FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998.
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 number 0-23526
Long Island Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-3198508
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
201 Old Country Road, Melville, New York 11747-2724
(Address of principal executive offices) (Zip Code)
(516) 547-2000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all the
reports required to be filed by Section 13or 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.
23,934,414 Shares were outstanding as of March 31,1998
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LONG ISLAND BANCORP, INC
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
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ITEM 1. Financial Statements
Consolidated Statements of Financial Condition at
March 31, 1998 and September 30, 1997 3
Consolidated Statements of Operations for the three months
and six ended March 31, 1998 and 1997 4
Consolidated Statement of Changes in Stockholders' Equity for the
six months ended March 31, 1998 5
Consolidated Statements of Cash Flows for the six months ended
March 31, 1998 and 1997 6
Notes to the Consolidated Financial Statements 7 - 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 19
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 20- 21
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 22
ITEM 2. Changes in Securities 23
ITEM 3. Defaults Upon Senior Securities 23
ITEM 4. Submission of Matters to a Vote of Security Holders 23
ITEM 5. Other Information 24
ITEM 6. Exhibits and Reports on Form 8-K 24
Signature Page 25
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LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Financial Condition
(In thousands, except share data)
March 31, September 30,
1998 1997
-------------- ----------------
ASSETS
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Cash and cash equivalents (including interest-earning assets of $41,338 and
$9,735, respectively) $ 81,850 $ 43,705
Investment in debt and equity securities, net:
Available-for-sale 287,966 138,578
Mortgage-backed securities, net:
Held-to-maturity (estimated fair value of
$19,525 and $20,188, respectively) 21,462 22,223
Available-for-sale 1,906,134 1,808,471
Stock in Federal Home Loan Bank of New York, at cost 50,548 48,724
Loans held for sale 262,294 157,617
Loans receivable held for investment, net:
Real estate loans, net 3,300,790 3,333,185
Commercial loans, net 8,392 6,465
Other loans, net 185,571 178,325
------------------- ----------------
Loans, net 3,494,753 3,517,975
Less allowance for possible loan losses (34,041) (33,881)
------------------- ----------------
Total loans receivable held for investment, net 3,460,712 3,484,094
Mortgage servicing rights, net 45,641 41,789
Office properties and equipment, net 86,086 88,466
Accrued interest receivable, net 35,953 35,334
Investment in real estate, net 9,403 9,103
Deferred taxes 18,680 16,547
Excess of cost over fair value of assets acquired 4,864 5,069
Prepaid expenses and other assets 24,275 31,064
-------------------- ---------------
Total assets $ 6,295,868 $ 5,930,784
==================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 3,762,115 $ 3,730,503
Official checks outstanding 25,066 26,840
Borrowed funds,net 1,787,629 1,501,456
Mortgagors' escrow payments 82,654 69,353
Accrued expenses and other liabilities 74,660 56,257
-------------------- ---------------
Total liabilities 5,732,124 5,384,409
Stockholders' equity:
Preferred stock ($0.01 par value, 5,000,000 shares authorized;
none issued) --- ---
Common stock ($0.01 par value, 130,000,000 and 45,000,000 shares
authorized, respectively; 26,816,464 shares issued, 24,028,550 and
24,022,924 outstanding, respectively) 268 268
Additional paid-in capital 311,907 309,372
Unallocated Employee Stock Ownership Plan (17,727) (18,079)
Unearned Management Recognition & Retention Plan (2,980) (3,816)
Unrealized gain on securities available-for-sale, net of tax 12,468 12,947
Retained income-partially restricted 339,427 319,756
Treasury stock, at cost (2,882,050 and 2,793,540 shares, (79,619) (74,073)
respectively)
-------------------- ---------------
Total stockholders' equity 563,744 546,375
-------------------- ---------------
Total liabilities and stockholders' equity $ 6,295,868 $ 5,930,784
==================== ===============
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See accompanying notes to unaudited consolidated financial statements.
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LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Operations
(In thousands, except for per share data)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------- --------------
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Interest income:
Real estate loans $ 63,997 $ 61,906 $ 129,336 $ 121,064
Commercial loans 192 152 343 330
Other loans 4,322 3,758 8,618 7,663
Mortgage-backed securities 30,085 29,509 58,664 58,508
Debt and equity securities 6,399 3,942 12,551 7,672
------------- ------------- ------------- -------------
Total interest income 104,995 99,267 209,512 195,237
------------- ------------- ------------- -------------
Interest expense:
Deposits 39,539 38,839 80,981 78,276
Borrowed funds 25,065 20,298 49,173 36,575
------------- ------------- -------------- --------------
Total interest expense 64,604 59,137 130,154 114,851
------------- ------------- -------------- --------------
Net interest income 40,391 40,130 79,358 80,386
Provision for possible loan losses 1,500 1,500 3,000 3,000
------------- ------------- -------------- --------------
Net interest income after provision for
possible loan losses 38,891 38,630 76,358 77,386
------------- ------------- -------------- --------------
Non-interest income:
Fees and other income:
Loan fees and service charges 859 890 1,696 1,895
Loan servicing fees 1,786 3,108 4,369 6,490
Income from insurance and securities commissions 698 590 1,388 1,098
Deposit service fees 1,393 1,413 2,847 2,941
------------- ------------- --------------- --------------
Total fee income 4,736 6,001 10,300 12,424
Other income 824 997 1,817 1,859
------------ ------------- --------------- --------------
Total fees and other income 5,560 6,998 12,117 14,283
------------- ------------- --------------- --------------
Net gains on sale activity:
Net gains on loans and mortgage-backed securities 3,313 2,263 7,272 4,238
Net gains (loss) on investment in debt and equity
securities 706 ---- 925 98
------------- ------------- -------------- ---------------
Total net gains on sale activity 4,019 2,263 8,197 4,336
Net gain (loss) on investment in real estate
and premises (280) (570) (724) (1,085)
------------- ------------- -------------- ---------------
Total non-interest income 9,299 8,691 19,590 17,534
Non-interest expense:
General and administrative expense:
Compensation, payroll taxes and fringe benefits 13,156 14,832 27,467 28,960
Advertising 637 1,089 1,244 2,344
Office occupancy and equipment 5,377 5,567 10,866 10,963
Federal insurance premiums 801 777 1,597 2,682
Other general and administrative expense 5,253 4,396 9,524 8,744
------------- ------------- ------------- ----------------
Total general and administrative expense 25,224 26,661 50,698 53,693
Litigation expense - goodwill lawsuit 116 275 710 551
Amortization of excess of cost over fair value of assets
acquired 97 109 205 218
------------- ------------- --------------- --------------
Total non-interest expense 25,437 27,045 51,613 54,462
------------- ------------- --------------- --------------
Income before income taxes 22,753 20,276 44,335 40,458
Provision for income taxes 8,816 8,159 17,216 16,407
------------- ------------- --------------- --------------
Net income $ 13,937 $ 12,117 $ 27,119 $ 24,051
============= ============= =============== ==============
Basic earnings per common share $ 0.63 $ 0.54 $ 1.22 $ 1.06
============= ============= =============== ==============
Diluted earnings per common share $ 0.60 $ 0.52 $ 1.17 $ 1.03
============= ============= =============== ==============
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(a) Net income per common share amounts for the 1997 periods have been restated
to reflect the adoption of SFAS No. 128.
See accompanying notes to unaudited consolidated financial statements.
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LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
Consolidated Statement of Changes In Stockholders' Equity
Six Months Ended March 31, 1998
(In thousands, except share data)
UNALLOCATED UNEARNED UNREALIZED
EMPLOYEE MANAGEMENT GAIN ON RETAINED
ADDITIONAL STOCK RECOGNITION SECURITIES INCOME -
COMMON PAID-IN OWNERSHIP & RETENTION AVAILABLE PARTIALLY TREASURY
STOCK CAPITAL PLAN PLAN FOR SALE RESTRICTED STOCK TOTAL
-------- --------- ---------- ------------ ------------ ------------ ---------- ----------
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Balance at September 30, 1997 $ 268 $ 309,372 $ (18,079) $ (3,816) $ 12,947 $ 319,756 $ (74,073) $ 546,375
Net income 27,119 27,119
Allocation/amortization of ESOP
and MRP stock and related
tax benefits 1,840 352 836 3,028
Change in unrealized gains on
securities available-for-sale,
net of taxes (479) (479)
Dividends (6,688) (6,688)
Repurchase of common stock (138,000 shares)
net of exercise of stock options
(49,490 shares)and related tax 695 (760) (5,546) (5,611)
benefits
--------- ------------- ------------ ---------- ----------- ----------- ----------- -------------
Balance at March 31, 1998 $ 268 $ 311,907 $ (17,727) $ (2,980) $ 12,468 $ 339,427 $ (79,619) $ 563,744
========== =========== ========== =========== ========== =========== =========== ============
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See accompanying notes to unaudited consolidated financial statements.
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LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(in thousands)
For the Six Months Ended
------------------------------
March 31,
------------------------------
1998 1997
------------ ------------
Operating activities:
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Net income $ 27,119 $ 24,051
Adjustments to reconcile net income to net cash used by operating activities:
Provision for possible loan losses 3,000 3,000
Write-off of real estate owned and investment in real estate 190 293
Gains on sale of real estate owned and investment in real estate, net (119) (87)
Depreciation and amortization 11,342 7,579
Amortization of premiums, net of discount accretion-debt, equity
and mortgage-backed securities (3,029) (95)
Accretion of discounts, net of amortization of premiums-purchase
accounting and goodwill amortization 125 404
Employee Stock Ownership Plan/Management Recognition & Retention 2,729 3,967
Plan expense
Gains on sales of loans and mortgage-backed securities, net (7,272) (4,238)
Originations of loans held-for-sale, net of proceeds from sales (113,704) (37,809)
Gains on sales of debt and equity securities, net (925) (98)
Increase in accrued interest receivable (619) (1,338)
Increase (decrease) in accrued expenses and other liabilities 18,403 (44,318)
Decrease in official checks outstanding (1,774) (25,510)
Net decrease in deferred taxes and prepaid expenses and other assets 4,656 12,516
Net increase (decrease) in unearned income 2,222 (5,363)
------------ ------------
Net cash used by operating activities (57,656) (67,046)
------------ ------------
Investing activities:
Proceeds from sales of debt and equity securities, 20,244 15,000
available-for-sale
Proceeds from sales of mortgage-backed securities, 466,188 251,484
available-for-sale
Proceeds from maturities of and principal payments on debt and 458,036 93,169
equity securities
Principal payments on mortgage-backed securities 218,728 166,290
Purchases of debt and equity securities, available-for-sale (622,544) (89,702)
Purchases of Federal Home Loan Bank (1,824) (7,970)
stock
Purchases of mortgage-backed securities, available-for-sale (556,499) (50,015)
Originations and purchases of loans held-for-investment, net of (207,234) (747,292)
principal payments
Proceeds from sale of real estate owned, office properties and 4,588 4,591
equipment
Purchases of office properties and equipment (1,535) (5,182)
Purchase of mortgage servicing rights --- (4,045)
------------ ------------
Net cash used by investing activities (221,852) (373,672)
------------ ------------
Financing activities:
Net increase (decrease) in demand deposits, NOW accounts and savings 49,959 (4,724)
accounts
Net increase in mortgagors' escrow accounts 13,301 12,986
Net (decrease) increase in certificates of deposit (18,347) 38,898
Costs to repurchase common stock (6,894) (14,678)
Proceeds from the exercise of stock options 588 443
Cash dividends paid on common stock (7,127) (6,065)
Net increase (decrease) in short-term borrowings 1,188 (186,000)
Net increase in long-term borrowings 284,985 653,210
------------ ------------
Net cash provided by financing activities 317,653 494,070
------------ ------------
Increase in cash and cash equivalents 38,145 53,352
Cash and cash equivalents at the beginning of the period 43,705 76,348
------------ ------------
Cash and cash equivalents at the end of the period $ 81,850 $ 129,700
============ ============
Supplemental disclosures of cash flow information: Cash paid during the quarters
for:
Interest on deposits and borrowed funds $ 126,903 $ 108,566
============ ============
Income taxes $ 7,148 $ 6,013
============ ============
Non-cash investing activities:
Additions to real estate owned, net $ 4,617 $ 5,387
============ ============
Securitization of loans $ 224,319 $ 322,189
============ ============
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See accompanying notes to unaudited consolidated financial statements.
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LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include
the accounts of Long Island Bancorp, Inc. ("Company") and its
wholly-owned subsidiary The Long Island Savings Bank, FSB ("Bank").
The unaudited consolidated financial statements included herein reflect
all adjustments which are, in the opinion of management, necessary for
the fair presentation of the Company's interim financial condition as
of the dates indicated and the results of operations for the periods
shown. In preparing the accompanying consolidated financial statements,
management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the
consolidated statements of financial condition and of income and
expenses for the periods presented in the statements of operations. The
results of operations for the three months and six months ended March
31, 1998 are not necessarily indicative of the results of operations to
be expected for the remainder of the 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 ("SEC").
These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report to Shareholders
and Form 10-K for the fiscal year ended September 30, 1997.
Certain reclassifications have been made to conform the prior period's
consolidated financial statements to the current presentation.
2. Earnings Per Share of Common Stock
Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings per Share". This statement establishes standards for
computing and presenting EPS for entities with publicly held common
stock and common stock equivalents. The statement simplifies the
computations of EPS that were previously found in APB Opinion No. 15
"Earnings Per Share". This statement requires a reconciliation of the
numerator and denominator of the two EPS calculations and the
restatement of all prior period EPS data presented after adoption.
Basic EPS is determined by dividing net income available to common
stockholders for the period by the weighted average number of common
shares outstanding during the same period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock which then shared in the
earnings of the entity. The weighted average number of common shares
outstanding for basic and diluted EPS calculations for the three months
and six months ended March 31, 1998 and 1997, are presented on page 17
herein. The additional number of shares included in the calculation of
diluted EPS arising from stock options was 934,713 and 861,598,
respectively for the quarters ended March 31, 1998 and 1997 and 914,842
and 822,408, respectively, for the six months ended March 31, 1998 and
1997.
3. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and short-term loans to commercial
banks with original terms to maturity of less than three months.
4. Recent Developments
On March 31, 1998, the Company announced the declaration of its
fourteenth quarterly dividend, in the amount of fifteen cents ($0.15)
per common share. The dividend is payable on May 14, 1998 to
shareholders of record at the close of business on April 14, 1998.
The Company announced on April 3, 1998, that it has entered into a
definitive agreement pursuant to which the Company will merge with and
into Astoria Financial Corporation ("Astoria"). Under the terms of the
agreement, holders of the Company's common stock will receive 1.15
shares of Astoria common stock for each share of the Company's common
stock. The transaction, which is subject to regulatory and shareholder
approvals and is expected to be accounted for as a pooling of
interests, is anticipated to close during the third calendar quarter of
1998. In connection with the merger, the Company announced that its
respective stock repurchase program has been terminated.
Item 2. Management's Discussion and Analysis
General
The Company was incorporated in the State of Delaware in December 1993 at the
direction of the Board of Directors of the Bank for the purpose of becoming a
holding company to own all of the outstanding capital stock of the Bank upon its
conversion from a mutual to a stock form of organization. The mutual-to-stock
conversion was completed on April 14, 1994.
Financial Condition
Total assets at March 31, 1998 were $6.3 billion, an increase of $365.1 million,
or 6.2%, from September 30, 1997. The increase in assets is primarily due to an
increase in investment in debt and equity securities of $149.4 million to $288.0
million at March 31, 1998 from $138.6 million at September 30, 1997 and an
increase in mortgage-backed securities ("MBS's") of $96.9 million, or 5.3%, to
$1.9 billion at March 31, 1998 from $1.8 billion at September 30, 1997. Further
contributing to the growth in assets was the increase in loans held for sale of
$104.7 million, or 66.4%, to $262.3 million at March 31, 1998 from $157.6
million at September 30, 1997.
Non-performing assets increased by $0.6 million, or 1.1%, to $54.3 million at
March 31, 1998 from $53.7 million at September 30, 1997, reflecting a $0.3
million increase in non-performing loans and a $0.3 million increase in real
estate owned. Despite the marginal increase in non-performing assets, the ratios
of non-performing assets to total assets improved by 5 basis points to 0.86% at
March 31, 1998 from 0.91% at September 30, 1997. This improvement reflects the
growth in total assets and total gross loans.
Total liabilities at March 31, 1998 were $5.7 billion, an increase of $347.7
million, or 6.5%, from September 30, 1997. The increase in total liabilities
primarily reflects an increase in borrowed funds of $286.2 million, or 19.1%, to
$1.8 billion at March 31, 1998 from $1.5 billion at September 30, 1997 and an
increase in deposit liabilities of $31.6 million, or 0.8%, when compared with
September 30, 1997. Further contributing to the increase was an increase in
accrued expenses and other liabilities of $18.4 million to $74.7 million at
March 31, 1998 from $56.3 million at September 30, 1997.
Stockholders' equity increased by $17.4 million to $563.7 million at March 31,
1998 from $546.4 million at September 30, 1997. The increase consists of
earnings of $27.1 million and $3.0 million related to the Company's stock
benefit plans. These increases were offset by a decline of $0.5 million in
unrealized gains on securities classified as available-for-sale, net of tax, the
net purchase of treasury stock of $5.5 million and the declaration of $6.7
million in dividends. At March 31, 1998, the Company's ratio of stockholders'
equity to total assets was 8.95% and book value per share was $23.55.
Liquidity, Regulatory Capital and Capital Resources
General. The Company's primary sources of funds are deposits and proceeds from
principal and interest payments on loans, MBS's and other securities. While
maturities and scheduled amortization of loans and MBS's are predictable sources
of funds, deposit flows and mortgage prepayments are greatly influenced by
general interest rates, economic conditions and competition. In addition, the
Company uses borrowings as an additional and sometimes a less costly source of
funds. The Company's primary sources of borrowings are through the sales of
securities under agreements to repurchase ("reverse-repurchase agreements"), a
funding note issued in fiscal 1996 and a medium-term note issued in fiscal 1997.
The Bank is required to maintain minimum levels of liquid assets as defined by
Office of Thrift Supervision ("OTS") regulations. During November 1997, the OTS
lowered the liquidity requirements from 5% to 4% of the Bank's liquidity base.
Additionally, the OTS streamlined the calculations used to measure compliance
with liquidity requirements, expanded the types of assets that can be considered
liquid and reduced the liquidity base by modifying the definition of net
withdrawable accounts to exclude accounts with maturities exceeding one year. At
March 31, 1998, the Banks liquid asset ratio was 22.89%. The current liquidity
ratio is above the regulatory requirements in accordance with the Banks
investment objective of investing in short-term debt securities and MBS's.
Future levels may vary.
The Company's most liquid assets are cash and short-term investments. The levels
of these assets are dependent on the Company's operating, financing, lending and
investing activities during any given period.
The primary investment activity of the Bank is the origination and purchase of
real estate loans and other loans. During the six months ended March 31, 1998,
the Bank originated or purchased real estate loans in the amount of $1.4
billion, including $6.1 million which represents the bulk purchase of loans, and
other loans in the amount of $52.0 million. The Bank purchases mortgage-backed
securities to reduce liquidity not otherwise required to meet loan demand.
Purchases of mortgage-backed securities totaled $550.1 million for the six
months ended March 31, 1998. Other investing activities may include investing in
U.S. government securities, federal agency obligations and asset-backed
securities.
Liquidity management of the Company is both a daily and long-term component of
management's strategy. Excess funds are generally invested in short-term and
intermediate-term securities. In the event that the Bank should require funds
beyond its ability to generate them internally, additional sources of funds are
available through the use of Federal Home Loan Bank ("FHLB") advances,
reverse-repurchase agreements and additional borrowings of up to $700.0 million
under the Bank's medium-term note program. In addition, the Bank may access
funds, if necessary, through lines of credit totaling $150.0 million at March
31, 1998 from an unrelated financial institution.
In accordance with the requirements of the OTS the Bank established a
liquidation account in the amount equal to its capital as of the date of the
latest consolidated statement of financial condition appearing in the final
prospectus related to the Company's initial public offering in April 1994. The
liquidation account is maintained for the benefit of eligible pre-conversion
depositors who continue to maintain their account at the Bank after the
conversion. The liquidation account is reduced annually to the extent that
eligible account holders reduce their qualifying deposits. In the unlikely event
of a complete liquidation of the Bank, each eligible account holder will be
entitled to receive a distribution from the liquidation account. The Bank is not
permitted to declare or pay a dividend on or to repurchase any of its capital
stock if the effect would be to cause the Bank's regulatory capital to be
reduced below the amount required for the liquidation account. Unlike the Bank,
the Company is not subject to OTS regulatory restrictions on the declaration or
payment of dividends to its stockholders, although the source of such dividends
could depend upon dividend payments from the Bank. The Company is subject,
however, to the requirements of Delaware law, which generally limit dividends to
an amount equal to the excess of its net assets (the amount by which total
assets exceed total liabilities) over its stated capital or, if there is no such
excess, to its net profits for the current and/or immediately preceding fiscal
year.
Regulatory Capital Position. Under OTS capital regulations, the Bank is required
to comply with each of three separate capital adequacy standards. At March 31,
1998, the Bank exceeded each of the three OTS capital requirements, as
illustrated on page 19 herein.
Comparison of Operating Results for the Three Months Ended March 31,1998
and 1997
General. The Company had net income of $13.9 million and diluted EPS of $0.60
for the quarter ended March 31, 1998 ("1998 quarter"). For the quarter ended
March 31, 1997 ("1997 quarter"), net income was $12.1 million and diluted EPS
was $0.52 per share. Basic EPS for the 1998 and 1997 quarters were $0.63 and
$0.54, respectively.
Net Interest Income. Net interest income increased by $0.3 million to $40.4
million in the 1998 quarter from $40.1 million in the 1997 quarter. The increase
in net interest income is attributable to the $162.9 million growth of the
average real estate loan portfolio to $3.5 billion for the 1998 quarter from
$3.3 billion for the 1997 quarter and the growth in average debt and equity
securities to $358.2 million for the 1998 quarter from $211.5 million for the
1997 quarter. This growth was funded by a $242.4 million increase in average
borrowed funds and an increase of $82.6 million in average deposit liabilities.
The net interest margin declined to 2.73% in the 1998 quarter from 2.90% in the
1997 quarter primarily due to higher funding costs related to borrowed funds and
an 11 basis point decline in the average yield on real estate loans.
Provision for Possible Loan Losses. The provision for possible loan losses was
$1.5 million for both the 1998 and 1997 quarter. Non-performing loans decreased
by $4.1 million to $47.3 million at March 31, 1998 compared with $51.4 million
at March 31, 1997. At March 31, 1998, the ratio of the allowance for possible
loan losses to non-performing loans improved to 71.90% from 66.07% at March 31,
1997. Although management considers the allowance for possible loan losses to be
adequate at March 31, 1998, if general economic trends and real estate values
were to decline, the level of non-performing loans may increase. Such an
increase could result in greater provisions for possible loan losses thereby
adversely affecting future operating results.
Non-Interest Income. Total non-interest income increased by $0.6 million, or
7.0%, to $9.3 million during the 1998 quarter compared with $8.7 million for the
1997 quarter. This increase is attributable to increases in the net gains on
asset sales of $1.8 million, an increase of $0.1 million in income from
insurance and securities commissions and a decline of $0.3 million in net losses
on investments in real estate and premises. These improvements were partially
offset by decreases of $1.3 million in loan servicing fee income and $0.2
million in other income. The increased gains on asset sales is primarily due to
a $0.5 million improvement in the Company's mortgage banking activities and
greater profits of $1.3 million from the sale of MBS's and debt and equity
securities. The decline in loan service fee income is due to a $1.8 million
increase in the amortization of mortgage servicing rights ("MSR's") as a result
of increased mortgage refinancing activity. Partially offsetting the rise in MSR
amortization was greater fee income stemming from a net increase of $300.0
million in the mortgage servicing portfolio and the reversal of previous
provisions for declines in fair value of MSR strata.
Non-Interest Expense. Total non-interest expense decreased by $1.6 million, or
5.9%, to $25.4 million in the 1998 quarter from $27.0 million in the 1997
quarter. Contributing to this decrease were reductions in compensation and
benefits expense of $1.7 million, advertising expense of $0.5 million and office
occupancy and equipment of $0.2 million. These decreases were partially offset
by an increase in other G&A expense of $0.9 million. Compensation and benefit
costs decreased due to greater net deferred costs resulting from increased loan
production, the outsourcing of computer processing operations and the previous
downsizing of loan production offices. Advertising costs have declined as a
result of the deferral of marketing initiatives. Other G&A expense rose due to
an increase in other professional services resulting from the outsourcing of
computer processing operations and an increase in legal costs.
Provision for Income Taxes. Income tax expense increased by $0.6 million, or
8.1%, to $8.8 million in the 1998 quarter from $8.2 million in the 1997 quarter.
This increase primarily reflects higher pre-tax income partially offset by a 149
basis point reduction in the effective tax rate to 38.75% in the 1998 quarter
from 40.24% in the 1997 quarter.
The decline in the effective tax rate reflects tax planning initiatives that
began in October 1997.
Comparison of Operating Results for the Six Months Ended March 31, 1998 and 1997
General. The Company had net income of $27.1 million and diluted EPS of $1.17
for the six months ended March 31, 1998 ("1998 period"). For the six months
ended March 31, 1997 ("1997 period"), net income was $24.1 million and diluted
EPS of $1.03. Basic EPS for the 1998 and 1997 periods were $1.22 and $1.06,
respectively.
Net Interest Income. Net interest income decreased by $1.0 million, or 1.3%, to
$79.4 million in the 1998 period from $80.4 million in the 1997 period. This
decrease is attributable to a flat yield curve coupled with an increase in
average borrowed funds. The decrease in net interest income primarily reflects a
29 basis point decline in the net interest margin to 2.70% for the 1998 period
from 2.99% for the 1997 period. Contributing to the lower margin were declines
in the average yield on MBS's and real estate loans of 17 and 13 basis points,
respectively, resulting from the flattening of the treasury yield curve and
increased competition for mortgage loan originations. The cost of
interest-bearing liabilities increased on the other hand, further constricting
the net interest margin. The increased cost of deposit liabilities arose from
rising short term interest rates and the migration of lower-cost core deposits
into time deposits. The rise in the cost of borrowed funds is primarily due to
an increase in the effective cost to borrow under the medium term note program.
Further contributing to the decline in the net interest margin was the increase
in average borrowed funds and average deposits. Average borrowed funds increased
$374.8 million to $1.7 billion at March 31, 1998 as compared with $1.3 billion
at March 31, 1997. Average deposits increased $84.7 million to $3.8 billion at
March 31, 1998 as compared with $3.7 billion at March 31, 1997. The primary
investment vehicle used by the Company for the additional borrowed funds and
deposits was real estate loans. Average real estate loans increased by $281.6
million to $3.5 billion at March 31, 1998 as compared with $3.2 billion at March
31, 1997.
Provision for Possible Loan Losses. The provision for possible loan losses was
$3.0 million for both the 1998 and 1997 periods, reflecting management's
assessment of the stable level of non-performing assets.
Non-Interest Income. Total non-interest income increased by $2.1 million, or
11.7%, to $19.6 million during the 1998 period compared with $17.5 million for
the 1997 period. The increase in total non-interest income primarily reflects
increases in the net gains on asset sales of $3.9 million, an increase of $0.3
million in income from insurance and securities commissions and a decline of
$0.4 million in net loss on investment in real estate and premises. These
improvements were partially offset by decreases in loan servicing fees of $2.1
million and loan fees and service charges of $0.2 million. The increased gains
on asset sales is primarily due to an improvement of $1.4 million in the
Company's mortgage banking activities and greater profits of $2.5 million from
the sale of MBS's and debt and equity securities. The decline in loan service
fee income is due to additional MSR amortization of $3.1 million, as a result of
increased mortgage refinance activity, which was partially offset by the
expansion of the mortgage servicing portfolio. Net loss on investment in real
estate and premises declined to a loss of $0.7 million for the 1998 period from
a loss of $1.1 million for the 1997 period primarily reflecting improvement in
real estate owned ("REO") dispositions.
Non-Interest Expense. Total non-interest expense decreased by $2.8 million, or
5.2%, to $51.6 million in the 1998 period from $54.5 million in the 1997 period.
Contributing to this decrease were reductions in compensation and benefits costs
of $1.5 million due to greater net deferred costs resulting from increased loan
production, the outsourcing of computer processing operations and the previous
downsizing of loan production offices. Federal insurance premiums declined by
$1.1 million as a result of the 1996 BIF/SAIF legislation and advertising
expense declined by $1.1 million as a result of the deferral of marketing
initiatives. The effect of these decreases were partially offset by the $0.8
million increase in other G & A expense resulting from an increase in other
professional services due to the outsourcing of computer processing operations
and an increase in legal costs.
Provision for Income Taxes. Income tax expense increased by $0.8 million, or
4.9%, to $17.2 million in the 1998 period from $16.4 million in the 1997 period.
This increase primarily reflects higher pre-tax income partially offset by a 172
basis point reduction in the effective tax rate to 38.83% in the 1998 period
from 40.55% in the 1997 period.
The decline in the effective tax rate reflects tax planning initiatives that
began in October 1997.
Year 2000
The Company is continuing with its plans to address the possible exposures
related to the impact on its computer systems of the year 2000 irrespective of
the recent definitive merger agreement with Astoria.. Key financial, information
and operational systems are being assessed and plans are being developed to
address system modifications required by December 31, 1999. At this time, the
Company has not yet determined the cost, which will be expensed as incurred, of
evaluating its computer software or databases, or of making any modifications
required to correct any year 2000 problems. While the Company believes it is
doing everything technologically possible to assure year 2000 compliance, it is
to some extent dependent upon vendor cooperation and any year 2000 compliance
failures could result in additional expense to the Company.
Impact of New Accounting Standards
Effective January 1, 1997, the Company adopted SFAS 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
except for those transactions that are governed by SFAS 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125." SFAS 127 was
issued in December 1996 to extend the effective date of the provisions of SFAS
125 for one year as they relate to secured borrowings, collateral and repurchase
agreements, dollar rolls, securities lending and similar transactions. SFAS 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 based on consistent application of a financial-components approach that
focuses on control. Under this approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. This statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. This statement
supersedes SFAS 76, "Extinguishment of Debt," and SFAS 77, "Reporting by
Transferors for Transfers of Receivable with Recourse," and SFAS 122,
"Accounting for Mortgage Servicing Rights," and amends SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities," and SFAS 65, "Accounting for
Certain Mortgage Banking Activities." SFAS 125, as amended by SFAS 127, has not
had a material effect on the financial statements of the Company.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130 is effective for
fiscal years beginning after December 15, 1997 and requires reclassification of
financial statements for earlier periods provided for comparative purposes. The
statement establishes standards for reporting and display of comprehensive
income and its components. This statement requires that all items that are
required to be recognized as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is defined as all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. The Company has not yet determined the impact of SFAS
130 on its financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information". SFAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. The statement
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. As the requirements of SFAS
131 are disclosure-related, its implementation will have no impact on the
Company's financial condition or results of operations.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This Form 10-Q Report includes forward looking statements based on current
management expectations. The Company's actual results could differ materially
from those management expectations and the results discussed in these forward
looking statements. Factors that could cause such a difference include, but are
not limited to, general economic conditions, legislative and regulatory changes,
monetary and fiscal policies of the federal government, changes in real estate
values, interest rates, deposit flows, the cost of funds, demand for loan
products, demand for financial services, competition, changes in the quality or
composition of the Bank's loan and investment portfolios, changes in accounting
principles, policies or guidelines, and other economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices. Additional factors are described in the
Company's other public reports filed with the SEC.
<PAGE>
Average Balance Sheet
The following table sets forth certain information relating to the Company's
average unaudited consolidated statements of financial condition and the
consolidated statements of operations for the three months ended March 31, 1998
and 1997, and reflects the annualized average yield on assets and average cost
of liabilities for the periods indicated. Such annualized yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances are derived
from the average daily balances. The yields and costs include fees which are
considered adjustments to yields.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------
1998 1997
------------------------------------- ---------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD\ AVERAGE YIELD\
BALANCE INTEREST COST BALANCE INTEREST COST
------------ ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS
Interest-earning cash
equivalents $ 75,596 $ 902 4.84 % $ 73,621 $ 954 5.26 %
Debt and equity securities
and FHLB-NY stock, net(1) 358,166 5,497 6.14 211,489 2,988 5.65
Mortgage-backed securities 1,797,360 30,085 6.70 1,768,061 29,509 6.68
net (1)
Real estate loans, net (2) 3,499,885 63,997 7.31 3,336,978 61,906 7.42
Commercial and other
loans, net (2) 177,064 4,514 10.20 145,666 3,910 10.74
------------ ----------- ---------- ----------- ----------- -----------
Total interest-earning assets 5,908,071 104,995 7.11 5,535,815 99,267 7.17
Other non-interest-earning 247,016 264,919
assets
------------ ----------- ----------- -----------
Total assets $ 6,155,087 $ 104,995 $5,800,734 $ 99,267
============ =========== =========== ===========
INTEREST BEARING
LIABILITIES
Deposits, net $ 3,789,811 $ 39,539 4.23 % $3,707,228 $ 38,839 4.25 %
Borrowed funds 1,685,030 25,065 6.03 1,442,630 20,298 5.71
------------ ----------- ---------- ----------- ----------- -----------
Total interest-bearing 5,474,841 64,604 4.79 5,149,858 59,137 4.66
liabilities
Non-interest-bearing 118,321 125,123
liabilities
------------ -----------
Total liabilities 5,593,162 5,274,981
Total stockholders' equity 561,925 525,753
------------ ----------- ---------- ----------- ----------- -----------
Total liabilities and
stockholders' equity $ 6,155,087 $ 64,604 $5,800,734 $ 59,137
============ ----------- =========== -----------
Net interestincome/spread(3) $ 40,391 2.32 % $ 40,130 2.51 %
=========== ========== =========== ===========
Net interest margin as %
of interest-earning assets(4) 2.73 % 2.90 %
========== ===========
Ratio of interest-earning
assets to interest-bearing
liabilities 107.91 % 107.49 %
========== ===========
</TABLE>
(1) Debt and equity and mortgage-backed securities are shown including the
average market value appreciation of $21.5 million and $15.0 million, before
tax, from SFAS 115 for the three months ended March 31, 1998 and 1997,
respectively.
(2) Net of unearned discounts, premiums, deferred loan fees, purchase
accounting discounts and premiums and allowance for possible loan losses, and
including non-performing loans and loans held for sale.
(3) Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
<PAGE>
Average Balance Sheet
The following table sets forth certain information relating to the Company's
average unaudited consolidated statements of financial condition and the
consolidated statements of operations for the six months ended March 31, 1998
and 1997, and reflects the annualized average yield on assets and average cost
of liabilities for the periods indicated. Such annualized yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances are derived
from the average daily balances. The yields and costs include fees which are
considered adjustments to yields.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------
1998 1997
------------------------------------- ---------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD\ AVERAGE YIELD\
BALANCE INTEREST COST BALANCE INTEREST COST
------------ ----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS
Interest-earning cash
equivalents $ 71,303 $ 1,822 5.12 % $ 65,921 $ 1,720 5.23 %
Debt and equity securities
and FHLB-NY stock, net(1) 343,309 10,729 6.25 212,253 5,952 5.61
Mortgage-backed securities 1,779,508 58,664 6.59 1,730,596 58,508 6.76
net (1)
Real estate loans, net (2) 3,501,565 129,336 7.39 3,219,987 121,064 7.52
Commercial and other 174,818 8,961 10.25 142,910 7,993 11.19
loans, net (2)
------------ ----------- ---------- ----------- ----------- -----------
Total interest-earning assets 5,870,503 209,512 7.14 5,371,667 195,237 7.27
Other non-interest 241,692 282,765
earning assets ------------ ----------- ----------- -----------
Total assets $ 6,112,195 $ 209,512 $5,654,432 $ 195,237
============ =========== =========== ===========
INTEREST BEARING
LIABILITIES
Deposits, net $ 3,792,630 $ 80,981 4.28 % $3,707,927 $ 78,276 4.23 %
Borrowed funds 1,661,125 49,173 5.94 1,286,370 36,575 5.70
------------ ----------- ---------- ----------- ----------- -----------
Total interest-bearing 5,453,755 130,154 4.79 4,994,297 114,851 4.61
liabilities
Non-interest-bearing 102,589 135,013
liabilities ------------ -----------
Total liabilities 5,556,344 5,129,310
Total stockholders' equity 555,851 525,122
------------ ----------- ---------- ----------- ----------- -----------
Total liabilities and
stockholders' equity $ 6,112,195 $ 130,154 $5,654,432 $ 114,851
============ ----------- =========== -----------
Net interest income/spread (3) $ 79,358 2.35 % $ 80,386 2.66 %
=========== ========== =========== ===========
Net interest margin as %
of interest-earning assets (4) 2.70 % 2.99 %
========== ===========
Ratio of interest-earning
assets to interest-bearing
liabilities 107.64 % 107.56 %
========== ===========
</TABLE>
(1) Debt and equity and mortgage-backed securities are shown including the
average market value appreciation of $21.8 million and $15.5 million, before
tax,from SFAS 115 for the six months ended March 31,1998 and 1997, respectively.
(2) Net of unearned discounts, premiums, deferred loan fees, purchase
accounting discounts and premiums and allowance for possible loan losses, and
including non-performing loans and loans held for sale.
(3) Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
<PAGE>
Rate/Volume Analysis
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and expense during the
periods indicated. Information is provided in each category with respect to (i)
changes attributable to changes in volume (changes in volume multiplied by prior
rate), (ii) changes attributable to changes in rate (changes in rate multiplied
by prior volume), and (iii) the net change. The changes attributable to the
combined impact of volume and rate have been allocated proportionately to the
changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 SIX MONTHS ENDED MARCH 31, 1998
COMPARED TO COMPARED TO
THREE MONTHS ENDED MARCH 31, 1997 SIX MONTHS ENDED MARCH 31, 1997
INCREASE/(DECREASE) INCREASE/(DECREASE)
--------------------------------------- ----------------------------------------
DUE TO DUE TO
--------------------------------------- ----------------------------------------
VOLUME RATE NET VOLUME RATE NET
------------ ------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Interest-earning assets:
Interest-earning cash
equivalents(1) $ 26 $ (78) $ (52) $ 139 $ (37) $ 102
Debt and equity 2,231 278 2,509 4,030 747 4,777
securities(2)(3)
Mortgage-backed securities(3) 490 86 576 1,632 (1,476) 156
Real estate loans(4) 2,989 (898) 2,091 10,432 (2,160) 8,272
Commercial and other loan (4) 809 (205) 604 1,677 (709) 968
------------ ------------- ------------ ----------- ---------- ----------
Total 6,545 (817) 5,728 17,910 (3,635) 14,275
------------ ------------- ------------ ------------- ------------ ------------
Interest-bearing liabilities:
Deposits 862 (162) 700 1,801 904 2,705
Borrowed funds 3,557 1,210 4,767 11,039 1,559 12,598
------------ ------------- ------------ ------------- ------------ ------------
Total 4,419 1,048 5,467 12,840 2,463 15,303
------------ ------------- ------------ ------------- ------------ ------------
Net change in interest income $ 2,126 $ (1,865) $ 261 $ 5,070 $ (6,098) $ (1,028)
============ ============= ============ ============= ============ ============
</TABLE>
(1) Cash equivalents include amounts due from banks and short-term loans to
commercial banks with original terms to maturity of less than three months.
(2) Includes FHLB-NY stock.
(3) Debt and equity and mortgage-backed securities are shown including the
average market value appreciation of $21.5 million and $15.0 million, before
tax, from SFAS 115 for the three months ended March 31, 1998 and 1997,
respectively and $21.8 million and $15.5 million for the six months ended
March 31, 1998 and 1997, respectively.
(4) In computing the volume and rate components of net interest
income for loans, non-performing loans and loans held for sale have been
included.
<PAGE>
<TABLE>
<CAPTION>
LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
FINANCIAL HIGHLIGHTS
At or for the Three Months At or for the Six Months
Ended March 31, Ended March 31,
---------------------------------- ----------------------------------
1998 1997 1998 1997
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Selected Financial Ratios: (a)
Return on average assets ...................... 0.91% 0.84% 0.89% 0.85%
Return on average stockholders' equity ........ 9.92 9.22 9.76 9.16
Average stockholders' equity to average assets. 9.13 9.06 9.09 9.29
Stockholders' equity to total assets .......... 8.95 9.01 8.95 9.01
Interest rate spread during period............. 2.32 2.51 2.35 2.66
Net interest margin............................ 2.73 2.90 2.70 2.99
Operating expenses to average assets........... 1.64 1.84 1.66 1.90
Efficiency ratio (b) .......................... 54.89 56.57 55.42 56.72
Average interest-earning assets to average
interest-bearing............................... 107.91 107.49 107.64 107.56
liabilities....................................
Net interest income to operating expenses ..... 1.60x 1.51x 1.57x 1.50x
Selected Data:
Basic earnings per common share................ $0.63 $0.54 $1.22 $1.06
Weighted average number of shares outstanding
.for basic earnings per common share 22,291,755 22,531,924 22,293,451 22,614,621
computation (c)
Diluted earnings per common share............ $0.60 $0.52 $1.17 $1.03
Weighted average number of shares outstanding
for diluted earnings per share computation (c) 23,226,468 23,393,522 23,208,293 23,437,029
Book value per share........................... $23.55 $21.62 $23.55 $21.62
Number of shares outstanding for book value per
share computation........................... 23,934,414 24,228,267 23,934,414 24,228,267
Cash dividends declared per share.............. $0.15 $0.15 $0.30 $0.30
Dividend payout ratio.......................... 25.00% 28.85% 25.64% 29.13%
</TABLE>
<TABLE>
<CAPTION>
At March 31,
----------------------------
1998 1997
------------ -----------
Asset Quality Ratios:
<S> <C> <C>
Non-performing loans to total gross loans.................... 1.26% 1.44%
Non-performing assets to total assets........................ 0.86 1.04
Allowance for possible loan losses to non-performing loans... 71.90 66.07
</TABLE>
<PAGE>
Regulatory Capital at March 31, 1998 for The Long Island Savings Bank, FSB:
<TABLE>
<CAPTION>
Regulatory Regulatory Excess
Capital Capital Capital
Requirement Level Level
Amount Percent (d) Amount Percent (d) Amount Percent (d)
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital (e)....................... $ 93,219 1.50% $457,854 7.37 % $364,635 5.87%
Core capital (e)........................... 186,438 3.00 457,854 7.37 271,416 4.37
Risk-based capital (f)..................... 252,414 8.00 491,895 15.59 239,481 7.59
</TABLE>
(a) Ratios for the three months ended March 31, 1998 and 1997 were calculated
on an annualized basis.
(b) Amount is determined by dividing total general and administrative expense
by net interest income (before the provision for possible loan losses)
plus total fee income and other income.
(c) The weighted average common shares outstanding for periods prior to
December 31,1997,have been restated to reflect the adoption of SFAS No.128.
(d) Tangible and core capital levels are shown as a percentage of total
adjusted assets, as computed based on regulatory guidelines. Risk-based
capital levels are shown as a percentage of risk-weighted assets.
(e) This figure represents GAAP capital excluding the effect of SFAS 115,
goodwill and a portion of mortgage servicing rights.
(f) The difference between GAAP capital and regulatory risk-based capital
represents the exclusion of the effect of SFAS 115, goodwill, a portion of
mortgage servicing rights and an addition for the allowance for possible
loan losses.
<PAGE>
Allowance for Possible Loan Losses
The following is a summary of the Company's provisions and allowance for
possible loan losses:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------- ------------ -------------
(In thousands)
<S> <C> <C> <C> <C>
Opening allowance......................................... $33,734 $33,488 $33,881 $33,912
Provision................................................. 1,500 1,500 3,000 3,000
Net charge-offs........................................... (1,193) (1,034) (2,840) (2,958)
------------- ------------ ------------ -------------
Ending allowance.......................................... $34,041 $33,954 $34,041 $33,954
============= ============ ============ =============
</TABLE>
Non-Performing Assets
Loans are considered non-performing if they are in foreclosure and/or are 90 or
more days delinquent (excluding those restructured loans that have been returned
to performing status after developing a satisfactory payment history, generally
six months). Loans, other than education loans, accrue interest until considered
doubtful of collection by management, but in no case beyond 90 days delinquent.
Consumer loans (other than education loans) are generally written off upon
becoming 120 days delinquent in the case of installment loans and 180 days in
the case of revolving credit lines. Delinquent interest on education loans
continues to accrue, however, since these loans are backed by a government
agency guarantee and all interest and principal is ultimately expected to be
received. Once management reaches a decision to place a loan on non-accrual
status, all delinquent previously accrued interest on such loan is reversed
against previously recorded income.
The level of non-performing residential property loans is also affected by the
Company's loan restructuring activities. Where borrowers have encountered
hardship, but are able to demonstrate to the Company's satisfaction and ability
and willingness to resume regular monthly payments, the Company seeks to provide
them with an opportunity to restructure their loans. Where successful, these
restructurings avoid the cost of completing the foreclosure process, as well as
any losses on acquisition of the properties and the costs of maintaining and
disposing of real estate owned. Once restructured residential loans comply with
the terms of their restructure agreement for a satisfactory period (generally
six months), the Company returns such loans to performing status.
<PAGE>
The following table sets forth information regarding the components of
non-performing assets for the periods indicated. Restructured loans that have
not yet demonstrated a sufficient payment history to warrant a return to
performing status are included with non-performing loans.
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
------------------- ---------------------
(Dollars in thousands)
Non-performing loans (1):
Residential:
<S> <C> <C>
One-to-four family.................................................... $39,530 $37,621
Co-operative apartments............................................... 1,300 1,207
Home equity........................................................... 1,151 1,478
Second mortgage....................................................... 105 172
Multi-family.......................................................... 94 246
Total residential .................................................. 42,180 40,724
Non-residential:
Commercial real estate................................................ 3,132 2,923
Construction.......................................................... --- 453
Land.................................................................. --- 585
Total real estate loans (2)................................................ 45,312 44,685
Other loans (3)............................................................ 2,035 2,389
Total non-performing loans................................................. 47,347 47,074
Real estate owned net (4).................................................. 6,943 6,643
Total non-performing assets................................................ $54,290 $53,717
Non-performing loans to total gross loans.................................. 1.26% 1.28%
Non-performing assets to total assets...................................... 0.86 0.91
Non-performing assets to total stockholders' equity and
Allowance for possible loan 9.08 9.26
losses.....................................................
Allowance for possible loan losses to non-performing loans................. 71.90 71.97
Allowance for possible loan losses to total gross 0.91 0.92
loans........................
</TABLE>
(1) All non-performing loans are in non-accrual status. There are no
loans 90 days or more past due and still accruing interest (other than
education loans which are guaranteed).
(2) Includes loans considered impaired in accordance with SFAS 114 in the
amount of $0.6 million at September 30, 1997 for which there is a related
allowance for possible loan losses.
(3) Includes commercial loans considered impaired in accordance with SFAS
114 in the amount of $0.3 million at both March 31, 1998 and September 30, 1997
for which there is a related allowance for possible loan losses.
(4) Included in Investment in real estate on the Consolidated Statements of
Financial Condition.
<PAGE>
Item 3. Disclosures about Market risk
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 1998, which are
anticipated by the Company, based upon certain assumptions, to reprice or mature
in each of the future time periods shown. Except as stated below, the amounts of
assets and liabilities shown to reprice or mature during a particular period
were determined in accordance with the earlier of term to repricing or the
contractual terms of the asset or liability. Prepayment assumptions ranging from
0% to 15% per year were applied, dependent upon the loan type and coupon.
Run-off rate assumptions for passbook savings, statement savings, NOW and money
market accounts, in the one year or less category, were 51%, 51%, 40% and 100%
respectively, rather than the OTS assumptions which, in the one year or less
period, are 17%, 17%, 37% and 79%, respectively. These withdrawal rates and
prepayment assumptions are based on assumptions and analyses prepared internally
and are used in preparing the Regulatory Thrift Bulletin-13 Report and the
quarterly management reports. These assumptions were used rather than the
assumptions published by the OTS because management believes they are more
indicative of the actual prepayments and withdrawals experienced by the Company.
The assumptions do not reflect any increases or decreases in interest rates paid
on various categories of deposits (whether by the Company or in general) since
March 31, 1998.
INTEREST RATE SENSITIVITY GAP ANALYSIS
<TABLE>
<CAPTION>
AT MARCH 31, 1998
-------------------------------------------------------------------------------------
MORE THAN MORE THAN MORE THAN MORE THAN
3 MONTHS 3 MONTHS 6 MONTHS 1 YEAR 3 YEARS MORE THAN
OR LESS TO 6 TO 1 YEAR TO 3 YEARS TO 5 YEARS 5 YEARS TOTAL
MONTHS
----------- ----------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest-earning assets(1):
Real estate loans(2) $ 235,995 $ 308,506 $ 546,226 $1,183,030 $ 597,233 $ 645,805 $3,516,795
Commercial loans(2) 153 172 1,745 2,793 2,674 994 8,531
Other loans (2) 73,063 7,290 14,254 59,107 17,425 13,236 184,375
Mortgage-backed 290,075 281,835 722,711 130,033 338,601 142,412 1,905,667
securities (3)
Interest-earning 41,338 --- --- --- --- --- 41,338
cash equivalents
Debt and equity 56,422 8,057 1,307 6,796 107,142 108,206 287,930
securities (3)
Stock in FHLB-NY --- --- --- --- --- 50,548 50,548
----------- ----------- ---------- ----------- ----------- ----------- -----------
Total interest- 697,046 605,860 1,286,243 1,381,759 1,063,075 961,201 5,995,184
earning assets
Interest-bearing liabilities:
Passbook accounts 110,070 87,401 103,935 95,559 91,578 100,168 588,711
Statement savings 118,503 94,408 112,267 103,224 98,923 108,196 635,521
accounts
NOW accounts 36,909 4,803 9,606 38,424 36,823 1,601 128,166
Checking & demand
deposit accounts 3,554 1,523 3,046 --- --- --- 8,123
Money market accounts 65,908 12,359 24,719 --- --- --- 102,986
Certificate accounts 444,453 494,677 452,090 556,403 138,965 11,895 2,098,483
Borrowings 176,629 93,000 --- 553,000 775,000 190,000 1,787,629
----------- ----------- ---------- ----------- ----------- ----------- -----------
Total interest- 956,026 788,171 705,663 1,346,610 1,141,289 411,860 5,349,619
bearing liabilities ----------- ----------- ---------- ----------- ----------- ----------- -----------
Interest sensitivity $(258,980) $ (182,311) $ 580,580 $ 35,149 $ (78,214) $ 549,341 $ 645,565
gap per period
Effect of interest rate $ 300,000 $ --- $ --- $ --- $ (300,000) $ --- $ ---
swap ----------- ----------- ---------- ----------- ----------- ----------- -----------
Adjusted interest $ (558,980) $ (182,311) $ 580,580 $ 35,149 $ 221,786 $ 549,341 $ 645,565
sensitivity gap per
period =========== =========== ========== =========== =========== =========== ===========
Cumulative interest $(558,980) $ (741,291) $(160,711) $(125,562) $ 96,224 $ 645,565
sensitivity gap =========== =========== ========== =========== =========== ===========
Cumulative interest
sensitivity gap
as a percentage of (8.88) % (11.77) % (2.55) % (1.99) % 1.53 % 10.25 %
total assets (4)
Cumulative net
interest-earning
assets as a
percentage of net
interest-bearing 72.91 % 74.70 % 105.69 % 104.59 % 101.95 % 112.07 %
liabilities
</TABLE>
(1) Excludes non-performing loans, net of unearned discounts and premiums,
deferred loan fees, purchase accounting discounts and premiums. (2) For purposes
of gap analysis, the allowance for possible loan losses is excluded. (3)
Mortgage-backed and debt and equity securities are shown excluding the market
value appreciation of $21.9 million, before tax, resulting from SFAS 115. (4)
Amounts for fixed rate loans are based on scheduled payment dates and loans for
which there is no amortization schedule are included as three months or less.
As indicated in the gap analysis, the twelve-month cumulative gap, representing
the total net assets and liabilities that are projected to reprice over the next
twelve months, was liability sensitive $160.7 million at March 31, 1998. A
liability sensitive interest rate gap would tend to decrease earnings over a
period of rising interest rates, where declining rates would increase earnings.
The cumulative one-year sensitivity gap was negative 2.55% of total assets at
March 31, 1998, compared to negative 7.38% at September 30, 1997.
Interest rate contracts such as interest rate swaps, caps, floors and collars
may be used to hedge interest rates on certain assets and liabilities. The
notional amounts of these instruments are not reflected in the Company's balance
sheet, but are included in the interest rate sensitivity table for purposes of
analyzing interest rate risk.
The Company has one interest rate swap agreement outstanding, with a notional
amount of $300.0 million. The swap agreement converted the medium-term note
issued in fiscal 1997 with a fixed rate obligation of 7% into a variable rate of
LIBOR minus 3 basis points. The agreement will expire in the third quarter of
2002. As of March 31, 1998 LIBOR minus 3 basis points was 5.41% and the interest
rate swap had a fair market value of $ 0.4 million.
The Bank's interest rate sensitivity is also monitored by management through the
use of a model which internally generates estimates of the change in the net
portfolio value ("NPV") over a range of interest rate change scenarios. NPV is
the present value of expected cash flows from assets, liabilities, and
off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. The OTS also produces a similar analysis using its own model,
based upon data submitted on the Bank's quarterly Thrift Financial Reports, the
results of which may vary from the Bank's internal model primarily due to
differences in assumptions utilized between the Bank's internal model and the
OTS model, including estimated loan prepayment rates, reinvestment rates and
deposit decay rates. For purposes of the NPV table, prepayment speeds similar to
those used in the Gap table were used, reinvestment rates were those in effect
for similar products currently being offered, and rates on core deposits were
modified to reflect recent trends.
The following table sets forth the Bank's NPV as of March 31, 1998, as
calculated by the Bank.
<TABLE>
<CAPTION>
Portfolio
Net Portfolio Value ("NPV") Value of Assets
Rates in ------------------------------------------- ----------------------------
Basis Points $ $ % NPV %
(Rate Shock) Amount Change Change Ratio Change (1)
---------------- -------------- ------------ ------------ ------------ --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+200 467,226 (122,901) (20.83) 7.56 13.24
+100 568,376 (21,751) (3.69) 8.96 11.16
0 590,127 9.19
-100 685,924 95,797 16.23 10.43 9.59
-200 765,712 175,585 29.75 11.40 8.77
</TABLE>
(1) Based on the portfolio value of the Bank's assets assuming no change in
interest rates.
As in the case with the Gap Table, certain shortcomings are inherent in the
methodology used in the above interest rate risk measurements. Modeling changes
in NPV require the making of certain assumptions which may or may not reflect
the manner in which actual yields and costs respond to changes in market
interest rates. In this regard, the NPV model presented assumes that the
composition of the Bank's interest sensitive assets and liabilities existing at
the beginning of a period remains constant over the period being measured and
also assumes that a particular change in interest rates is reflected uniformly
across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. Accordingly, although the NPV measurements and
net interest income models provide an indication of the Bank's interest rate
risk exposure at a particular point in time, such measurements are not intended
to and do not provide a precise forecast of the effect of changes in market
interest rates on the Bank's net interest income and will differ from actual
results.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On February 27, 1998 a class action complaint against Long Island Bancorp, Inc.
("the "Company") and the members of the Board of Directors of the Company was
filed in the Chancery Court of Delaware. The lawsuit is entitled Miriam Simon
and Stewart Simon against Long Island Bancorp, Inc., et al. The complaint
alleges that on February 25, 1998 it was announced that Astoria Financial Corp
("AFC") made an offer to acquire the Company for $55 per share and that the
Company made a counteroffer of $60 per share. The complaint alleges that the
alleged counterproposal capped the bidding price for the Company's shares and
impeded maximization of shareholder value. The complaint further alleges that
the directors violated their fiduciary duties because they failed to 1)
undertake an adequate evaluation of the Company's worth as a potential
merger/acquisition candidate, 2) take adequate steps to enhance the Company's
value as a merger/acquisition candidate, or 3) effectively expose the Company to
the marketplace to create an active and open auction of the Company. The
complaint seeks a judgment 1) enjoining the directors to maximize shareholder
value and consider and negotiate all bona fide offers, 2) compensating class
members for losses and damages suffered, and 3) awarding plaintiffs costs and
attorneys' fees.
On March 6, 1998 a class action complaint against the Company and the members of
the Board of Directors of the Company was filed in the Chancery Court of
Delaware. The lawsuit is entitled Murray Zucker and Deborah Dyckman against Long
Island Bancorp, Inc., et al. An amended complaint was filed in the action on
April 6, 1998. The amended complaint alleges that the transaction encompassed by
the merger agreement between the Company and AFC is unfair to the Company's
shareholders, does not reflect the intrinsic value of the Company's assets, as
allegedly reflected by a competing offer to acquire the Company by North Fork
Bancorporation, and is the result of unfair dealing by the individual defendants
in an attempt to benefit themselves. The amended complaint alleges further,
inter alia, that the transaction breaches the individual defendants' fiduciary
duties to take all necessary steps to ensure that the stockholders will receive
the maximum value realizable for their shares, including the implementation of a
bidding mechanism to foster a fair auction of the Company to the highest bidder
or the exploration of strategic alternatives that will return greater or
equivalent value to the plaintiffs and the class. The amended complaint seeks
injunctive relief and the costs and disbursements of the action, including
attorneys' and expert fees.
On March 13, 1998 a class action complaint was filed in Delaware Chancery Court
against the Company and the Board of Directors of the Company. This complaint is
entitled Lawrence Berman against John J. Conefry, Jr., et al. The complaint is
substantially similar to the Simon complaint and alleges that AFC made an
informal offer of $55 per share for the Company and the Company replied with a
counterproposal of $60 per share. The complaint further alleges, inter alia,
that defendants breached their fiduciary duties by capping the price of the
Company without taking all appropriate steps to initiate a market check or
auction and maximize shareholder value. The Complaint seeks injunctive relief,
damages in an unstated amount, and costs and disbursements, including attorneys'
and expert fees.
Management believes that each of these actions is without merit and intends to
vigorously defend against them.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) On February 17, 1998, the Company held its annual meeting of
stockholders for the purpose of the election of Directors to three year terms,
the approval of the proposed increase in authorized Common Stock to 130,000,000
shares and the ratification of KPMG Peat Marwick LLP as the Company's
independent auditors. The number of votes cast at the meeting as to each matter
acted upon was as follows:
No. of Votes For No. of Votes Withheld
--------------------- -----------------------
1. Election of Directors
John J. Conefry, Jr..... 19,805,471 275,774
Richard F. Chapdelaine... 19,801,321 279,924
George R. Irvin.......... 19,803,607 277,638
Dr. James B. Tormey...... 19,803,157 278,088
The Directors whose terms continued and the years their terms expire
are as follows:
Lawrence W. Peters (1999); Bruce Barnet (1999);
Clarence M. Buxton (2000); Edwin M Canuso (1999);
Brian J. Conway (2000); Robert J. Conway (2000);
Frederick DeMatteis (1999); Herbert J. McCooey (1999);
Robert S. Swanson, Jr. (1999); Leo J. Waters (2000);
Donald D. Wenk (2000); and Troy J. Baydala (Director Emeritus).
No. of Votes No. of Votes No of Votes
For Against Abstaining
------------------ ---------------- -------------
2. The proposed increase
in authorized Common
Stock to 130,000,000
shares 15,559,661 4,357,047 164,537
No. of Votes No. of Votes No of Votes
For Against Abstaining
------------------ ---------------- -------------
3. Ratification of KPMG
Peat Marwick LLP as
the Company's independent
auditors 19,877,948 131,763 71,534
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - The following exhibit is filed as part of this
report:
Regulation S-K Exhibit Reference Number
Statement re: Computation of Per Share Earnings
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
---------------------- --------------------------
1998 1997 1998 1997
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Basic EPS Computation
Numerator
Net Income available to common
stockholders $ 13,937 $ 12,117 $ 27,119 $ 24,051
============= ============= =============== ===============
Denominator
Weighted average common shares
outstanding 22,292 22,532 22,293 22,615
------------- ------------- --------------- ---------------
Basic EPS $0.63 $0.54 $1.22 $1.06
============= ============= =============== ===============
Diluted EPS Computation
Numerator
Net Income available to common
stockholders $ 13,937 $ 12,117 $ 27,119 $ 24,051
Denominator
Weighted average common shares
outstanding 22,292 22,532 22,293 22,615
Additional shares due to
dilutive options 935 862 915 822
------------ ------------- --------------- ---------------
Total shares 23,227 23,394 23,208 23,437
============= ============= =============== ===============
Diluted EPS $0.60 $0.52 $1.17 $1.03
============= ============= =============== ===============
</TABLE>
(b) Reports on Form 8-K
On January 27, 1998 and April 10, 1998, the Company filed with
the SEC Current Reports on Form 8-K which contained press
releases. The January press release announced the Company's
earnings for the three months ended December 31, 1997. The April
press release announced the Company's Agreement and Plan of
Merger by and between Astoria Financial Corporation and the
Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Long Island Bancorp, Inc.
Dated: 5/13/98 By: /s/ John J. Conefry, Jr.
John J. Conefry, Jr.
Chairman of the Board and Chief
Executive Officer
Dated: 5/13/98 By: /s/ Mark Fuster
Mark Fuster
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
condensed Consolidated Statements of Financial Condition as of December 31, 1997
(unaudited) and the condensed Consolidated Statements of Operations for the
three months ended March 31, 1998 (unaudited) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000916837
<NAME> Long Island Bancorp
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Sep-30-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1
<CASH> 40512
<INT-BEARING-DEPOSITS> 41338
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2194100
<INVESTMENTS-CARRYING> 21462
<INVESTMENTS-MARKET> 19525
<LOANS> 37575047
<ALLOWANCE> 34041
<TOTAL-ASSETS> 6295868
<DEPOSITS> 3762115
<SHORT-TERM> 186000
<LIABILITIES-OTHER> 182380
<LONG-TERM> 1601629
0
0
<COMMON> 268
<OTHER-SE> 563476
<TOTAL-LIABILITIES-AND-EQUITY> 6295868
<INTEREST-LOAN> 68511
<INTEREST-INVEST> 36484
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 104995
<INTEREST-DEPOSIT> 39539
<INTEREST-EXPENSE> 64604
<INTEREST-INCOME-NET> 340391
<LOAN-LOSSES> 1500
<SECURITIES-GAINS> 4019
<EXPENSE-OTHER> 0
<INCOME-PRETAX> 22753
<INCOME-PRE-EXTRAORDINARY> 13937
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13937
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.60
<YIELD-ACTUAL> 2.73
<LOANS-NON> 47347
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 34041
<CHARGE-OFFS> 1952
<RECOVERIES> 208
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 34041
<ALLOWANCE-FOREIGN> 34041
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
