results for the Three Months
Ended June 30, 2000 and 1999
General
The Company reported net income of $549,000, or basic and diluted earnings per
share of $.33 for the quarter ended June 30, 2000, compared to $499,000, or
basic and diluted earnings per share of $.28 for the prior year period. The
increase in net income was attributable primarily to increases in net interest
income after provision for loan losses of $437,000, or 21.0%, which were offset
in part by increases in other operating expenses of $199,000, or 10.4%.
Interest Income
Interest income, on a fully-taxable equivalent basis, increased 624,000, or 13.5
%, from $4.6 million for the three months ended June 30, 1999, to $5.3 million
for the three months ended June 30, 2000. The increase was attributable to an
increase in the average balance of total interest-earning assets of $11.2
million, or 4.2%, from $265.1 million for the three months ended June 30, 1999,
to $276.4 million for the three months ended June 30, 2000. The average balance
of securities, net, (exclusive of municipal obligations) decreased $6.3 million,
or 4.2%, but average yield increased 27 basis points to 6.37% for the three
months ended June 30, 2000, compared to 6.10% for the 1999 period. The $1.4
million decline in the average balance of municipal obligations, for the three
months ended June 30, 2000, from $2.6 million for the comparable prior year
period, resulted from the sale of approximately $11.8 million in municipal
obligations during the three months ended June 30, 1999. The proceeds from that
sale were reinvested in higher earning assets, primarily bank owned life
insurance and available-for-sale securities. The average balance of loans, net,
increased $28.8 million, or 28.6% from $100.8 million for the three months ended
June 30, 1999, to $129.6 million for the 2000 period. The average yield on loans
receivable, net, increased 44 basis points from 8.59% for the 1999 period, to
9.03% for the three months ended June 30, 2000. The average yield on total
interest-earning assets increased from 6.99% for the three months ended June 30,
1999, to 7.61% for the three months ended June 30, 2000 as a result of increased
market interest rates.
Interest Expense
Interest expense increased $345,000, or 14.4%, from $2.4 million for the three
months ended June 30, 1999, to $2.7 million for the three months ended June 30,
2000, primarily as a result of a $5.3 million or 2.3% increase in the average
balance of total interest-bearing liabilities from $227.9 million for the 1999
period to $233.2 million for the three months ended June 30, 2000. The increased
interest expense resulted from an increase of $5.4 million, or 13.1% in the
average balance of borrowed funds. The average rate paid on interest-bearing
deposits increased 52 basis points from 4.05% paid for the 1999 period to 4.57%
paid for the three months ended June 30, 2000. The average balance of savings
deposits increased by $8.5 million, or 39.0%, and the average balance of NOW and
money market deposits decreased by $7.6 million, or 12.6% from period to period.
The average balance of certificates of deposit decreased $942,000 as the Company
continued to focus on reducing its cost of funds. The average cost of borrowed
funds increased 30 basis points from 4.88% for the 1999 period, to 5.18% for the
three months ended June 30, 2000, due to higher market short term interest
rates.
14
<PAGE>
Net Interest Income
Net interest income on a fully-taxable equivalent basis increased by $279,000,
or 12.4%, from $2.2 million for the three months ended June 30, 1999, to $2.5
million for the three months ended June 30, 2000. The average cost of total
interest-bearing liabilities for the period increased 49 basis points from 4.20%
in the1999 period to 4.69% in the 2000 period. The average yield on total
interest-earning assets for the period increased 62 basis point from 6.99% in
the 1999 period to 7.61% in the 2000 period. The net interest rate spread
increased by 13 basis points from 2.79% in the 1999 period, to 2.92% in the 2000
period.
Provision for Loan Losses
The Company had no provision for loan losses for the three months ended June 30
2000, compared to a $150,000 provision for the three month period ended June 30,
1999. The absence of a provision for loan losses for the three months ended June
30, 2000 reflects management's qualitative and quantitative assessment of the
loan portfolio, net charge-offs and collection of delinquent loans. At June 30,
2000 and December 31, 1999, the allowance for loan losses amounted to $1.9
million and $1.5 million, respectively. The increase in the allowance for loan
losses at June 30, 2000 was primarily attributable to the Company successfully
recovering $397,000 on a commercial and industrial loan previously charged off.
The allowance for loan losses as a percentage of loans was 1.43% and 1.22% at
June 30, 2000 and 1999, respectively.
The determination of the amount of the allowance for loan losses is based on an
analysis of the loan portfolio and reflects an amount which, in management's
judgement is adequate to provide for probable loan losses in the existing
portfolio. This analysis considers, among other things, present and known
inherent risks in the portfolio, adverse situations which may affect the
borrower's ability to repay, overall portfolio quality, and current and
prospective economic conditions. While management uses available information to
provide for loan losses, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, various regulatory
agencies, as an integral part of the examination process, periodically review
the Company's allowance for loan losses. Such agencies may require the Company
to recognize additions to the allowance based upon their judgement of
information available to them at the time of their examination.
The following table sets forth information regarding non-accrual loans and 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 more than 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 collectable and a consistent record of performance
has been demonstrated.
15
<PAGE>
June 30, 2000 December 31, 1999
------------- -----------------
(In thousands)
Non-accrual loans:
Commercial and industrial loans $ 208 42
Automobile loans - 32
Consumer loans 58 105
----- ---
Total non-accrual loans 266 179
Loans contractually past due 90 days or
more, other than non-accruing (2) 209 -
---- ---
Total non-performing loans $ 475 179
---- ---
Allowance for loan losses as a percentage
of loans (1) 1.43 % 1.22 %
Allowance for loan losses as a percentage
of total non-performing loans 402.73 % 824.02 %
Non-performing loans as a percentage of loans (1) .35 % .15 %
(1) Loans include loans receivable, net excluding the allowance for loan losses.
(2) Excludes $231,000 of loans at December 31, 1999, which have matured, how-
ever, 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. There were no loans con-
tractually past due more than 90 days in a matured status at June 30, 2000.
Other Operating Income
Other operating income decreased $168,000, or 28.2%, to $428,000 for the three
months ended June 30, 2000. Service charges on deposit accounts increased
$54,000, or 32.3%, reflecting an overall increase in the Bank's deposit fee
structure, growth in the depositor base, and the introduction of new and
electronic banking services. Net gain on sale of residential loans decreased
$135,000 or 74.2% as a result of overall decrease in residential mortgage loan
production. Higher market interest rates have resulted in an industry wide
slowdown in residential lending. In addition, the Company benefitted from an
$88,000 gain on the sale of securities in the three months ended June 30, 1999
and there were no securities sales in the three months ended June 30, 2000.
Other Operating Expense
Other operating expenses increased $199,000, or 10.4%, from $1.9 million for the
three months ended June 30, 1999, to $2.1 million in the three months ended June
30, 2000. Increases in salaries and employee benefits, premises and equipment
expense, and other expense for the three months ended June 30, 2000 are a result
of the Bank's overall growth through its increased sales efforts and
introduction of new products and services.
Income Taxes
Income taxes increased $20,000, or 7.6%, from $262,000 for the three months
ended June 30, 1999, to $282,000 for the three months ended June 30, 2000. The
increase is attributable to the increase in income before income taxes. The
effective tax rate for the three months ended June 30, 2000 was 33.9%, compared
to 34.4% for the three months ended June 30, 1999.
16
<PAGE>
Comparison of Operating Results for the Six Months Ended June 30, 2000 and 1999
General
The Company reported net income of $1.0 million, or basic and diluted earnings
per share of $.61 for the six months ended June 30, 2000, compared to $831,000,
or basic and diluted earnings of $.47 per share for the prior year period. The
increase in net income was attributable primarily to an increase in net interest
income after provision for loan losses of $735,000, or 17.9%, which was offset
in part by increases in other operating expenses of $406,000, or 10.9%.
Interest Income
Interest income, on a fully-taxable equivalent basis, increased $1.4 million, or
15.6 %, from $9.2 million for the six months ended June 30, 1999, to $10.7
million for the six months ended June 30, 2000. The increase was attributable to
an increase in the average balance of total interest-earning assets of $22.7
million, or 8.5%, from $266.1 million for the six months ended June 30, 1999, to
$288.8 million for the six months ended June 30, 2000. The average balance of
securities, net, (exclusive of municipal obligations) increased $12.5 million,
or 8.4%, and returned a 13 basis point increase in the average yield to 6.22%
for the six months ended June 30, 2000, compared to 6.09% for the 1999 period.
The $6.5 million decline in the average balance of municipal obligations for the
six months ended June 30, 2000 from $7.7 million for the comparable prior year
period, resulted from the sale of approximately $11.8 million in municipal
obligations during the second quarter of 1999. The proceeds from that sale were
reinvested in higher earning assets, primarily bank owned life insurance and
available-for-sale securities. The average balance of loans, net, increased
$27.2 million, or 27.6% from $98.9 million for the six months ended June 30,
1999, to $126.1 million for the 2000 period. The average yield on loans
receivable, net, increased 38 basis points from 8.55% for the 1999 period, to
8.93% for the six months ended June 30, 2000. The average yield on
interest-earning assets increased from 6.95% for the six months ended June 30,
1999, to 7.41% for the six months ended June 30, 2000 as a result of increased
market interest rates.
Interest Expense
Interest expense increased $926,000, or 19.4%, from $4.8 million for the six
months ended June 30, 1999, to $5.7 million for the six months ended June 30,
2000, primarily as a result of a $18.9 million or 8.3% increase in the average
balance of total interest-bearing liabilities from $227.9 million for the 1999
period to $246.8 million for the six months ended June 30, 2000. The increased
interest expense resulted from an increase of $17.7 million, or 45.5% in the
average balance of borrowed funds. The average rate paid on interest-bearing
deposits increased 38 basis points from 4.04% paid for the 1999 period to 4.42%
paid for the six month period ended June 30, 2000. The average balance of
savings deposits increased by $10.5 million, or 54.4%, and the average balance
of NOW and money market deposits decreased by $7.3 million, or 11.4% from period
to period. The average balance of certificates of deposit decreased $2.0 million
as the Company continued to focus on reducing its cost of funds. The average
cost of borrowed funds increased 38 basis points from 4.87% for the 1999 period,
to 5.25% for the six months ended June 30, 2000, due to higher market short term
interest rates.
17
<PAGE>
Net Interest Income
Net interest income on a fully-taxable equivalent basis increased by $521,000,
or11.6%, from $4.5 million for the six months ended June 30, 1999, to $5.0
million for the six months ended June 30, 2000. The average cost of total
interest-bearing liabilities for the period increased 43 basis points from 4.18%
in the1999 period to 4.61% in the 2000 period. The average yield on
interest-earning assets for the period increased 46 basis point from 6.95% in
the 1999 period to 7.41% in the 2000 period. The net interest rate spread
increased by 3 basis points from 2.77% in the 1999 period, to 2.80% in the 2000
period.
Provision for Loan Losses
The Company's provision for loan losses was $150,000 for the six months ended
June 30, 2000 as compared to $300,000 for the six months ended June 30, 1999.
The provision for loan losses is based on analysis of the loan portfolio and
reflects an amount which, in management's judgement is adequate to provide for
probable loan losses in the existing portfolio.
Other Operating Income
Other operating income decreased $106,000, or 11.6%, to $807,000 or the six
month period ended June 30, 2000. Service charges on deposit accounts increased
$111,000, or 35.8%, reflecting an overall increase in the Bank's deposit fee
structure, growth in the depositor base, and the introduction of new and
electronic banking services. Net gain on sale of residential loans decreased
$226,000 or 69.5% as a result of overall decrease in residential mortgage loan
production. Higher market interest rates have resulted in an industry wide
slowdown in residential lending. In addition, the Company benefitted from an
$88,000 gain on the sale of securities in the six months ended June 30, 1999 and
there were no securities sales in the six months ended June 30, 2000..
Other Operating Expense
Other operating expenses increased $406,000, or 10.9%, from $3.7 million for the
six months ended June 30, 1999, to $4.1 million in the six months ended June 30,
2000. Increases in salaries and employee benefits, premises and equipment
expense, and other expense for the six months ended June 30, 2000 are a result
of the Bank's overall growth through its increased sales efforts and
introduction of new products and services.
Income Taxes
Income taxes increased $53,000, or 11.7%, from $452,000 for the six months ended
June 30, 1999, to $505,000 for the six months ended June 30, 2000. The increase
is attributable to the increase in income before income taxes. The effective tax
rate for the six months ended June 30, 2000 was 33.5%, compared to 35.2% for the
six months ended June 30, 1999.
18
<PAGE>
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. The accounting for changes in the
fair value of a derivative depends on the intended use of the derivative and its
specific designation.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133--an amendment of FASB Statement No. 133." This statement
delays the effective date for one year of SFAS No. 133, to fiscal years begin-
ning after June 15, 2000 SFAS No.'s 133 and 137 apply to quarterly and annual
financial statements. The Company does not believe that there will be a material
impact on its financial condition or results of operations upon the adoption of
SFAS No. 133 and No. 138.
In June 2000 the FASB issued SFAS No. 138, "Accounting for Derivative
Instruments and Certain Hedging Activities-An Amendment of FASB Statement No.
133," or SFAS No. 138. SFAS No. 138 amends the accounting and reporting
standards of SFAS No. 133 for certain derivative instruments and certain hedging
activities. SFAS No. 138 will be adopted concurrently with SFAS No. 133.
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. For most banks,
including the Bank, maturing assets provide only a limited portion of the funds
required to pay maturing liabilities over a very short time frame. 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 origination of loans. During each of the six months
ended June 30, 2000, and 1999, the Company's purchases of securities were all
classified available-for-sale and totaled $389.6 million and $211.2 million,
respectively. Loan originations, net of principal repayments on loans, totaled
$12.8 million and $11.8 million, for the six months ended June 30, 2000, and
1999, respectively. Those 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, liquidate available-for-sale securities and access its
lines of credit, totaling $5.5 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 9.5% of the Company's assets at June 30, 2000, which enable
19
<PAGE>
it to borrow funds on a secured basis. The Company could also engage in other
forms of borrowings, including reverse repurchase agreements.
At June 30, 2000, the Company's primary 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 June 30, 2000, convertible
advances outstanding were as follows:
Interest Call Contractual
Amount Rate Date Maturity
-------- ---- ----------- --------
$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
Management of the Company has set minimum liquidity level of 10% as a target.
The average of the Company's 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
June 30, 2000, was 20.7%.
Capital Resources
The Bank is subject to the risk based capital guidelines administered by the
banking regulatory agencies. 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,
1999, the most recent notification from the federal banking regulators
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action.
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 June 30, 2000, the Bank exceeded those
requirements with a leverage capital ratio, and risk- based capital ratio and
total-risk based capital ratio of 7.30%, 13.23%, and 14.38%, respectively.
20
<PAGE>
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 guidelines approved by the Board of Directors.
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 June 30, 2000, 83.45% of the Company's gross loans had adjustable interest
rates and its loan portfolio had an average weighted maturity of 7.8 years. At
such date, $11.6 million, or 9.6%, of the Company's securities had adjustable
interest rates, and its securities portfolio had a weighted average maturity of
6.4 years. At June 30, 2000, the Company had $56.3 million of certificates of
deposit with maturities of one year or less and $27.0 million of deposits over
$100,000, which tend to be less stable sources of funding as compared to core
deposits and represented 38.8% 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 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 June 30, 2000, 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:
21
<PAGE>
Potential Change in Potential Change in
Change in Net Interest Income Net Economic Value of Equity
Interest Rates ---------------------- ----------------------------
in Basis Points $ Change % Change $ Change % Change
--------------- -------- -------- -------- --------
(Dollars in thousands)
200 $ 304 2.61 % $(2,839) (14.35) %
100 199 1.71 646 3.27
Static - - - -
(100) (58) (.50) 6,112 30.90
(200) (299) (2.57) 8,164 41.27
22
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on April 26, 2000, and the
following individuals were elected as Directors for a term of three years each:
Votes Votes Broker
For Withheld Abstentions Non-Votes
----- -------- ----------- ---------
John L. Ciarelli, Esq. 1,224,925 60,900 - -
Waldemar Fernandez 1,224,925 60,900 - -
Werner S. Neuberger 1,224,925 60,900 - -
Sally Ann Slacke 1,224,925 60,900 - -
John C. Tsunis, Esq. 1,224,925 60,900 - -
The terms of the following Directors continued after the Annual Meeting:
Harvey Auerbach, Donald Del Duca, Perry B. Duryea, Jr., Frank J. Esposito, Roy
M. Kern, Sr., Gordon A. Lenz, Walter J. Mack, MD, Douglas C. Manditch,
Thomas F. Roberts III, Alfred Romito.
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
23
<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: August 11, 2000 By: /s/ Douglas C. Manditch
Douglas C. Manditch
President and Chief
Executive Officer
Date: August 11, 2000 By: /s/ Thomas Buonaiuto
Thomas Buonaiuto
Vice President and Treasurer
24
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11.0 Computation Of Per Share Earnings
Long Island Financial Corp.
Statement Re: Computation of Per Share Earnings
(In thousands, except for share amounts)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 549 499 1,001 831
Weighted average shares outstanding 1,639,293 1,776,326 1,642,810 1,776,160
Basic and diluted earnings per share $ .33 .28 .61 .47
=== === === ===
</TABLE>
