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, 1997.
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 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.
24,228,267 SHARES WERE OUTSTANDING AS OF MARCH 31, 1997
LONG ISLAND BANCORP, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
- - ------------------------------ ----
ITEM 1. Financial Statements
--------------------
Consolidated Statements of Financial Condition at
March 31, 1997 and September 30, 1996 3
Consolidated Statements of Operations for the three months and
six months ended March 31, 1997 and 1996 4
Consolidated Statement of Changes in Stockholders' Equity for the
six months ended March 31, 1997 5
Consolidated Statements of Cash Flows for the six months ended
March 31, 1997 and 1996 6
Notes to the Consolidated Financial Statements 7 - 9
ITEM 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations 9 - 20
-----------------------------------
PART II - OTHER INFORMATION
- - ---------------------------
ITEM 1. Legal Proceedings 21
-----------------
ITEM 2. Changes in Securities 21
---------------------
ITEM 3. Defaults Upon Senior Securities 21
-------------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders 22
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ITEM 5. Other Information 22
-----------------
ITEM 6. Exhibits and Reports on Form 8-K 22 - 23
--------------------------------
Signature Page 24
LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, SEPTEMBER 30,
1997 1996
--------------- ---------------
A S S E T S
Cash and cash equivalents (including interest-earning assets of
$93,841 and $37,357, respectively) $ 129,700 $ 76,348
Investment in debt and equity securities, net:
Available-for-sale 162,998 180,650
Mortgage-backed securities, net:
Held-to-maturity (estimated fair value of
$20,706 and $21,120, respectively) 22,818 23,096
Available-for-sale 1,669,924 1,717,106
Stock in Federal Home Loan Bank of New York, at cost 48,724 40,754
Loans held for sale, net 93,516 57,969
Loans receivable held for investment, net:
Real estate loans, net 3,334,448 2,921,285
Commercial loans, net 7,854 7,810
Other loans, net 152,919 145,654
--------------- ---------------
Loans, net 3,495,221 3,074,749
Less allowance for possible loan losses (33,954) (33,912)
--------------- ---------------
Total loans receivable held for investment, net 3,461,267 3,040,837
Mortgage servicing rights, net 37,499 29,687
Office properties and equipment, net 89,903 89,279
Accrued interest receivable, net 34,300 32,962
Investment in real estate, net 11,620 10,680
Deferred taxes 20,560 31,207
Excess of cost over fair value of assets acquired 5,046 5,265
Prepaid expenses and other assets 26,421 27,951
--------------- ---------------
Total assets $ 5,814,296 $ 5,363,791
=============== ===============
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
Liabilities:
Deposits $ 3,667,184 $ 3,633,010
Official checks outstanding 24,350 49,860
Borrowed funds 1,445,233 978,023
Mortgagors' escrow liabilities 77,218 64,232
Accrued expenses and other liabilities 76,458 119,572
--------------- ---------------
Total liabilities 5,290,443 4,844,697
Stockholders' equity:
Preferred stock ($0.01 par value, 5,000,000 shares authorized;
none issued) --- ---
Common stock ($0.01 par value, 45,000,000 shares authorized; 26,816,464
shares issued, 24,228,267 and 24,644,157 outstanding,
respectively) 268 268
Additional paid-in capital 306,581 304,027
Unallocated Employee Stock Ownership Plan (18,465) (19,230)
Unearned Management Recognition & Retention Plan (4,537) (5,551)
Unrealized gain on securities available-for-sale, net of tax 4,811 6,633
Retained income-partially restricted 301,838 285,311
Treasury stock, at cost (2,588,197 and 2,172,307 shares,
respectively) (66,643) (52,364)
--------------- ---------------
Total stockholders' equity 523,853 519,094
--------------- ---------------
Total liabilities and stockholders' equity $ 5,814,296 $ 5,363,791
=============== ===============
See accompanying notes to unaudited consolidated financial statements.
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,
----------------------------------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
Interest income:
Real estate loans $ 61,906 $ 41,349 $ 121,064 $ 81,021
Commercial loans 152 181 330 390
Other loans 3,758 3,632 7,663 7,280
Mortgage-backed securities 29,509 36,555 58,508 75,251
Debt and equity securities 3,942 3,845 7,672 8,347
------------- ------------- ------------- -------------
Total interest income 99,267 85,562 195,237 172,289
------------- ------------- ------------- -------------
Interest expense:
Deposits 38,839 38,937 78,276 78,358
Borrowed funds 20,298 8,506 36,575 17,401
------------- ------------- ------------- -------------
Total interest expense 59,137 47,443 114,851 95,759
------------- ------------- ------------- -------------
Net interest income 40,130 38,119 80,386 76,530
Provision for possible loan losses 1,500 1,500 3,000 3,100
------------- ------------- ------------- -------------
Net interest income after provision for possible
loan losses 38,630 36,619 77,386 73,430
------------- ------------- ------------- -------------
Non-interest income:
Fees and other income:
Loan fees and service charges 890 736 1,895 1,436
Loan servicing fees 3,108 3,100 6,490 6,157
Income from insurance and securities commissions 590 471 1,098 798
Deposit service fees 1,413 1,496 2,941 2,956
------------- ------------- ------------- -------------
Total fee income 6,001 5,803 12,424 11,347
Other income 997 1,039 1,859 1,700
------------- ------------- ------------- -------------
Total fees and other income 6,998 6,842 14,283 13,047
------------- ------------- ------------- -------------
Net gains on sale activity:
Net gains on loans and mortgage-backed securities 2,263 2,497 4,238 3,122
Net gains on investment in debt and equity securities --- --- 98 259
------------- ------------- ------------- -------------
Total net gains on sale activity 2,263 2,497 4,336 3,381
Net (loss) gain on investment in real estate and premises (570) (403) (1,085) 1,765
------------- ------------- ------------- -------------
Total non-interest income 8,691 8,936 17,534 18,193
Non-interest expense:
General and administrative expense:
Compensation, payroll taxes and fringe benefits 14,832 13,625 28,960 26,902
Advertising 1,089 1,216 2,344 2,431
Office occupancy and equipment 5,567 4,795 10,963 9,729
Federal insurance premiums 777 2,259 2,682 4,476
Other general and administrative expense 4,671 4,064 9,295 8,208
------------- ------------- ------------- -------------
Total general and administrative expense 26,936 25,959 54,244 51,746
Amortization of excess of cost over fair value of assets
acquired 109 63 218 126
------------- ------------- ------------- -------------
Total non-interest expense 27,045 26,022 54,462 51,872
------------- ------------- ------------- -------------
Income before income taxes 20,276 19,533 40,458 39,751
Provision for income taxes 8,159 8,271 16,407 16,868
------------- ------------- ------------- -------------
Net income $ 12,117 $ 11,262 $ 24,051 $ 22,883
============= ============= ============= =============
Primary earnings per common share $ 0.51 $ 0.46 $ 1.01 $ 0.93
============= ============= ============= =============
Fully diluted earnings per common share $ 0.51 $ 0.46 $ 1.01 $ 0.93
============= ============= ============= =============
See accompanying notes to unaudited consolidated financial statements.
LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
Consolidated Statement of Changes In Stockholders' Equity
Six Months Ended March 31, 1997
(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
-------- ---------- ----------- ----------- ----------- ----------- ---------- ---------
Balance at September 30,
1996 $ 268 $ 304,027 $ (19,230) $ (5,551) $ 6,633 $ 285,311 $ (52,364) $ 519,094
Net income 24,051 24,051
Allocation/amortization
of ESOP and MRP stock and
related tax benefits 2,219 765 1,014 3,998
Change in unrealized
gains on securities
available-for-sale,
net of taxes (1,822) (1,822)
Dividends (6,714) (6,714)
Repurchase of common stock
(455,000 shares) net
of exercise of stock
options (39,110 shares)
and related tax benefits 335 (810) (14,279) (14,754)
--------- ----------- ----------- ------------ ------------ ---------- ---------- ----------
Balance at March 31, 1997 $ 268 $ 306,581 $ (18,465) $ (4,537) $ 4,811 $ 301,838 $ (66,643) $ 523,853
========= =========== =========== ============ ============ ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements.
LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE SIX MONTHS ENDED
MARCH 31,
-------------------------------
1997 1996
----------- -------------
Operating activities:
Net income $ 24,051 $ 22,883
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for possible loan losses 3,000 3,100
Write-off of real estate owned and investment in real estate 293 159
Gains on sale of real estate owned and investment in real estate (87) (163)
Depreciation and amortization 7,579 4,678
Accretion of discounts, net of amortization of premiums-debt, equity and
mortgage-backed securities (95) 800
Accretion of discounts, net of amortization of premiums-purchase accounting
& goodwill 404 (722)
amortization
Employee Stock Ownership Plan/Management Recognition & Retention Plan expense 3,967 3,026
Gains on sales of loans and mortgage-backed securities, net (4,238) (3,122)
Originations of loans held-for-sale, net of proceeds from sales (37,809) (8,688)
Gains on sales of debt and equity securities, net (98) (259)
(Increase) decrease in accrued interest receivable (1,338) 1,330
(Decrease) increase in accrued and other liabilities (44,318) 12,379
Decrease in official checks outstanding (25,510) (757)
Decrease (increase) in prepaids and other assets 12,516 (11,522)
Net decrease in unearned income (5,363) (2,883)
----------- -------------
Net cash (used) provided by operating activities (67,046) 20,239
----------- -------------
Investing activities:
Proceeds from sales of debt and equity securities, available-for-sale 15,000 63,820
Proceeds from sales of mortgage-backed securities, available-for-sale 251,484 227,831
Proceeds from maturities of and principal payments on debt and equity
securities 93,169 239,269
Principal payments on mortgage-backed securities 166,290 331,749
Purchases of debt and equity securities, available-for-sale (89,702) (258,417)
Purchases of Federal Home Loan Bank Stock (7,970) (5,622)
Purchases of mortgage-backed securities, available-for-sale (50,015) (97,191)
Originations and purchases of loans held-for-investment, net of principal
payments (747,292) (339,018)
Proceeds from sale of real estate owned, office properties and equipment 4,591 7,350
Purchases of office properties and equipment (5,182) (8,020)
Purchase of mortgage servicing rights (4,045) (849)
----------- -------------
Net cash (used) provided by investing activities (373,672) 160,902
----------- -------------
Financing activities:
Net decrease in demand deposits, NOW accounts and savings accounts (4,724) (20,469)
Net increase (decrease) in mortgagors' escrow accounts 12,986 (6,042)
Net increase in certificates of deposit 38,898 66,900
Costs to repurchase common stock (14,678) (31,959)
Proceeds from the exercise of stock options 443 388
Cash dividends paid on common stock (6,065) (5,084)
Net decrease in short-term borrowings (186,000) (210,000)
Net increase in long-term borrowings 653,210 100,075
----------- -------------
Net cash provided (used) by financing activities 494,070 (106,191)
----------- -------------
Increase in cash and cash equivalents 53,352 74,950
Cash and cash equivalents at the beginning of the period 76,348 67,410
----------- -------------
Cash and cash equivalents at the end of the period $ 129,700 $ 142,360
=========== =============
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest on deposits and borrowed funds $ 108,566 $ 98,475
=========== =============
Income taxes $ 6,013 $ 13,139
=========== =============
Non-cash investing activity:
Additions to real estate owned, net $ 5,387 $ 4,266
=========== =============
Securitization of loans $ 322,189 $ 55,653
=========== =============
SFAS 115 Transfer $ --- $ 1,307,472
=========== =============
See accompanying notes to unaudited consolidated financial statements.
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 statements of
operations for the periods presented. The results of operations for the
three months and six months ended March 31, 1997 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, 1996.
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
Earnings per share ("EPS") is determined by dividing net income for the
period by the weighted average number of common shares outstanding
during the same period. Primary EPS includes in the calculation of
common shares outstanding the common stock equivalents related to
shares issuable under the Company's stock benefit plans that have a
dilutive effect while fully diluted EPS includes the common stock
equivalents that have the maximum dilutive effect. The weighted average
number of shares outstanding for primary and fully diluted EPS
calculations for the three months and six ended March 31, 1997 and 1996
are presented on page 17 herein.
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. ACCOUNTING CHANGES
Effective October 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation." SFAS 123 applies to all transactions in
which an entity acquires goods or services by issuing equity
instruments or by incurring liabilities where the payment amounts are
based on the entity's common stock price, except for employee stock
ownership plans. SFAS 123 covers transactions with employees and
non-employees and is applicable to both public and non-public entities.
SFAS 123 establishes a new method of accounting for stock-based
compensation arrangements with employees. The new method is a fair
value based method rather than the intrinsic value based method that is
contained in APB 25. Entities are not required to adopt the new fair
value based method for purposes of preparing their basic financial
statements and may continue to use the APB 25 method. For entities not
adopting the SFAS 123 fair value based method, SFAS 123 requires the
entity to display in the footnotes to the annual financial statements
pro forma net income and EPS information as if the fair value based
method had been adopted. The Company is continuing its present method
of accounting for stock-based compensation. Accordingly, the adoption
of the statement did not have an effect on the financial statements
with the exception of expanded disclosures required under the
statement.
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 as they relate to secured
borrowings, collateral and repurchase agreements, dollar rolls,
securities lending and similar transactions for one year. 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." The Company does not expect
SFAS 125, as amended by SFAS 127, to have a material effect on the
financial statements.
5. RECENT DEVELOPMENTS
On March 25, 1997, the Company announced the declaration of its tenth
quarterly dividend of fifteen cents ($0.15) per common share. The
dividend is payable on May 14, 1997 to shareholders of record at the
close of business on April 14, 1997.
On April 22, 1997, the Company announced the conclusion of its third
stock repurchase program and the commencement of its fourth stock
repurchase program. Under the new program, the Company is authorized to
repurchase up to 1.0 million shares over the next two years. At the
same time, the Company announced that its Board of Directors adopted a
Stockholder Rights Plan and declared a dividend of one preferred share
right ("Right") for each outstanding share of common stock of the
Company. Each Right, initially, will entitle shareholders to buy a one
one-hundredth interest in a share of a new series of preferred stock of
the Company upon the occurrence of certain events described in the
Plan.
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, 1997 were $5.8 billion, an increase of $450.5 million,
or 8.4%, from September 30, 1996. The increase in assets is principally due to
an increase in net loans receivable held for investment of $420.4 million, or
13.8%, to $3.5 billion at March 31, 1997 from $3.0 billion at September 30,
1996. Further contributing to the growth in assets was the increase in cash and
cash equivalents of $53.4 million, or 69.9%, to $129.7 million at March 31, 1997
from $76.3 million at September 30, 1996. Partially offsetting these increases
was a reduction of $47.5 million, or 2.7%, in mortgage-backed securities to $1.7
billion at March 31, 1997.
Non-performing assets decreased by $0.8 million, or 1.4%, to $60.5 million at
March 31, 1997 from $61.3 million at September 30, 1996, reflecting a $1.8
million decrease in non-performing loans partially offset by a $0.9 million
increase in real estate owned. Due to this improvement and the growth in total
assets and total gross loans, the ratios of non-performing assets to total
assets and non-performing loans to total gross loans improved by 10 basis points
and 26 basis points at March 31, 1997, respectively, when compared with
September 30, 1996.
Total deposits at March 31, 1997 were $3.7 billion, an increase of $34.2
million, or 0.9%, from September 30, 1996. Borrowed funds increased by $467.2
million, or 47.8%, to $1.4 billion at March 31, 1997 from $978.0 million at
September 30, 1996.
Stockholders' equity increased by $4.8 million, or 0.9%, to $523.9 million at
March 31, 1997 from $519.1 million at September 30, 1996. The increase primarily
reflects earnings of $24.1 million and $4.0 million related to the Company's
stock benefit plans. These increases were partially offset by the purchase of
treasury stock, net of shares issued for the exercise of stock options, of $14.8
million, the declaration of $6.7 million in dividends and a decline of $1.8
million, net of tax, in unrealized gains on securities classified as
available-for-sale. At March 31, 1997, the Company's ratio of stockholders'
equity to total assets was 9.01% and book value per share was $21.62.
LIQUIDITY, REGULATORY CAPITAL AND CAPITAL RESOURCES
GENERAL. The Company's primary sources of funds are deposits, principal and
interest payments on loans and mortgage-backed securities, retained income and
borrowings under reverse-repurchase agreements and a funding note issued in June
1996 which is collateralized by a pool of adjustable rate residential mortgage
loans. Payments of principal and interest on the funding note are paid monthly
based on the scheduled payments due on the underlying loans. Proceeds from the
sale of securities and loans are also a source of funding. While maturities and
scheduled amortization of loans and mortgage-backed securities are predictable
sources of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition.
The Bank is required to maintain minimum levels of liquid assets as defined by
Office of Thrift Supervision ("OTS") regulations. This requirement, which may be
varied at the direction of the OTS depending upon economic conditions and
deposit flows, is based upon a percentage of deposits and short-term borrowings.
The required ratio is currently 5.00%. The Bank's liquidity ratio decreased to
7.38% at March 31, 1997 from 9.34% at September 30, 1996. Currently, the Bank
maintains a liquidity ratio above the regulatory requirements in accordance with
its investment objective of investing in short-term debt securities. 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 of real estate
loans and other loans. During the six months ended March 31, 1997, the Bank
originated or purchased real estate loans in the amount of $1.3 billion,
including $193.7 million which represents the bulk purchase of loans, and other
loans in the amount of $39.2 million. The Bank purchases and originates
mortgage-backed securities to maintain its liquidity to meet its funding demand.
Purchases and originations of mortgage-backed securities totaled $50.1 million
and $322.2 million, respectively, for the six months ended March 31, 1997. These
activities were funded primarily by principal repayments on loans and
mortgage-backed securities, borrowings under reverse-repurchase agreements, and
sales of loans and securities classified as available-for-sale. Other investing
activities may include the acquisition of 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 and
reverse-repurchase agreements. In addition, the Bank may access funds, if
necessary, through various lines of credit totaling $150.0 million at March 31,
1997 from the FHLB.
At the time of conversion, the Bank was required by the OTS to establish a
liquidation account which will be reduced 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 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,
1997, the Bank exceeded each of the three OTS capital requirements, as
illustrated on page 17 herein.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
1996
GENERAL. The Company had net income of $12.1 million and primary and fully
diluted EPS of $0.51 for the quarter ended March 31, 1997 ("1997 quarter"). For
the quarter ended March 31, 1996 ("1996 quarter"), net income was $11.3 million
and primary and fully diluted EPS was $0.46.
NET INTEREST INCOME. Net interest income increased by $2.0 million, or 5.3%, to
$40.1 million in the 1997 quarter from $38.1 million in the 1996 quarter. The
increase in net interest income is primarily attributable to the $1.2 billion
growth of the average real estate loan portfolio in the 1997 quarter compared
with the 1996 quarter. This growth was funded by the investment of additional
borrowed funds, which on average increased by $838.3 million over the 1996
quarter, and the redeployment of funds previously invested in mortgage-backed
securities, which declined on average by $357.5 million from the 1996 quarter.
The net interest margin declined to 2.90% in the 1997 quarter from 3.29% in the
1996 quarter primarily due to higher funding costs related to borrowed funds and
a flattening of the yield curve which resulted in lower average yields on real
estate loans.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was
$1.5 million for both the 1997 quarter and 1996 quarter. Non-performing loans
decreased by $3.9 million to $51.4 million at March 31, 1997 compared with $55.3
million at March 31, 1996. At March 31, 1997, the ratio of the allowance for
possible loan losses to non-performing loans improved by 394 basis points to
66.07% from 62.13% at March 31, 1996. Although management considers the
allowance for possible loan losses to be adequate at March 31, 1997, 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 decreased by $0.2 million, or
2.7%, to $8.7 million during the 1997 quarter compared with $8.9 million for the
1996 quarter. The decrease in total non-interest income primarily reflects
reductions in the net gains on sale activity and the net gain (loss) on
investment in real estate and premises. Net gain on sale activity decreased by
$0.2 million to $2.3 million for the 1997 quarter from $2.5 million in the 1996
quarter. This decline reflects the execution of management's strategy of
recognizing profits in the available-for-sale portfolios as interest rates
fluctuate. This strategy allowed the Company to enhance earnings, increase
liquidity and improve its ability to take advantage of higher yielding
investments. Net gain (loss) on investment in real estate and premises decreased
by $0.2 million to a loss of $0.6 million for the 1997 quarter from $0.4 million
for the 1996 quarter primarily due to increased losses on the sale of real
estate owned. The effect of these decreases was partially offset by an increase
of $0.2 million in total fees and other income in the 1997 quarter due to
incremental loan fees and service charges stemming from the growth in the loan
portfolio and income from insurance and securities commissions.
NON-INTEREST EXPENSE. Total non-interest expense increased by $1.0 million, or
3.9%, to $27.0 million in the 1997 quarter from $26.0 million in the 1996
quarter. This increase is primarily the result of additional expenditures of
$1.2 million for compensation and benefit costs due to greater sales commission
expense resulting from increased mortgage origination volume coupled with the
June 1996 acquisition of two mortgage origination offices from Fleet Mortgage
Company and the August 1996 acquisition of First Home Mortgage of Virginia, Inc.
Partially offsetting this increase was a reduction in retirement plan costs
arising from benefit plan changes which took effect January 1, 1997. Office
occupancy and equipment costs increased $0.8 million primarily resulting from
the Company's continued technological investments to improve its information and
communication systems and the 1996 acquisitions. Other general and
administrative (G&A) expenses increased $0.6 million stemming from the increase
in mortgage origination volume and the ongoing legal costs associated with the
goodwill litigation (discussed on page 21 herein).The effect of these
increases on non-interest expense was partially mitigated by the reduction in
federal insurance premiums of $1.5 million due to the recent passage of The
Deposit Insurance Funds Act of 1996 ("Act").
PROVISION FOR INCOME TAXES. Income tax expense decreased by $0.1 million, or
1.4%, to $8.2 million in the 1997 quarter from $8.3 million in the 1996 quarter.
This decrease is primarily attributable to a 210 basis point reduction in the
effective tax rate to 40.2% in the 1997 quarter from 42.3% in the 1996 quarter.
The decline in the effective tax rate primarily reflects changes to the New York
State and City bad debt deduction regulations. The effect of these change in the
rates more than offset the increase in pre-tax income in the 1997 quarter
compared with the 1996 quarter.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
GENERAL. The Company had net income of $24.1 million and primary and fully
diluted EPS of $1.01 for the six months ended March 31, 1997 ("1997 period").
For the six months ended March 31, 1996 ("1996 period"), net income was $22.9
million and primary and fully diluted EPS was $0.93.
NET INTEREST INCOME. Net-interest income increased by $3.9 million, or 5.0%, to
$80.4 million in the 1997 period from $76.5 million in the 1996 period. The
increase in net interest income is primarily attributable to the $1.2 billion
growth of the average real estate loan portfolio in the 1997 period compared
with the 1996 period. This growth was funded by the investment of additional
borrowed funds, which on average increased by $691.5 million over the 1996
period, and the redeployment of funds previously invested in mortgage-backed
securities, which declined on average by $440.1 million from the 1996 period.
The net interest margin declined to 2.98% in the 1997 period from 3.30% in the
1996 period primarily due to higher funding costs related to borrowed funds and
a flattening of the yield curve which resulted in lower average yields on real
estate loans.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses
decreased by $0.1 million, or 3.2%, to $3.0 million in the 1997 period from $3.1
million in the 1996 period. The decrease in the provision reflects slightly
lower charge-offs in the 1997 period compared with the 1996 period. This decline
coupled with the growth in the gross loan portfolio and total assets contributed
to the improvement in the Company's asset quality ratios. The ratio of
non-performing loans to total gross loans was 1.44% at March 31, 1997, down from
2.33% at March 31, 1996 and the ratio of non-performing assets to total assets
was 1.04% at March 31, 1997, down from 1.31% at March 31, 1996.
NON-INTEREST INCOME. Total non-interest income decreased by $0.7 million, or
3.6%, to $17.5 million during the 1997 period as compared with $18.2 million for
the 1996 period. The decrease in total non-interest income primarily reflects
the reduction in the net gain (loss) on investment in real estate and premises.
Net gain (loss) on investment in real estate and premises decreased by $2.9
million to a loss of $1.1 million for the 1997 period from a gain of $1.8
million in the 1996 period primarily reflecting the sale of investment
properties that occurred in the 1996 period. Partially offsetting this decline
were the improvements in total fees and other income of $1.2 million and net
gains on sale activity of $1.0 million. The increase in total fees and other
income was primarily attributable to greater fee income generated by the growth
of the loan portfolio and higher income from insurance and securities
commissions in the 1997 period. The increase in net gains on sale activity
reflects the execution of management's strategy of periodically taking profits
in the Company's loan, investment and funding portfolios.
NON-INTEREST EXPENSE. Total non-interest expense increased by $2.6 million, or
5.0%, to $54.5 million in the 1997 period from $51.9 million in the 1996 period.
Contributing to this increase were additional expenditures for compensation and
benefit costs of $2.1 million, office occupancy and equipment costs of $1.2
million and other G&A expenses of $1.1 million. These expenses increased
primarily due to the growth in the mortgage origination volume which has nearly
doubled in the 1997 period compared with the 1996 period. Other contributing
factors were the appreciation of the Company's common stock and its direct
impact on stock-based compensation expense, the 1996 acquisitions discussed
earlier and technological improvements. Partially offsetting these increases was
the $1.8 million reduction in federal insurance premiums as a result of the Act.
PROVISION FOR INCOME TAXES. Income tax expense decreased by $0.5 million, or
2.7%, to $16.4 million in the 1997 period from $16.9 million in the 1996 period.
This decrease is primarily attributable to an 180 basis point reduction in the
effective tax rate to 40.6% for the 1997 period from 42.4% for the 1996 period.
This reduction is principally the result of changes in the New York State and
New York City tax bad debt regulations the effect of which more than offset the
increase in pre-tax income.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per
Share." SFAS 128 is effective for periods ending after December 15, 1997 and
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" and replaces primary EPS with basic EPS and fully
diluted EPS with diluted EPS. Basic EPS is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if all common stock equivalents were converted. 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. The Company has not yet determined the impact of SFAS 128 on its
financial statements.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 129 ("SFAS 129"), "Disclosure of Information about Capital Structure." SFAS
129 is effective for periods ending after December 15, 1997. The Statement
consolidates the disclosure requirements related to an entity's capital
structure that were previously contained in APB Opinions No. 10, "Omnibus
Opinion-1996," and No. 15 "Earnings Per Share," and Financial Accounting
Standards No. 47, "Disclosure of Long Term Obligations." There is no change in
disclosure requirements for entities, such as the Company, that were previously
subject to these pronouncements.
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.
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, 1997
and 1996, 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.
FOR THE THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------------------
1997 1996
---------------------------------------- ----------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD\ AVERAGE YIELD\
BALANCE INTEREST COST BALANCE INTEREST COST
------------- ------------ ----------- -------------- ------------ -----------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS
Interest-earning cash
equivalents $ 73,877 $ 954 5.24 % $ 25,473 $ 340 5.37 %
Debt and equity securities
and FHLB-NY stock, net (1) 211,536 2,988 5.65 255,346 3,505 5.49
Mortgage-backed securities,
net (1) 1,768,605 29,509 6.67 2,126,070 36,555 6.88
Real estate loans, net (2) 3,337,036 61,906 7.42 2,101,856 41,349 7.87
Commercial and other loans,
net (2) 145,675 3,910 10.74 122,971 3,813 12.40
------------- ------------ -------- -------------- ------------ ---------
Total interest-earning assets 5,536,729 99,267 7.17 4,631,716 85,562 7.39
Other non-interest-earning
assets 264,862 266,569
------------- ------------ -------------- ------------
Total assets $ 5,801,591 $ 99,267 $ 4,898,285 $ 85,562
============= ============ ============== ============
INTEREST BEARING LIABILITIES
Deposits, net $ 3,707,237 $ 38,839 4.25 % $ 3,642,558 $ 38,937 4.30 %
Borrowed funds 1,443,332 20,298 5.70 605,028 8,506 5.65
------------- ------------ -------- -------------- ------------ ---------
Total interest-bearing
liabilities 5,150,569 59,137 4.66 4,247,586 47,443 4.49
Non-interest-bearing
liabilities 125,265 117,979
------------- --------------
Total liabilities 5,275,834 4,365,565
Total stockholders' equity 525,757 532,720
------------- ------------ -------- -------------- ------------ ---------
Total liabilities and
stockholders' equity $ 5,801,591 $ 59,137 $ 4,898,285 $ 47,443
============= ------------ ============== ------------
Net interest income/spread (3) $ 40,130 2.51 % $ 38,119 2.90 %
============ ======== ============ =========
Net interest margin as %
of interest-earning 2.90 % 3.29 %
assets (4) ======== =========
Ratio of interest-earning
assets to interest-bearing
liabilities 107.50 % 109.04 %
======== =========
(1) Debt and equity and mortgage-backed securities are shown including the
average market value appreciation of $15.0 million and $26.4 million,
before tax, from SFAS 115 for the three months ended March 31, 1997 and
1996, 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.
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, 1997
and 1996, 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.
FOR THE SIX MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------------
1997 1996
--------------------------------------- ---------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------------- ----------- ----------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS
Interest-earning cash
equivalents $ 66,453 $ 1,720 5.19 % $ 31,348 $ 859 5.48 %
Debt and equity securities
and FHLB-NY stock, net (1) 213,439 5,952 5.58 269,061 7,488 5.57
Mortgage-backed securities,
net (1) 1,740,582 58,508 6.72 2,180,640 75,251 6.90
Real estate loans, net (2) 3,238,351 121,064 7.48 2,031,683 81,021 7.98
Commercial and other loans,
net (2) 143,715 7,993 11.12 118,657 7,670 12.93
------------- ----------- -------- ------------- ----------- --------
Total interest-earning assets 5,402,540 195,237 7.23 4,631,389 172,289 7.44
Other non-interest-earning
assets 284,191 260,792
------------- ----------- ------------- -----------
Total assets $ 5,686,731 $ 195,237 $ 4,892,181 $ 172,289
============= =========== ============= ===========
INTEREST-BEARING LIABILITIES
Deposits, net $ 3,728,301 $ 78,276 4.21 % $ 3,641,281 78,358 4.30 %
Borrowed funds 1,294,647 36,575 5.67 603,145 17,401 5.77
------------- ----------- -------- ------------- ----------- --------
Total interest-bearing
liabilities 5,022,948 114,851 4.59 4,244,426 95,759 4.51
Non-interest-bearing
liabilities 135,770 118,905
------------- -------------
Total liabilities 5,158,718 4,363,331
Total stockholders' equity 528,013 528,850
------------- ----------- -------- ------------- ----------- --------
Total liabilities and
stockholders' equity $ 5,686,731 $ 114,851 $ 4,892,181 $ 95,759
============= ----------- ============= -----------
Net interest income/spread (3) $ 80,386 2.64 % $ 76,530 2.93 %
=========== ======== =========== ========
Net interest margin as %
of interest-earning 2.98 % 3.30 %
assets (4) ======== ========
Ratio of interest-earning
assets to interest-bearing 107.56 % 109.12 %
liabilities ======== ========
(1) Debt and equity and mortgage-backed securities are shown including the
average market value appreciation of $15.5 million and $19.9 million,
before tax, from SFAS 115 for the six months ended March 31, 1997 and 1996,
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.
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.
THREE MONTHS ENDED MARCH 31, 1997 SIX MONTHS ENDED MARCH 31, 1997
COMPARED TO COMPARED TO
THREE MONTHS ENDED MARCH 31, 1996 SIX MONTHS ENDED MARCH 31, 1996
INCREASE/(DECREASE) INCREASE/(DECREASE)
------------------------------------- --------------------------------------
DUE TO DUE TO
------------------------------------- --------------------------------------
VOLUME RATE NET VOLUME RATE NET
----------- ----------- ----------- ------------ ----------- -----------
(IN THOUSANDS)
Interest-earning assets:
Interest-earning cash
equivalents(1) $ 622 $ (8) $ 614 $ 910 $ (49) $ 861
Debt and equity securities(2)(3) (616) 99 (517) (1,551) 15 (1,536)
Mortgage-backed securities(3) (5,992) (1,054) (7,046) (14,836) (1,907) (16,743)
Real estate loans(4) 23,037 (2,480) 20,557 45,400 (5,357) 40,043
Commercial and other loans(4) 650 (553) 97 1,484 (1,161) 323
----------- ----------- ----------- ---------- ---------- ---------
Total 17,701 (3,996) 13,705 31,407 (8,459) 22,948
----------- ----------- ----------- ------------ ----------- -----------
Interest-bearing liabilities:
Deposits 487 (585) (98) 1,733 (1,815) (82)
Borrowed funds 11,719 73 11,792 19,494 (320) 19,174
----------- ----------- ----------- ------------ ----------- -----------
Total 12,206 (512) 11,694 21,227 (2,135) 19,092
----------- ----------- ----------- ------------ ----------- -----------
Net change in interest income $ 5,495 $ (3,484) $ 2,011 $ 10,180 $ (6,324) $ 3,856
=========== =========== =========== ============ =========== ===========
(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 $15.0 million and $26.4 million,
before tax, from SFAS 115 for the three months ended March 31, 1997 and
1996, respectively, and $15.5 million and $19.9 million for the six months
ended March 31, 1997 and 1996, 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.
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,
---------------------------------- ----------------------------------
1997 1996 1997 1996
-------------- --------------- --------------- ---------------
SELECTED FINANCIAL RATIOS: (A)
Return on average assets ...................... 0.84% 0.92% 0.85% 0.94%
Return on average stockholders' equity ........ 9.22 8.46 9.11 8.65
Average stockholders' equity to average assets. 9.06 10.88 9.29 10.81
Stockholders' equity to total assets .......... 9.01 10.69 9.01 10.69
Interest rate spread during period............. 2.51 2.90 2.64 2.93
Net interest margin............................ 2.90 3.29 2.98 3.30
Operating expenses to average assets........... 1.86 2.12 1.91 2.12
Efficiency ratio (b)........................... 57.16 57.74 57.30 57.76
Average interest-earning assets to average
interest-bearing liabilities................ 107.50 109.04 107.56 109.12
Net interest income to operating expenses ..... 1.49x 1.47x 1.48x 1.48x
SELECTED DATA:
Primary earnings per share..................... $0.51 $0.46 $1.01 $0.93
Weighted average number of shares outstanding
for primary earnings per share computation.. 23,722,564 24,420,626 23,749,765 24,540,013
Fully diluted earnings per share............... $0.51 $0.46 $1.01 $0.93
Weighted average number of shares outstanding
for fully diluted earnings per share
computation................................. 23,722,720 24,471,897 23,752,542 24,623,860
Book value per share........................... $21.62 $20.79 $21.62 $20.79
Number of shares outstanding for book value per
share computation........................... 24,228,267 24,858,699 24,228,267 24,858,699
Cash dividends declared per share.............. $0.15 $0.10 $0.30 $0.20
Dividend payout ratio.......................... 29.41% 21.74% 29.70% 21.51%
AT MARCH 31,
----------------------------
1997 1996
------------ -----------
ASSET QUALITY RATIOS:
Non-performing loans to total gross loans.................... 1.44% 2.33%
Non-performing assets to total assets........................ 1.04 1.31
Allowance for possible loan losses to non-performing loans... 66.07 62.13
REGULATORY CAPITAL AT MARCH 31, 1997 FOR THE LONG ISLAND SAVINGS BANK, FSB:
REGULATORY REGULATORY EXCESS
CAPITAL CAPITAL CAPITAL
REQUIREMENT LEVEL LEVEL
----------- ----- -----
AMOUNT PERCENT (C) AMOUNT PERCENT (C) AMOUNT PERCENT (C)
------ ----------- ------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
Tangible capital (d)....................... $ 86,048 1.50% $424,120 7.39% $338,072 5.89%
Core capital (d)........................... 172,095 3.00 424,120 7.39 252,025 4.39
Risk-based capital (e)..................... 245,251 8.00 458,073 4.94 212,822 6.94
(a) Ratios for the three and six months ended March 31, 1997 and 1996 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.
(c) 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.
(d) This figure represents GAAP capital excluding the effect of SFAS 115,
goodwill and a portion of mortgage servicing rights.
(e) 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.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The following is a summary of the Company's provisions and allowance for
possible loan losses:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------- ------------ -------------
(In thousands)
Opening allowance......................................... $33,488 $34,300 $33,912 $34,358
Provision................................................. 1,500 1,500 3,000 3,100
Net charge-offs........................................... (1,034) (1,451) (2,958) (3,109)
------------- ------------ ------------ -------------
Ending allowance.......................................... $33,954 $34,349 $33,954 $34,349
============= ============ ============ =============
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 an 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.
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.
MARCH 31, SEPTEMBER 30,
1997 1996
------------------- ---------------------
(DOLLARS IN THOUSANDS)
Non-performing loans (1):
Residential:
One-to-four family.................................................... $39,898 $39,573
Co-operative apartments............................................... 1,035 602
Home equity........................................................... 1,880 3,489
Second mortgage....................................................... 4 190
Multi-family.......................................................... 590 896
-------- --------
Total residential .................................................. 43,407 44,750
Non-residential:
Commercial real estate................................................ 4,069 4,336
Construction.......................................................... 453 453
Land.................................................................. 675 675
-------- --------
Total real estate loans (2)................................................ 48,604 50,214
Other loans (3)............................................................ 2,784 2,952
-------- --------
Total non-performing loans................................................. 51,388 53,166
Real estate owned net (4).................................................. 9,094 8,155
-------- --------
Total non-performing assets................................................ $60,482 $61,321
======= =======
Non-performing loans to total gross loans.................................. 1.44% 1.70%
Non-performing assets to total assets...................................... 1.04 1.14
Non-performing assets to total stockholders' equity and
allowance for possible loan 10.84 11.09
losses...........................................
Allowance for possible loan losses to non-performing loans................. 66.07 63.79
Allowance for possible loan losses to total gross loans.................... 0.95 1.08
(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 $7.4 million at both March 31, 1997 and September 30, 1996 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, 1997 and September 30, 1996
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.
Interest Sensitivity Gap Analysis
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 1997, 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, 1997.
INTEREST RATE SENSITIVITY GAP ANALYSIS
AT MARCH 31, 1997
-----------------------------------------------------------------------------------------------
MORE THAN MORE THAN MORE THAN MORE THAN
3 MONTHS 3 MONTHS 6 MONTHS 1 YEAR 3 YEARS MORE THAN
OR LESS TO 6 MONTHS TO 1 YEAR TO 3 YEARS TO 5 YEARS 5 YEARS TOTAL
------------ ------------ ------------- ------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
Interest-earning assets(1):
Real estate loans (2) $ 246,887 $ 752,699 $ 495,477 $ 818,344 $ 493,878 $ 571,615 $ 3,378,900
Commercial loans (2) 249 953 957 2,685 1,240 993 7,077
Other loans (2) 66,586 4,655 9,921 40,488 18,059 11,664 151,373
Mortgage-backed
securities (3) 329,498 281,840 491,279 394,404 142,925 42,205 1,682,151
Interest-earning
cash equivalents 93,841 --- --- --- --- --- 93,841
Debt and equity
securities (3) 41,041 17,540 20,700 8,734 9,134 67,820 164,969
Stock in FHLB-NY --- --- --- --- --- 48,724 48,724
------------ ------------ ------------- ------------- ------------ ------------ ------------
Total
interest-earning
assets 778,102 1,057,687 1,018,334 1,264,655 665,236 743,021 5,527,035
Interest-bearing
liabilities:
Passbook accounts 119,065 95,049 113,033 103,927 99,597 108,945 639,616
Statement savings
accounts 122,423 97,506 115,952 106,608 102,166 111,751 656,406
NOW accounts 36,155 4,671 9,342 37,368 35,811 1,557 124,904
Checking & demand
deposit accounts 2,952 1,265 2,530 --- --- --- 6,747
Money market
accounts 77,979 14,621 29,242 --- --- --- 121,842
Certificate accounts 482,598 418,801 409,982 487,345 171,387 27,740 1,997,853
Borrowings 393,833 38,000 97,400 741,000 75,000 100,000 1,445,233
------------ ------------ ------------- ------------- ------------ ------------ ------------
Total
interest-bearing
liabilities 1,235,005 669,913 777,481 1,476,248 483,961 349,993 4,992,601
------------ ------------ ------------- ------------- ------------ ------------ ------------
Interest sensitivity
gap per period $ (456,903) $ 387,774 $ 240,853 $ (211,593) $ 181,275 $ 393,028 $ 534,434
============ ============ ============= ============= ============ ============ ============
Cumulative interest
sensitivity gap $ (456,903) $ (69,129) $ 171,724 $ (39,869) $ 141,406 $ 534,434
============ ============ ============= ============= ============ ============
Cumulative interest
sensitivity gap as a
percentage of total
assets (4) (7.86) % (1.19) % 2.95 % (0.69) % 2.43 % 9.19 %
Cumulative net
interest-earning
assets as a
percentage of net
interest-bearing
liabilities 63.00 96.37 106.40 99.04 103.05 110.70
- - ------------------
(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 $8.6 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On August 15, 1989 the Bank filed suit against the United States
seeking damages and/or other appropriate relief on the grounds, among others,
that the government had breached the terms of the 1983 assistance agreement
("Assistance Agreement") between the Bank and the Federal Savings and Loan
Insurance Corporation pursuant to which the Bank entered into the acquisition of
The Long Island Savings Bank of Centereach FSB ("Centereach"). The Assistance
Agreement, among other things, provided for the inclusion of supervisory
goodwill as an asset on Centereach's balance sheet to be included in capital and
amortized over 40 years for regulatory purposes.
The suit is pending before Chief Judge Loren Smith in the United States
Court of Federal Claims and is entitled The Long Island Savings Bank, FSB et al.
vs the United States. The case had been stayed pending disposition by the United
States Supreme Court of three related supervisory goodwill cases (the Winstar
cases). On July 1, 1996 the Supreme Court ruled in the Winstar cases the
government had breached its contracts with the Winstar parties and was liable in
damages for those breaches.
On September 18, 1996 Judge Smith issued an Omnibus Management Order
("Case Management Order") applicable to all Winstar-related cases. The Case
Management Order addresses certain timing and procedural matters with respect to
the administration of the Winstar-related cases, including organization of the
parties, initial discovery, initial determinations regarding liability, and the
resolution of certain common issues. The Case Management Order provides that the
parties will attempt to agree upon a Master Litigation Plan, which may be in
phases, to govern all further proceedings, including the resolution of common
issues (other than common issues covered by the Case Management Order),
dispositive motions, trials, discovery schedules, protocols for depositions,
document production, expert witnesses, and other matters.
On November 1, 1996, the Bank filed a motion for summary judgment on
liability. On January 27, 1997 the government filed a response opposing the
Bank's motion and cross-moving for summary judgment. On March 4, 1997, the
government filed a supplemental filing that alleged certain defenses pertaining
to the existence of a contract, whether the government acted inconsistently with
any contract, and other issues concerning liability or damages. On April 4,
1997, the Bank filed a reply brief in support of its motion for summary judgment
and in opposition to the government's cross-motion for summary judgment. No
decision has been rendered on the Bank's motion, or the government cross-motion.
In its complaint, the Bank did not specify the amount of damages it was
seeking from the United States. There have been no decisions determining damages
in the Winstar cases or any of the Winstar-related cases. The Bank is unable to
predict the outcome of its claim against the United States and the amount of
damages that may be awarded to the Bank, if any, in the event that judgment is
rendered in the Bank's favor. Consequently, no assurances can be given as to the
results of this claim or the timing of any proceedings in relation thereto.
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 18, 1997, the Company held its annual meeting of
stockholders for the purpose of the election of Directors to three year terms
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
Clarence M. Buxton............. 20,970,224 180,028
Brian J. Conway................ 20,971,999 178,253
Robert J. Conway............... 20,974,099 176,153
Leo J. Waters.................. 20,973,199 177,053
Donald D. Wenk................. 20,974,399 175,853
The Directors whose terms continued and the years their terms expire
are as follows:
John J. Conefry, Jr. (1998); Lawrence W. Peters (1999); Bruce Barnet
(1999), Edwin M Canuso (1999); Richard F. Chapdelaine (1998); Frederick
DeMatteis (1999); George R. Irvin (1998); Herbert J. McCooey (1999); Robert S.
Swanson, Jr. (1999); Dr. James B. Tormey (1998); and Troy J. Baydala (Director
Emeritus).
No. of Votes No. of Votes No of Votes
For Against Abstaining
------------------ --------------------- ------------------
2. Ratification of KPMG Peat Marwick LLP
as the Company's independent auditors....
20,023,028 85,788 41,436
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
11. Statement re: Computation of Per Share Earnings
(In thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------- -----------------------------
1997 1996 1997 1996
--------------- ------------ ------------- ------------
Net Income ................................. $ 12,117 $ 11,262 $ 24,051 $ 22,883
=============== ============ ============= ============
Total weighted average common shares and
equivalents outstanding..................... 23,723 24,421 23,750 24,540
=============== ============ ============= ============
Primary earnings per common share........... $ 0.51 $ 0.46 $ 1.01 $ 0.93
=============== ============ ============= ============
Total shares for fully dilutive earnings per 23,723 24,472 23,753 24,624
share....................................... =============== ============ ============= ============
Fully diluted earnings per common share ..... $ 0.51 $ 0.46 $ 1.01 $ $0.93
=============== ============ ============= ============
(b) Reports on Form 8-K
On January 28, 1997, February 18, 1997 and March 25, 1997, 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, 1996.
The February press release announced the appointment of Lawrence
J. Peters as President and Chief Operating Officer of the
Company. The March press release announced the declaration of the
Company's tenth consecutive quarterly dividend.
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: 5/5/97 BY: /s/ John J. Conefry, Jr.
------- -------------------------
John J. Conefry, Jr.
Chairman of the Board and Chief
Executive Officer
DATED: 5/5/97 BY: /s/ Mark Fuster
------- ---------------
Mark Fuster
Chief Financial Officer