<PAGE>
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 September 30, 2000
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 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 1,509,426 shares of Common Stock outstanding as of November
10, 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 September 30, 2000
and December 31, 1999 2
Consolidated Statements of Earnings for the Three Months
and Nine Months Ended September 30, 2000 and 1999 3
Consolidated Statement of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 2000 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 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
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<TABLE>
<CAPTION>
Part 1 - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
------------------------------------------------------
LONG ISLAND FINANCIAL CORP.
Consolidated Balance Sheets
(In thousands, except share data)
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Cash and due from banks................................ $ 6,724 9,301
Interest earning deposits.............................. 118 204
Federal funds sold..................................... 5,000 18,300
------- -------
Total cash and cash equivalents................... 11,842 27,805
Securities held-to-maturity
(fair value of $311 and $338, respectively) ...... 327 341
Securities available-for-sale, at fair value........... 124,252 169,808
Loans, net of unearned income and deferred fees........ 134,833 121,311
Less allowance for loan losses......................... (1,875) (1,475)
------- -------
Total loans, net.................................. 132,958 119,836
Premises and equipment, net............................ 1,867 2,089
Accrued interest receivable............................ 2,453 2,062
Bank owned life insurance.............................. 6,128 5,921
Prepaid expenses and other assets...................... 3,644 3,192
------- -------
Total assets...................................... $283,471 331,054
======= =======
Liabilities and Stockholders' Equity:
Deposits:
Demand deposits.................................... $ 44,161 36,191
Savings deposits................................... 32,717 28,444
NOW and money market deposits...................... 29,226 103,126
Time certificates issued in excess of $100,000..... 31,531 18,242
Other time deposits................................ 77,078 83,737
------- -------
Total deposits................................ 214,713 269,740
Borrowed funds......................................... 39,000 39,500
Accrued expenses and other liabilities................. 3,506 3,471
------- -------
Total liabilities............................. 257,219 312,711
------- -------
Guaranteed preferred beneficial interest in
junior subordinated debentures.................... 7,500 -
Stockholders' equity:
Common stock (par value $.01 per share; 10,000,000
shares, authorized; 1,776,326 shares issued;
1,550,826 and 1,646,326 outstanding, respectively). 18 18
Surplus............................................ 20,185 20,185
Accumulated surplus................................ 3,680 2,587
Accumulated other comprehensive loss............... (2,449) (2,984)
Treasury stock, at cost............................ (2,682) (1,463)
------- -------
Total stockholders' equity............... 18,752 18,343
------- -------
Total liabilities and stockholders' equity......... $283,471 331,054
======= =======
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 Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 3,047 2,364 8,680 6,591
Securities 2,054 2,178 7,082 6,860
Federal funds sold 4 36 19 296
Earning deposits 4 4 12 8
----- ----- ----- -----
Total interest income 5,109 4,582 15,793 13,755
----- ----- ----- -----
Interest expense:
Savings deposits $ 294 224 839 526
NOW and money market deposits 174 192 824 806
Time certificates issued in
excess of $100,000 485 298 1,042 955
Other time deposits 1,214 1,087 3,670 3,334
Borrowed funds 548 520 2,031 1,465
----- ----- ----- -----
Total interest expense 2,715 2,321 8,406 7,086
----- ----- ----- -----
Net interest income 2,394 2,261 7,387 6,669
Provision for loan losses - 150 150 450
----- ----- ----- -----
Net interest income after provision
for loan losses 2,394 2,111 7,237 6,219
----- ----- ----- -----
Other operating income:
Service charges on deposit accounts $ 218 166 639 476
Net gain on sale of securities - - - 88
Net gain on sale of residential loans 84 114 183 439
Other 141 135 428 325
----- ----- ----- -----
Total other operating income 443 415 1,250 1,328
Other operating expenses:
Salaries and employee benefits 998 962 3,084 2,903
Occupancy expense 168 135 444 415
Premises and equipment expense 210 186 602 535
Capital trust securities 54 - 54 -
Other 695 642 2,085 1,810
----- ----- ----- -----
Total other operating expenses 2,125 1,925 6,269 5,663
Income before income taxes 712 601 2,218 1,884
Income taxes 237 220 742 672
----- ----- ----- -----
Net income $ 475 381 1,476 1,212
===== ===== ===== =====
Basic and diluted earnings per share $ 0.30 0.22 0.91 0.68
===== ===== ===== =====
Weighted average shares outstanding 1,596,201 1,758,364 1,627,160 1,770,163
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
LONG ISLAND FINANCIAL CORP.
Consolidated Statement of Changes in Stockholders' Equity
For the Nine Months Ended September 30, 2000
(Unaudited)
(In thousands, except share data)
Accumulated
Other
Common Accumulated Comprehensive Treasury
Stock Surplus Surplus (Loss)/Income 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 - - 1,476 - - 1,476
Other comprehensive income (loss),
net of tax:
Unrealized gain in available-
for-sale securities, net of
reclassification adjustment - - - 535 - 535
------ ------ ------ ------ ------ ------
Total comprehensive income - - 1,476 535 - 2,011
Common stock repurchased (95,500 shares) - - - - (1,219) (1,219)
Dividends declared ($.24 per common share) - - (383) - - (383)
------ ------ ------ ------ ------ ------
Balance at September 30, 2000 $ 18 20,185 3,680 (2,449) (2,682) 18,752
====== ====== ====== ====== ====== ======
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
LONG ISLAND FINANCIAL CORP.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
For the Nine Months
Ended September 30,
-------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,476 1,212
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 150 450
Depreciation and amortization 452 427
Gain on sale of securities - (88)
Amortization of premiums, net of discount accretion (831) (65)
Loans originated for sale, net of proceeds
from sales and gains 583 1,297
Net deferred loan origination fees 39 102
Deferred income taxes (49) (27)
Changes in assets and liability account: (391) (587)
Accrued expenses and other liabilities 35 534
Prepaid expenses and other assets (990) 405
------- -------
Net cash provided by operating activities 474 3,660
------- -------
Cash flows from investing activities:
Purchases of securities available-for-sale (347,070) (226,838)
Proceeds from sales of securities available-for-sale - 12,777
Proceeds from maturities of securities 389,600 211,695
Principal repayments on securities 4,786 11,844
Loan originations net of principal repayments (13,894) (15,863)
Purchase of premises and equipment (230) (663)
Purchase of bank owned life insurance - (5,715)
------- -------
Net cash provided by (used in) investing activities 33,192 (12,763)
Cash flows from financing activities:
Net decrease in demand deposit, savings, NOW,
and money market accounts (61,657) (25,732)
Net increase in certificates of deposit 6,630 5,302
Net increase in borrowed funds (500) 15,370
Payments for cash dividends (383) (425)
Purchase of treasury stock (1,219) (370)
Corporate reorganization costs - (115)
Issuance of junior subordinated debt 7,500 -
Proceeds from shares issued under the dividend
reinvestment and stock purchase plan - 59
------- -------
Net cash used in financing activities (49,629) (5,911)
------- -------
Net decrease in cash and cash equivalents (15,963) (15,014)
Cash and cash equivalents at beginning of period 27,805 21,489
------- -------
Cash and cash equivalents at end of period 11,842 6,475
======= =======
</TABLE>
(Continued)
5
<PAGE>
LONG ISLAND FINANCIAL CORP.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
For the Nine Months
Ended September 30,
-------------------
2000 1999
---- ----
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $8,252 7,392
===== =====
Income taxes $1,395 -
===== =====
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
subsidiaries, LIF Statutory Trust I and Long Island Commercial Bank (the
"Bank"), and its subsidiary, Long Island Commercial Capital Corporation. All
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 nine month period ended
September 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
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<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:
September 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 $ 327 311 341 338
======== ======= ======= =======
Available-for-sale:
U.S. Government and Agency Obligations $ 77,514 74,520 122,423 118,907
Mortgage-backed securities:
GNMA 37,987 36,834 41,136 39,580
FHLMC 1,101 1,121 1,350 1,369
FNMA 5,347 5,311 3,599 3,571
Municipal obligations 1,167 1,140 1,166 1,143
Other debt securities - - 92 91
-------- ------- ------- -------
Total debt securities 123,116 118,926 169,766 164,661
Equity securities - FHLB stock 5,326 5,326 5,147 5,147
-------- ------- ------- -------
Total securities available-for-sale $ 128,442 124,252 174,913 169,808
======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
4. LOANS, NET
Loans, net consists of the following as of the dates indicated:
September 30, 2000 December 31, 1999
------------------ -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and industrial loans $ 40,268 29.7% $ 34,057 27.9%
Commercial real estate loans 93,609 69.1 84,133 69.0
Automobile loans 121 .1 1,463 1.2
Consumer loans 1,032 .8 1,250 1.0
Residential real estate loans held-for-sale 436 .3 1,019 0.9
------- ----- ------- -----
135,466 100.0 121,922 100.0
Less:
Unearned income 25 42
Deferred fees, net 608 569
Allowance for loan losses 1, 875 1,475
------- -------
$132,958 $119,836
======= =======
</TABLE>
8
<PAGE>
5. GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES
On September 7, 2000, LIF Statutory Trust I, a wholly-owned finance subsidiary
of the Company, issued $7.5 million aggregate liquidation amount of 10.60%
Capital Securities due September 7, 2030, referred to as Capital Securities.
The Company has fully and unconditionally guaranteed the Capital Securities
along with all obligations of LIF Statutory Trust I under the trust agreement.
Long Island Financial Statutory Trust I was formed for the exclusive purpose of
issuing the Capital Securities and common securities and using the proceeds to
acquire an aggregate principal amount of $7.7 million of the Company's 10.60%
Junior Subordinated Debentures due September 7, 2030 referred to as the
Company's Junior Subordinated Debentures. The Junior Subordinated Debentures
are prepayable, in whole or in part, at the Company's option on or after
September 7, 2010 at declining premiums to maturity. Proceeds totaling
approximately $7.2 million are being used for general corporate purposes
including the repurchase of common stock.
The balance outstanding on the Capital Securities was $7.5 million at September
30, 2000. The costs associated with the Capital Securities issuance have been
capitalized and are being amortized using the interest method over a period of
thirty years. Distributions on the Capital Securities are payable semi-
annually beginning March 7, 2001 and are reflected in the Consolidated
Statements of Earnings as a component of non-interest expense under the caption
"Capital trust securities."
6. RECENT DEVELOPMENTS
On August 29, 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
October 2, 2000, to shareholders' of record as of September 22, 2000.
On September 1, 2000, the Company announced an extension of the stock repurchase
program which enables the Company to repurchase an additional 10% of it's
outstanding common stock or approximately 160,000 shares. Repurchases will
continue to be made in the open market, from time to time, depending on market
conditions and subject to compliance with applicable securities laws. As of
September 30, 2000, 225,500 shares had been repurchased by the Company at an
aggregate cost of $2.7 million.
9
<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
General
The principal business of Long Island Financial Corp. currently consists of the
operation of a wholly-owned subsidiary, Long Island Commercial Bank. Long
Island Commercial Bank 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.
Financial Condition
The Company's total assets were $283.5 million as of September 30, 2000,
compared to $331.1 million at December 31, 1999. The decline in cash and cash
equivalents of $16.0 million, or 57.4%, was attributable to seasonal municipal
deposits which were not on deposit at September 30, 2000. Loans, net, increased
$13.1 million, or 11.0%, from $119.8 million at December 31, 1999, to $133.0
million at September 30, 2000, reflecting a $15.7 million increase in commercial
real estate and commercial and industrial loans, offset in part by a $1.3
million decrease in the automobile loan portfolio. Securities available-for-sale
decreased $45.6 million or 26.8% 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.
Total deposits decreased $55.0 million, or 20.4%, from $269.7 million at
December 31, 1999 to $214.7 million at September 30, 2000, primarily reflecting
a decrease in NOW and money market deposits. The decrease in NOW and money
market deposits of $73.9 million, or 71.7%, from $103.1 million at December 31,
1999 to $29.2 million at September 30, 2000, is attributable to the timing of
seasonal municipal deposits which were not on deposit at September 30, 2000. The
effects of those declines were offset in part by a $8.0 million, or 22.0%
increase in core demand deposits and a $4.3 million, or 15.0%, increase in core
savings deposits from December 31, 1999 to September 30, 2000.
Total stockholders' equity increased $409,000 to $18.8 million at September 30,
2000 primarily due to a $535,000 decrease in accumulated other comprehensive
loss on securities available-for-sale and net income of $1.5 million for the
nine months ended September 30, 2000. Offsetting these events were dividends
declared of $383,000, and $1.2 million employed to repurchase 95,500 shares of
common stock.
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 set forth certain information relating to the Company's
consolidated average balance sheets and its consolidated statements of earnings
for the three months and nine months ended September 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 September 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 $ 582 $ 8 5.50% $ 3,150 $ 40 5.08%
Securities held-to-maturity and
available-for-sale, net (1) 127,083 2,042 6.43 137,164 2,166 6.32
Municipal obligations (2) 1,167 17 5.83 1,166 17 5.83
Loans receivable, net (3) 132,247 3,047 9.22 104,675 2,364 9.03
------- ----- ---- ------- ----- ----
Total interest-earning assets 261,079 5,114 7.84 246,155 4,587 7.45
Non-interest-earning assets (4) 16,649 15,066
------- -------
Total assets $277,728 $261,221
======= =======
Interest-bearing liabilities:
Savings deposits $ 31,741 $ 294 3.70 $ 25,960 $ 224 3.45
NOW and money market deposits 29,821 174 2.33 36,235 192 2.12
Certificates of deposit 107,807 1,699 6.30 101,027 1,385 5.48
------- ----- ---- ------- ----- ----
Total interest-bearing deposits 169,369 2,167 5.12 163,222 1,801 4.41
Borrowed funds 42,760 548 5.13 41,662 520 4.99
------- ----- ---- ------- ----- ----
Total interest-bearing liabilities 212,129 2,715 5.12 204,884 2,321 4.53
Other non-interest bearing liabilities 47,209 36,602
------- -------
Total liabilities 259,338 241,486
Stockholders' Equity 18,390 19,735
------- -------
Total liabilities and
stockholders' equity $277,728 $261,221
======= =======
Net interest income/
interest rate spread (5) %2,399 2.72% $2,266 2.92%
===== ==== ===== ====
Net interest margin (6) 3.68% 3.68%
==== ====
Ratio of interest-earning assets to
interest-bearing liabilities 1.23 1.20
====
(1) Securities, net excludes municipal obligations.
(2) Interest income and yields are presented on a fully-taxable equivalent basis.
(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>
12
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<TABLE>
<CAPTION>
Nine Months Ended September 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 $ 679 $ 31 6.09% $ 8,536 $ 304 4.75%
Securities , net (1) 149,471 7,046 6.29 144,533 6,682 6.16
Municipal obligations (2) 1,167 51 5.83 5,490 251 6.10
Loans receivable, net (3) 128,165 8,680 9.03 100,821 6,591 8.72
------- ------ ---- ------- ------ ----
Total interest-earning assets 279,482 15,808 7.54 259,380 13,828 7.11
Non-interest-earning assets (4) 17,438 17,517
------- -------
Total assets 296,920 $276,897
======= =======
Interest-bearing liabilities:
Savings deposits $ 30,434 $ 839 3.68 $ 21,530 $ 526 3.26
NOW and money market deposits 47,824 824 2.30 54,799 806 1.96
Certificates of deposit 104,983 4,712 5.98 104,007 4,289 5.50
------- ------ ---- ------- ------ ----
Total interest-bearing deposits 183,241 6,375 4.64 180,336 5,621 4.16
Borrowed funds 51,891 2,031 5.22 39,791 1,465 4.91
------- ------ ---- ------- ------ ----
Total interest-bearing liabilities 235,132 8,406 4.77 220,127 7,086 4.29
Other non-interest bearing liabilities 43,704 35,912
------- -------
Total liabilities 278,836 256,039
Stockholders' Equity 18,084 20,858
Total liabilities and
stockholders' equity 296,920 $276,897
======= =======
Net interest income/
interest rate spread (5) $ 7,402 2.77% $ 6,742 2.82%
====== ==== ====== ====
Net interest margin (6) 3.53% 3.47%
==== ====
Ratio of interest-earning assets to
interest-bearing liabilities 1.19 1.18
==== ====
(1) Securities, net excludes municipal obligations.
(2) Interest income and yields are presented on a fully-taxable equivalent basis.
(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 September 30, 2000 and 1999
General
The Company reported net income of $475,000, or basic and diluted earnings per
share of $.30 for the quarter ended September 30, 2000, compared to $381,000, or
basic and diluted earnings per share of $.22 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 $283,000, or 13.4%, which was offset
in part by increases in other operating expenses of $200,000, or 10.4%.
Interest Income
Interest income, on a fully-taxable equivalent basis, increased 527,000, or
11.5%, from $4.6 million for the three months ended September 30, 1999, to $5.1
million for the three months ended September 30, 2000. The increase was
attributable to an increase in the average balance of total interest-earning
assets of $14.9 million, or 6.1%, from $246.2 million for the three months ended
September 30, 1999, to $261.1 million for the three months ended September 30,
2000. The average balance of securities, net, (exclusive of municipal
obligations) decreased $10.1 million, or 7.4%, but returned an 11 basis point
increase in the average yield to 6.43% for the three months ended September 30,
2000, compared to 6.32% for the 1999 period. The average balance of loans, net,
increased $27.6 million, or 26.3% from $104.7 million for the three months ended
September 30, 1999, to $132.2 million for the 2000 period. The average yield on
loans receivable, net, increased 19 basis points from 9.03% for the 1999 period,
to 9.22% for the three months ended September 30, 2000. The average yield on
total interest-earning assets increased from 7.45% for the three months ended
September 30, 1999, to 7.84% for the three months ended September 30, 2000 as a
result of increased rates available in the market.
Interest Expense
Interest expense increased $394,000, or 17.0%, from $2.3 million for the three
months ended September 30, 1999, to $2.7 million for the three months ended
September 30, 2000, primarily as a result of a $7.2 million or 3.5% increase in
the average balance of total interest-bearing liabilities from $204.9 million
for the 1999 period to $212.1 million for the three months ended September 30,
2000. The increased interest expense resulted from increases in short-term
market rates resulting in higher funding costs. The average rate paid on
interest-bearing deposits increased 71 basis points from 4.41% paid for the 1999
period to 5.12% paid for the three months ended September 30, 2000. The average
balance of savings deposits increased by $5.8 million, or 22.3%, and the average
balance of NOW and money market deposits decreased by $6.4 million, or 17.7%
from period to period. The average balance of certificates of deposit increased
$6.8 million as the Company utilized over $100,000 time deposits as an
alternative funding source. The average cost of borrowed funds increased 14
basis points from 4.99% for the 1999 period, to 5.13% for the three months ended
September 30, 2000, due to higher market interest rates on overnight borrowings.
14
<PAGE>
Net Interest Income
Net interest income on a fully-taxable equivalent basis increased by $133,000,
or 5.9%, from $2.3 million for the three months ended September 30, 1999, to
$2.4 million for the three months ended September 30, 2000. The average cost
of total interest-bearing liabilities for the period increased 59 basis points
from 4.53% in the 1999 period to 5.12% in the 2000 period. The average yield
on total interest-earning assets for the period increased 39 basis points from
7.45% in the 1999 period to 7.84% in the 2000 period. The net interest rate
spread decreased by 20 basis points from 2.92% in the 1999 period, to 2.72% in
the 2000 period.
Provision for Loan Losses
The Company made no provision for loan losses for the three months ended
September 30 2000, compared to a $150,000 provision for the three month period
ended September 30, 1999. The absence of a provision for loan losses for the
three months ended September 30, 2000 reflects management's qualitative and
quantitative assessment of the loan portfolio, net charge-offs and recoveries of
charged-off loans. At September 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 September 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 1.40% and 1.22% at September 30, 2000
and December 31, 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 Companys 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>
September 30, December 31,
2000 1999
------------- ------------
(In thousands)
Non-accrual loans:
Commercial and industrial loans $ 384 42
Automobile loans - 32
Consumer loans 50 105
----- -----
Total non-accrual loans 434 179
Loans contractually past due 90 days or
more, other than non-accruing(2) - -
----- -----
Total non-performing loans $ 434 179
----- -----
Allowance for loan losses as a percentage
of loans (1) 1.39% 1.22%
Allowance for loan losses as a percentage
of total non-performing loans 432.03% 824.02%
Non-performing loans as a percentage of loans(1) .32% .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,
however, are current with respect to scheduled periodic principal and/or
interest payments. The Company is in the process of renewing these obliga-
tions and/or awaiting anticipated repayment. There were no loans con-
tractually past due more than 90 days in a matured status at September
30, 2000.
Other Operating Income
Other operating income increased $28,000, or 6.7%, to $443,000 for the three
months ended September 30, 2000. Service charges on deposit accounts increased
$52,000, or 31.3%, 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. Offsetting this increase in other operating income
was a decrease in net gain on sale of residential loans which decreased $30,000
or 26.3%. This decrease was a result of overall decrease in residential mortgage
loan production. Higher market interest rates have resulted in an industry wide
slowdown in residential lending.
Other Operating Expense
Other operating expenses increased $200,000, or 10.4%, from $1.9 million for the
three months ended September 30, 1999, to $2.1 million in the three months ended
September 30, 2000. Increases in salaries and employee benefits, premises and
equipment expense, and other expense for the three months ended September 30,
2000 are a result of the Bank's overall growth and included $54,000 of expense
related to the issuance of $7.5 million of capital securities.
Income Taxes
Income taxes increased $17,000, or 7.7%, from $220,000 for the three months
ended September 30, 1999, to $237,000 for the three months ended September 30,
2000, as a result of the increase in income before income taxes.
16
<PAGE>
The effective tax rate for the three months ended September 30, 2000 was 33.3%,
compared to 36.6% for the three months ended September 30, 1999.
Comparison of Operating Results for the
Nine Months Ended September 30, 2000 and 1999
General
The Company reported net income of $1.5 million, or basic and diluted earnings
per share of $.91 for the nine months ended September 30, 2000, compared to $1.2
million, or basic and diluted earnings of $.68 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 $1.0 million, or 16.4%,
which was offset in part by increases in other operating expenses of $606,000,
or 10.7%.
Interest Income
Interest income, on a fully-taxable equivalent basis, increased $2.0 million, or
14.3 %, from $13.8 million for the nine months ended September 30, 1999, to
$15.8 million for the nine months ended September 30, 2000. The increase was
attributable to an increase in the average balance of total interest-earning
assets of $20.1 million, or 7.8%, from $259.4 million for the nine months ended
September 30, 1999, to $279.5 million for the nine months ended September 30,
2000. The average balance of securities, net, (exclusive of municipal
obligations) increased $4.9 million, or 3.4%, and returned a 13 basis point
increase in the average yield to 6.29% for the nine months ended September 30,
2000, compared to 6.16 % for the 1999 period. The $4.3 million decline in the
average balance of municipal obligations for the nine months ended September 30,
2000 from $5.5 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 $27.3 million, or 27.1% from $100.8
million for the nine months ended September 30, 1999, to $128.2 million for the
2000 period. The average yield on loans receivable, net, increased 31 basis
points from 8.72% for the 1999 period, to 9.03% for the nine months ended
September 30, 2000. The average yield on interest-earning assets increased from
7.11% for the nine months ended September 30, 1999, to 7.54% for the nine months
ended September 30, 2000, as a result of increased interest rates available in
the market.
Interest Expense
Interest expense increased $1.3 million, or 18.6%, from $7.1 million for the
nine months ended September 30, 1999, to $8.4 million for the nine months ended
September 30, 2000, primarily as a result of a $15.0 million or 6.8% increase in
the average balance of total interest-bearing liabilities from $220.1 million
for the 1999 period to $235.1 million for the nine months ended September 30,
2000. The increased interest expense resulted from an increase of $12.1 million,
or 30.4% in the average balance of borrowed funds. The average rate paid on
interest-bearing deposits increased 48 basis points from 4.16% paid for the 1999
period to 4.64% paid for the nine month period ended September 30, 2000. The
average balance of savings deposits increased by $8.9 million, or 41.4%, and the
average balance of NOW and money market deposits decreased by $7.0 million, or
12.7% from period to period. The average balance of certificates of deposit
increased $1.0 million as the Company utilizes certificates of deposit over
$100,000 as a funding source when necessary. The average cost of borrowed funds
increased 31 basis points from 4.91% for the 1999 period, to 5.22% for the nine
months ended September 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 $660,000,
or 9.8%, from $6.7 million for the nine months ended September 30, 1999, to $7.4
million for the nine months ended September 30, 2000. The average cost of total
interest-bearing liabilities for the period increased 48 basis points from 4.29%
in the1999 period to 4.77% in the 2000 period. The average yield on
interest-earning assets for the period increased 43 basis point from 7.11% in
the 1999 period to 7.54% in the 2000 period. The net interest rate spread
decreased by 5 basis points from 2.82% in the 1999 period, to 2.78% in the 2000
period.
Provision for Loan Losses
The Company's provision for loan losses was $150,000 for the nine months ended
September 30, 2000 as compared to $450,000 for the nine months ended September
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 $78,000, or 5.9%, to $1.3 million for the nine
month period ended September 30, 2000. This decrease was attributable to a
decrease in net gain on sale of residential loans of $256,000 or 58.3%. Higher
market interest rates have resulted in an industry wide slowdown in residential
lending. In addition, the Company had benefitted from an $88,000 gain on the
sale of securities in the nine months ended September 30, 1999, and there
were no securities sales in the nine months ended September 30, 2000. Offsetting
these decreases, in part, were increases in service charges on deposit accounts
of $163,000, or 34.2%, 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.
Other Operating Expense
Other operating expenses increased $606,000, or 10.7%, from $5.7 million for the
nine months ended September 30, 1999, to $6.2 million in the nine months ended
September 30, 2000. Increases in salaries and employee benefits, occupancy,
premises and equipment expense, and other expense for the nine months ended
September 30, 2000 are a result of the Bank's overall growth with additional
space leased in the main office and through its increased sales efforts and
introduction of new products and services.
Income Taxes
Income taxes increased $70,000, or 10.4%, from $672,000 for the nine months
ended September 30, 1999, to $742,000 for the nine months ended September 30,
2000, as a result of the increase in income before income taxes. The effective
tax rate for the nine months ended September 30, 2000 was 33.4%, compared to
35.2% for the nine months ended September 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
beginning 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.
In September 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
This statement replaces SFAS No. 125, issued in June 1996. SFAS No. 140 is
effective for transfers occurring after March 31, 2001 and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. 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. 140.
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 nine months
ended September 30, 2000, and 1999, the Company's purchases of securities were
all classified available-for-sale and totaled $389.6 million and $211.7 million,
respectively. Loan originations, net of principal repayments on loans, totaled
$13.9 million and $15.9 million, for the nine months ended September 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
19
<PAGE>
increased loan demand or withdrawal of deposited funds, the Company can arranged
for the sale of loans, liquidate available-for-sale securities and access
its lines of credit, totaling $6.0 million with unaffiliated financial insti-
tutions 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 September 30,
2000, which enable it to borrow funds on a secured basis. The Company could also
engage in other forms of borrowings, including reverse repurchase agreements.
At September 30, 2000, the Company's primary borrowings consisted of convertible
advances from the FHLB. The convertible feature othese 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 September 30, 2000, convertible ad-
vances outstanding were as follows:
Interest Call Contractual
Amount Rate Date Maturity
----------- ----- ----------- ----------
$14,000,000 5.49% 02/19/2003 02/19/2008
$15,000,000 4.59% 01/21/2002 01/21/2009
$10,000,000 4.24% 10/08/1998 10/08/2000
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
September 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 September 30, 2000, the Bank exceeded
those requirements with a leverage capital ratio, and risk-based capital ratio
and total-risk based capital ratio of 7.97%, 13.18%, and 14.30%, 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 September 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 September 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 in-
stantaneous and sustained interest rate change of zero and plus or minus 200
basis point increments.
At September 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 $ 63 0.58 $3,674 (17.80)%
100 62 0.57 362 (1.75)
Static - - - -
(100) 52 .48 4,647 22.51
(200) (78) (.72) 6,504 31.51
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
None
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 regis-
trant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized.
LONG ISLAND FINANCIAL CORP.
(Registrant)
Date: November 13, 2000 By: /s/ Douglas C. Manditch
Douglas C. Manditch
President and Chief Executive
Officer
Date: November 13, 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 Sept 30, Nine Months Ended Sept 30,
--------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 475 381 1,476 1,212
Weighted average shares outstanding 1,596,201 1,758,364 1,627,160 1,770,163
Basic and diluted earnings per share $ .30 .22 .91 .68
=== === === ===
</TABLE>
