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 June 30, 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.
23,968,303 SHARES WERE OUTSTANDING AS OF JUNE 30, 1997
LONG ISLAND BANCORP, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
ITEM 1. Financial Statements
Consolidated Statements of Financial Condition at
June 30, 1997 and September 30, 1996 3
Consolidated Statements of Operations for the three
months and nine months ended June 30, 1997 and 1996 4
Consolidated Statement of Changes in Stockholders' Equity
for the nine months ended June 30, 1997 5
Consolidated Statements of Cash Flows for the nine months
ended June 30, 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 - 22
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 23
ITEM 2. Changes in Securities 23
ITEM 3. Defaults Upon Senior Securities 23
ITEM 4. Submission of Matters to a Vote of Security Holders 24
ITEM 5. Other Information 24
ITEM 6. Exhibits and Reports on Form 8-K 24
Signature Page 25
LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Financial Condition
(In thousands, except for per share data)
JUNE 30, SEPTEMBER 30,
1997 1996
----------------- ------------------
ASSETS
Cash and cash equivalents (including interest-earning assets of
$129,513 and $37,357, respectively) $ 163,470 $ 76,348
Investment in debt and equity securities, net:
Available-for-sale 144,180 180,650
Mortgage-backed securities, net:
Held-to-maturity (estimated fair value of
$20,465 and $21,120, respectively) 22,472 23,096
Available-for-sale 1,698,338 1,717,106
Stock in Federal Home Loan Bank of New York, at cost 48,724 40,754
Loans held for sale, net 87,639 57,969
Loans receivable held for investment, net:
Real estate loans, net 3,381,738 2,921,285
Commercial loans, net 6,381 7,810
Other loans, net 168,725 145,654
----------------- ------------------
Loans, net 3,556,844 3,074,749
Less allowance for possible loan losses (33,623) (33,912)
----------------- ------------------
Total loans receivable held for investment, net 3,523,221 3,040,837
Mortgage servicing rights, net 39,646 29,687
Office properties and equipment, net 89,098 89,279
Accrued interest receivable, net 34,580 32,962
Investment in real estate, net 10,340 10,680
Deferred taxes 17,833 31,207
Excess of cost over fair value of assets acquired 5,183 5,265
Prepaid expenses and other assets 24,013 27,951
----------------- ------------------
Total assets $ 5,908,737 $ 5,363,791
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 3,706,260 $ 3,633,010
Official checks outstanding 29,684 49,860
Borrowed funds 1,514,762 978,023
Mortgagors' escrow liabilities 59,685 64,232
Accrued expenses and other liabilities 66,965 119,572
----------------- ------------------
Total liabilities 5,377,356 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, 23,968,303 and 24,644,157 outstanding,
respectively) 268 268
Additional paid-in capital 308,479 304,027
Unallocated Employee Stock Ownership Plan (18,249) (19,230)
Unearned Management Recognition & Retention Plan (4,174) (5,551)
Unrealized gain on securities available-for-sale, net of tax 9,890 6,633
Retained income-partially restricted 310,688 285,311
Treasury stock, at cost (2,848,161 and 2,172,307 shares,
respectively) (75,521) (52,364)
----------------- ------------------
Total stockholders' equity 531,381 519,094
----------------- ------------------
Total liabilities and stockholders' equity $ 5,908,737 $ 5,363,791
================= ==================
See accompanying notes to 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 NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
Interest income:
Real estate loans $ 63,751 $ 49,680 $ 184,815 $ 130,701
Commercial loans 142 163 472 553
Other loans 3,987 3,714 11,650 10,994
Mortgage-backed securities 28,869 29,970 87,377 105,221
Debt and equity securities 3,667 4,335 11,339 12,682
------------- ------------- ------------- -------------
Total interest income 100,416 87,862 295,653 260,151
------------- ------------- ------------- -------------
Interest expense:
Deposits 39,941 38,427 118,217 116,785
Borrowed funds 20,426 10,296 57,001 27,697
------------- ------------- ------------- -------------
Total interest expense 60,367 48,723 175,218 144,482
------------- ------------- ------------- -------------
Net interest income 40,049 39,139 120,435 115,669
Provision for possible loan losses 1,500 1,600 4,500 4,700
------------- ------------- ------------- -------------
Net interest income after provision for possible
loan losses 38,549 37,539 115,935 110,969
------------- ------------- ------------- -------------
Non-interest income:
Fees and other income:
Loan fees and service charges 764 837 2,659 2,273
Loan servicing fees 2,417 3,058 8,907 9,215
Income from insurance and securities commissions 655 442 1,753 1,240
Deposit service fees 1,275 1,463 4,216 4,419
------------- ------------- ------------- -------------
Total fee income 5,111 5,800 17,535 17,147
Other income 699 968 2,558 2,668
------------- ------------- ------------- -------------
Total fees and other income 5,810 6,768 20,093 19,815
------------- ------------- ------------- -------------
Net gains on sale activity:
Net gains on loans and mortgage-backed securities 3,087 2,195 7,325 5,317
Net gains on investment in debt and equity securities 236 169 334 428
------------- ------------- ------------- -------------
Total net gains on sale activity 3,323 2,364 7,659 5,745
Net gain (loss) on investment in real estate and premises 765 1,098 (293) 2,862
------------- ------------- ------------- -------------
Total non-interest income 9,898 10,230 27,459 28,422
Non-interest expense:
General and administrative expense:
Compensation, payroll taxes and fringe benefits 15,000 14,255 43,988 41,157
Advertising 1,218 1,836 3,562 4,267
Office occupancy and equipment 5,761 5,223 16,724 14,952
Federal insurance premiums 792 2,292 3,474 6,768
Other general and administrative expense 5,261 4,888 14,556 13,094
------------- ------------- ------------- -------------
Total general and administrative expense 28,032 28,494 82,304 80,238
Amortization of excess of cost over fair value of assets
acquired 125 63 343 190
------------- ------------- ------------- -------------
Total non-interest expense 28,157 28,557 82,647 80,428
------------- ------------- ------------- -------------
Income before income taxes 20,290 19,212 60,747 58,963
Provision for income taxes 7,864 7,918 24,271 24,786
------------- ------------- ------------- -------------
Net income $ 12,426 $ 11,294 $ 36,476 $ 34,177
============= ============= ============= =============
Primary earnings per common share $ 0.53 $ 0.47 $ 1.54 $ 1.40
============= ============= ============= =============
Fully diluted earnings per common share $ 0.53 $ 0.47 $ 1.54 $ 1.40
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
Consolidated Statement of Changes In Stockholders' Equity
Nine Months Ended June 30, 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 36,476 36,476
Allocation/amortization
of ESOP and MRP stock and
related tax benefits 2,887 981 1,377 5,245
Change in unrealized
gains on securities
available-for-sale,
net of taxes 3,257 3,257
Dividends (10,043) (10,043)
Repurchase of common stock
(732,400 shares) net
of exercise of stock
options (56,646 shares)
and related tax benefits 1,565 (1,056) (23,157) (22,648)
--------- ----------- ----------- ------------ ------------ ---------- ---------- ----------
Balance at June 30, 1997 $ 268 $ 308,479 $ (18,249) $ (4,174) $ 9,890 $ 310,688 $ (75,521) $ 531,381
========= =========== =========== ============ ============ ========== ========== ==========
See accompanying notes to consolidated financial statements.
LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In thousands)
For the Nine Months Ended
June 30,
-----------------------------------
1997 1996
-------------- --------------
Operating activities:
Net income $ 36,476 $ 34,177
Adjustments to reconcile net income to net cash (used) provided by operating
activities:
Provision for possible loan losses 4,500 4,700
Write-off of real estate owned and investment in real estate 420 298
Gains on sale of real estate owned and investment in real estate (220) (200)
Depreciation and amortization 11,904 7,626
Amortization of premiums, net of discount accretion-debt, equity and
mortgage-backed securities --- 1,840
Accretion of discounts, net of amortization of premiums-purchase accounting & 549 (976)
goodwill amortization
Employee Stock Ownership Plan/Management Recognition & Retention Plan expense 4,914 5,305
Gains on sales of loans and mortgage-backed securities, net (7,325) (5,317)
Originations of loans held-for-sale, net of proceeds from sales (33,118) (33,283)
Gains on sales of debt and equity securities, net (334) (428)
Increase in accrued interest receivable (1,618) (812)
(Decrease) increase in accrued and other liabilities (53,811) 36,492
Decrease in official checks outstanding (20,176) (10,590)
Decrease (increase) in prepaid expenses, deferred taxes and other assets 17,645 (11,113)
Net decrease in unearned income (8,113) (7,219)
-------------- --------------
Net cash (used) provided by operating activities (48,307) 20,500
-------------- --------------
Investing activities:
Proceeds from sales of debt and equity securities, available-for-sale 21,046 82,207
Proceeds from sales of mortgage-backed securities, available-for-sale 372,993 345,564
Proceeds from maturities of and principal payments on debt and equity
securities 127,609 317,919
Principal payments on mortgage-backed securities 250,991 473,586
Purchases of debt and equity securities, available-for-sale (110,043) (394,852)
Purchases of Federal Home Loan Bank Stock (7,970) (5,622)
Purchases of mortgage-backed securities, available-for-sale (50,015) (154,154)
Originations and purchases of loans held-for-investment, net of principal
payments (1,038,790) (916,321)
Proceeds from sale of real estate owned, office properties and equipment 7,988 10,694
Purchases of office properties and equipment (6,791) (11,467)
Purchase of mortgage servicing rights (4,045) (5,618)
-------------- --------------
Net cash used by investing activities (437,027) (258,064)
-------------- --------------
Financing activities:
Net decrease in demand deposits, NOW accounts and savings accounts (38,424) (27,485)
Net decrease in mortgagors' escrow accounts (4,547) (26,826)
Net increase in certificates of deposit 111,674 85,113
Cost to repurchase common stock (24,016) (34,409)
Proceeds from the exercise of stock options 682 812
Cash dividends paid on common stock (9,652) (7,528)
Net decrease in short-term borrowings (275,600) (210,000)
Net increase in long-term borrowings 812,339 477,156
-------------- --------------
Net cash provided by financing activities 572,456 256,833
-------------- --------------
Increase in cash and cash equivalents 87,122 19,269
Cash and cash equivalents at the beginning of the period 76,348 67,410
-------------- --------------
Cash and cash equivalents at the end of the period $ 163,470 $ 86,679
============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest on deposits and borrowed funds $ 172,039 $ 144,685
============== ==============
Income taxes $ 18,844 $ 16,310
============== ==============
Non-cash investing activity:
Additions to real estate owned, net $ 7,665 $ 6,850
============== ==============
Securitization of loans $ 547,484 $ 109,415
============== ==============
SFAS 115 Transfer $ --- $ 11,713
============== ==============
See accompanying notes to 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 of income and
expenses for the periods presented in the statements of operations. The
results of operations for the three months and nine months ended June
30, 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 nine months ended June 30, 1997
and 1996 are presented on page 18 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 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 June 24, 1997, the Company declared a quarterly cash dividend of
$0.15 per common share. This is the eleventh consecutive quarterly
dividend paid by Long Island Bancorp, Inc. The dividend is payable on
August 14, 1997 to shareholders of record at the close of business on
July 16, 1997.
Under the fourth stock repurchase program announced in April 1997, the
Company has repurchased 170,000 shares of Long Island Bancorp common
stock for $5.7 million. Under this new program, the Company is
authorized to repurchase up to 1.0 million shares over the next two
years.
On May 27, 1997 the Bank established a medium-term note program which
will provide additional funding and flexibility. The Bank obtained an
investment grade rating which may permit borrowing at favorable rates
under this program compared with other funding alternatives. The
medium-term notes will bear interest at either a fixed or floating
rate, have maturities ranging from nine months to 30 years from their
respective dates of issue and the aggregate principal amount will not
exceed $1.0 billion. During the quarter ended June 30, 1997, the Bank
issued a five year medium-term note in the amount of $300.0 million and
simultaneously entered into an interest rate swap agreement.
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 June 30, 1997 were $5.9 billion, an increase of $544.9 million,
or 10.2%, from $5.4 billion at September 30, 1996. The increase in assets is
principally due to an increase in net loans receivable held for investment of
$482.4 million, or 15.9%, to $3.5 billion at June 30, 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 $87.2 million to $163.5 million at June
30, 1997 from $76.3 million at September 30, 1996. Partially offsetting these
increases were reductions in investment in debt and equity securities of $36.5
million, or 20.2%, to $144.2 million at June 30, 1997 from $180.7 million at
September 30, 1996 and a decline in mortgage-backed securities of $19.4 million,
or 1.1%, to $1.7 billion at June 30, 1997.
Non-performing assets decreased by $0.2 million, to $61.1 million at June 30,
1997 from $61.3 million at September 30, 1996, reflecting a $0.3 million
decrease in real estate owned partially offset by a $0.1 million increase in
non-performing loans. The ratios of non-performing assets to total assets and
non-performing loans to total gross loans improved by 11 basis points to 1.03%
and 23 basis points to 1.47% at June 30, 1997, respectively, when compared with
September 30, 1996.
Total deposits at June 30, 1997 were $3.7 billion, an increase of $73.3 million,
or 2.0%, from $3.6 billion at September 30, 1996. Borrowed funds increased by
$536.7 million, or 54.9%, to $1.5 billion at June 30, 1997 from $978.0 million
at September 30, 1996 as the Company continues to leverage its capital base.
This increase includes a $300.0 million five year medium-term fixed rate note
issued under the Bank's $1.0 billion medium-term note program. The medium-term
note bears a fixed interest rate per annum of 7%, which is payable on March 15
and September 15.
Stockholders' equity increased by $12.3 million, or 2.4%, to $531.4 million at
June 30, 1997 from $519.1 million at September 30, 1996. The increase primarily
reflects earnings of $36.5 million, an increase in unrealized gains on
securities classified as available-for-sale, net of tax, of $3.2 million and
$5.2 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 $22.6 million and the declaration of $10.0 million
in dividends. At June 30, 1997, the Company's ratio of stockholders' equity to
total assets was 8.99% and book value per share was $22.17.
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,
borrowings under reverse-repurchase agreements, a funding note issued in June
1996 and a medium-term note issued in June 1997. The funding note is
collateralized by a pool of adjustable rate residential mortgage loans where
payments of principal and interest 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
8.16% at June 30, 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 nine months ended June 30, 1997, the Bank
originated or purchased real estate loans and other loans in the amount of $2.1
billion, including $221.9 million which represents the bulk purchases of loans.
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 $547.5 million,
respectively, for the nine months ended June 30, 1997. These activities were
funded primarily by principal repayments on loans and mortgage-backed
securities, borrowings, 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,
reverse-repurchase agreements and additional borrowings of $700.0 million under
the medium-term note program. In addition, the Bank may access funds, if
necessary, through various lines of credit totaling $150.0 million at June 30,
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 June 30,
1997, the Bank exceeded each of the three OTS capital requirements, as
illustrated on page 18 herein.
Comparison of Operating Results for the Three Months Ended June 30,1997 and 1996
General. The Company had net income of $12.4 million and primary and fully
diluted EPS of $0.53 for the quarter ended June 30, 1997 ("1997 quarter"). For
the quarter ended June 30, 1996 ("1996 quarter"), net income was $11.3 million
and primary and fully diluted EPS was $0.47.
Net Interest Income. Net interest income increased by $0.9 million, or 2.3%, to
$40.0 million in the 1997 quarter from $39.1 million in the 1996 quarter. The
increase in net interest income is attributable to the $870.3 million growth of
the average real estate loan portfolio to $3.4 billion at June 30, 1997 compared
with $2.6 billion at June 30, 1996. This growth was funded by the investment of
additional borrowed funds, which on average increased by $693.0 million over the
1996 quarter, an increase in average deposits of $58.8 million from the 1996
quarter and the redeployment of funds previously invested in mortgage-backed
securities, which declined on average by $41.1 million from the 1996 quarter.
The net interest margin declined to 2.88% in the 1997 quarter from 3.29% in the
1996 quarter primarily due to additional leveraging of the Company's capital
base resulting in higher funding costs 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
reduced by $0.1 million to $1.5 million for the 1997 quarter from $1.6 million
for the 1996 quarter. Non-performing loans increased to $53.3 million at June
30, 1997 from $52.9 million at June 30, 1996. At June 30, 1997, the ratio of the
allowance for possible loan losses to non-performing loans declined marginally
to 63.10% from 64.50% at June 30, 1996. Although management considers the
allowance for possible loan losses to be adequate at June 30, 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 $0.3 million, or
3.2%, to $9.9 million during the 1997 quarter compared with $10.2 million for
the 1996 quarter. The decline is attributable to reductions of $0.7 million in
total fee income, $0.3 million in other income and $0.3 million in net gains on
investment in real estate and premises, partially offset by an increase in net
gains of $1.0 million on the sale of assets. Loan service fee income decreased
$0.7 million to $2.4 million during the 1997 quarter from $3.1 million in the
1996 quarter due to declining balances of home equity loans previously
securitized. Other income declined $0.3 million, or 27.8%, to $0.7 million
during the 1997 quarter from $1.0 million in the 1996 quarter as a result of
lower income from secondary marketing activities. Net gains on investments in
real estate and premises decreased by $0.3 million to $0.8 million in the 1997
quarter from $1.1 million in the 1996 quarter primarily from the decline in
rental income related to investment properties sold during 1996.
Non-Interest Expense. Total non-interest expense decreased by $0.4 million, or
1.4%, to $28.2 million in the 1997 quarter from $28.6 million in the 1996
quarter. This change was primarily due to the reduction in federal insurance
premiums of $1.5 million resulting from recent BIF/SAIF legislation and a
reduction in advertising expense of $0.6 million. The effect of these decreases
was partially offset by an increase of $0.7 million in compensation expense,
reflecting the Company's 1996 acquisitions of mortgage origination offices of
Fleet Mortgage Company and First Home Mortgage of Virginia, Inc., and an
increase of $0.5 million in office occupancy and equipment costs, stemming from
the Company's continued technological investments to improve its information and
communication systems. Other general and administrative (G&A) expenses increased
$0.4 million stemming from the increase in mortgage origination volume for the
1997 quarter compared with the 1996 quarter.
Provision for Income Taxes. Income tax expense remained constant at $7.9 million
due to the decline in the effective rate to 38.8% for the 1997 quarter from
41.2% for the 1996 quarter. The decline in the effective tax rate primarily
reflects changes in the New York State and New York City bad debt regulations,
the effect of which more than offset the $1.1 million increase in pre-tax
income.
Comparison of Operating Results for the Nine Months Ended June 30, 1997 and 1996
General. The Company had net income of $36.5 million and primary and fully
diluted EPS of $1.54 for the nine months ended June 30, 1997 ("1997 period").
For the nine months ended June 30, 1996 ("1996 period"), net income was $34.2
million and primary and fully diluted EPS was $1.40.
Net Interest Income. Net-interest income increased by $4.7 million, or 4.1%, to
$120.4 million in the 1997 period from $115.7 million in the 1996 period. The
increase in net interest income is primarily attributable to the $1.1 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 $692.1 million over the 1996
period, and the redeployment of funds previously invested in mortgage-backed
securities, which declined on average by $307.6 million from the 1996 period.
The net interest margin declined to 2.94% in the 1997 period from 3.30% in the
1996 period primarily due to a flattening of the yield curve which resulted in
lower average yields on real estate loans and mortgage-backed securities.
Provision for Possible Loan Losses. The provision for possible loan losses
decreased by $0.2 million, or 4.3%, to $4.5 million in the 1997 period from $4.7
million in the 1996 period. The decrease in the provision reflects slightly
lower charge-offs in the 1997 period compared with the 1996 period. The ratio of
non-performing loans to total gross loans was 1.47% at June 30, 1997, down from
1.81% at June 30, 1996 and the ratio of non-performing assets to total assets
was 1.03% at June 30, 1997, down from 1.16% at June 30, 1996.
Non-Interest Income. Total non-interest income decreased by $1.0 million, or
3.4%, to $27.4 million during the 1997 period as compared with $28.4 million in
the 1996 period. The principal component of the decline was the reduction of
$3.2 million in net gains on investment in real estate and premises, reflecting
the sale of investment properties that occurred in the 1996 period. Partially
offsetting this decline was an increase of $1.9 million in net gains on asset
sales, reflecting the execution of management's strategy of periodically taking
profits in the Company's loan, investment and funding portfolios, an increase of
$0.5 million in income from insurance and securities commissions and an increase
of $0.4 million in loan fees and service charges. The increase in insurance and
securities commissions reflects market conditions and the culmination of the
Company's efforts that began in 1995 to provide a broad range of diversified
financial products and services to its customers. Loan fees and service charges
were generated by increased mortgage origination volume for the 1997 period.
Non-Interest Expense. Total non-interest expense increased by $2.2 million, or
2.8%, to $82.6 million in the 1997 period from $80.4 million in the 1996 period.
Contributing to this increase were additional expenditures for compensation and
benefit costs of $2.8 million, office occupancy and equipment costs of $1.8
million and other G&A expenses of $1.5 million. These expenses increased
primarily due to the 1996 acquisitions previously discussed and the Company's
investment in technological improvements. Partially offsetting these increases
was a $3.3 million reduction in federal insurance premiums as a result of the
recent BIF/SAIF legislation and a reduction of $0.7 million in advertising
costs.
Provision for Income Taxes. Income tax expense decreased by $0.5 million, or
2.1%, to $24.3 million in the 1997 period from $24.8 million in the 1996 period.
This decrease is primarily attributable to a 200 basis point reduction in the
effective tax rate to 40.0% for the 1997 period from 42.0% 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
$1.8 million 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.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130 is effective for
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 periods
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. The Company has not yet
determined the impact of SFAS 131 on its financial statements.
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 Company'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 June 30, 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 JUNE 30,
-----------------------------------------------------------------------------------------
1997 1996
------------------------------------------ --------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD\ AVERAGE YIELD\
BALANCE INTEREST COST BALANCE INTEREST COST
------------- ------------ ------------- -------------- ------------ ---------------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS
Interest-earning cash
equivalents $ 57,452 $ 789 5.50 % $ 36,134 $ 471 5.24 %
Debt and equity securities
and FHLB-NY stock, net (1) 199,213 2,878 5.78 272,201 3,864 5.68
Mortgage-backed securities,net(1) 1,725,124 28,869 6.69 1,766,240 29,970 6.79
Real estate loans, net (2) 3,428,548 63,751 7.44 2,558,200 49,680 7.77
Commercial and other loans,net(2) 150,068 4,129 11.01 129,150 3,877 12.01
------------- ------------ ----------- -------------- ------------ ------------
Total interest-earning assets 5,560,405 100,416 7.22 4,761,925 87,862 7.38
Other non-interest-earning assets 210,194 269,453
------------- ------------ -------------- ------------
Total assets $ 5,770,599 $ 100,416 $ 5,031,378 $ 87,862
============= ============ ============== ============
INTEREST BEARING LIABILITIES
Deposits, net $ 3,723,610 $ 39,941 4.30 % $ 3,664,799 $ 38,427 4.22 %
Borrowed funds 1,420,092 20,426 5.77 727,132 10,296 5.70
------------- ------------ ----------- -------------- ------------ ------------
Total interest-bearing liabilities 5,143,702 60,367 4.71 4,391,931 48,723 4.46
Non-interest-bearing liabilities 99,339 120,721
------------- --------------
Total liabilities 5,243,041 4,512,652
Total stockholders' equity 527,558 518,726
------------- ------------ ----------- -------------- ------------ ------------
Total liabilities and
stockholders' equity $ 5,770,599 $ 60,367 $ 5,031,378 $ 48,723
============= ------------ ============== ------------
Net interest income/spread (3) $ 40,049 2.51 % $ 39,139 2.92 %
============ =========== ============ ============
Net interest margin as %
of interest-earning assets (4) 2.88 % 3.29 %
=========== ============
Ratio of interest-earning
assets to interest-bearing liabilities 108.10 % 108.42 %
=========== ============
(1) Debt and equity and mortgage-backed securities are shown including the
average market value appreciation of $12.1 million and $7.6 million,
before tax,from SFAS 115 for the three months ended June 30, 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 iabilities.
(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 nine months ended June 30, 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 NINE MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------------------
1997 1996
----------------------------------------- ------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------------- ----------- ------------- -------------- ----------- -------------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS
Interest-earning cash
equivalents $ 63,453 $ 2,509 5.28 % $ 32,938 $ 1,330 5.39 %
Debt and equity securities
and FHLB-NY stock, net (1) 208,697 8,830 5.64 270,104 11,352 5.60
Mortgage-backed securities,net(1) 1,735,430 87,377 6.71 2,043,011 105,221 6.87
Real estate loans, net (2) 3,301,750 184,815 7.46 2,206,548 130,701 7.90
Commercial and other loans,net(2) 145,833 12,122 11.08 122,142 11,547 12.61
------------- ----------- ---------- -------------- ----------- -----------
Total interest-earning assets 5,455,163 295,653 7.23 4,674,743 260,151 7.42
Other non-interest-earning assets 259,526 263,668
------------- ----------- -------------- -----------
Total assets $ 5,714,689 $ 295,653 $ 4,938,411 $ 260,151
============= =========== ============== ===========
INTEREST-BEARING LIABILITIES
Deposits, net $ 3,726,737 $ 118,217 4.24 % $ 3,649,092 116,785 4.27 %
Borrowed funds 1,336,462 57,001 5.70 644,324 27,697 5.74
------------- ----------- ---------- -------------- ----------- -----------
Total interest-bearing liabilities 5,063,199 175,218 4.63 4,293,416 144,482 4.50
Non-interest-bearing liabilities 123,628 119,507
------------- --------------
Total liabilities 5,186,827 4,412,923
Total stockholders' equity 527,862 525,488
------------- ----------- ---------- -------------- ----------- -----------
Total liabilities and
stockholders' equity $ 5,714,689 $ 175,218 $ 4,938,411 $ 144,482
============= ----------- ============== -----------
Net interest income/spread (3) $ 120,435 2.60 % $ 115,669 2.92 %
=========== ========== =========== ===========
Net interest margin as %
of interest-earning assets (4) 2.94 % 3.30 %
========== ===========
Ratio of interest-earning
assets to interest-bearing liabilities 107.74 % 108.88 %
========== ===========
(1) Debt and equity and mortgage-backed securities are shown including the
average market value appreciation of $14.7 million and $15.8 million,
before tax,from SFAS 115 for the nine months ended June 30, 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 JUNE 30, 1997 NINE MONTHS ENDED JUNE 30, 1997
COMPARED TO COMPARED TO
THREE MONTHS ENDED JUNE 30, 1996 NINE MONTHS ENDED JUNE 30, 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) $ 293 $ 25 $ 318 $ 1,206 $ (27) $ 1,179
Debt and equity securities(2)(3) (1,054) 68 (986) (2,598) 76 (2,522)
Mortgage-backed securities(3) (692) (409) (1,101) (15,533) (2,311) (17,844)
Real estate loans(4) 16,264 (2,193) 14,071 61,662 (7,548) 54,114
Commercial and other loans(4) 594 (342) 252 2,073 (1,498) 575
------------ ------------- ------------ ----------- ---------- ----------
Total 15,405 (2,851) 12,554 46,810 (11,308) 35,502
------------ ------------- ------------ ------------ ------------ ----------
Interest-bearing liabilities:
Deposits 671 843 1,514 2,392 (960) 1,432
Borrowed funds 9,993 137 10,130 29,496 (192) 29,304
------------ ------------- ------------ ------------ ------------ ---------
Total 10,664 980 11,644 31,888 (1,152) 30,736
------------ ------------- ------------ ------------ ------------ ---------
Net change in interest income $ 4,741 $ (3,831) $ 910 $ 14,922 $ (10,156) $ 4,766
============ ============= ============ ============ ============ =========
(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 $12.1 million and $7.6 million,
before tax,from SFAS 115 for the three months ended June 30, 1997 and 1996,
respectively,and $14.7 million and $15.8 million for the nine months
ended June 30,1997 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 Nine Months
Ended June 30, Ended June 30,
---------------------------------- ----------------------------------
1997 1996 1997 1996
-------------- --------------- --------------- ---------------
Selected Financial Ratios: (a)
Return on average assets ...................... 0.86% 0.90% 0.85% 0.92%
Return on average stockholders' equity ........ 9.42 8.71 9.21 8.67
Average stockholders' equity to average assets. 9.14 10.31 9.24 10.64
Stockholders' equity to total assets .......... 8.99 9.99 8.99 9.99
Interest rate spread during period............. 2.51 2.92 2.60 2.92
Net interest margin............................ 2.88 3.29 2.94 3.30
Operating expenses to average assets........... 1.94 2.27 1.92 2.17
Efficiency ratio (b)........................... 61.13 62.21 58.57 59.36
Average interest-earning assets to average
interest-bearing liabilities................... 108.10 108.42 107.74 108.88
Net interest income to operating expenses ..... 1.43x 1.37x 1.46x 1.44x
Selected Data:
Primary earnings per share..................... $0.53 $0.47 $1.54 $1.40
Weighted average number of shares outstanding
for primary earnings per share computation.... 23,421,889 23,979,330 23,640,550 24,356,153
Fully diluted earnings per share............... $0.53 $0.47 $1.54 $1.40
Weighted average number of shares outstanding
for fully diluted earnings per share computation 23,444,963 24,029,679 23,678,479 24,462,925
Book value per share........................... $22.17 $21.03 $22.17 $21.03
Number of shares outstanding for book value per
share computation........................... 23,968,303 24,805,349 23,968,303 24,805,349
Cash dividends declared per share.............. $0.15 $0.10 $.045 $0.30
Dividend payout ratio.......................... 28.30% 21.28% 29.22% 21.43%
At June 30,
----------------------------
1997 1996
------------ -----------
Asset Quality Ratios:
Non-performing loans to total gross loans.................... 1.47% 1.81%
Non-performing assets to total assets........................ 1.03 1.16
Allowance for possible loan losses to non-performing loans... 63.10 64.50
Regulatory Capital at June 30, 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)....................... $ 87,669 1.50 % $438,262 7.50 % $350,593 6.00%
Core capital (d)........................... 175,338 3.00 438,262 7.50 262,924 4.50
Risk-based capital (e)..................... 242,501 8.00 471,887 15.57 229,386 7.57
(a) Ratios for the three and nine months ended June 30, 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 Nine Months Ended
June 30, June 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------- ------------ -------------
(In thousands)
Opening allowance......................................... $33,954 $34,349 $33,912 $34,358
Provision................................................. 1,500 1,600 4,500 4,700
Net charge-offs........................................... (1,831) (1,844) (4,789) (4,953)
------------- ------------ ------------ -------------
Ending allowance.......................................... $33,623 $34,105 $33,623 $34,105
============= ============ ============ =============
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.
June 30, September 30,
1997 1996
------------------- ---------------------
(Dollars in thousands)
Non-performing loans (1):
Residential:
One-to-four family.................................................... $43,132 $39,573
Co-operative apartments............................................... 878 602
Home equity........................................................... 1,563 3,489
Second mortgage....................................................... 230 190
Multi-family.......................................................... 588 896
-------- --------
Total residential .................................................. 46,391 44,750
Non-residential:
Commercial real estate................................................ 3,398 4,336
Construction.......................................................... 453 453
Land.................................................................. 605 675
-------- --------
Total real estate loans (2)................................................ 50,847 50,214
Other loans (3)............................................................ 2,440 2,952
-------- --------
Total non-performing loans................................................. 53,287 53,166
Real estate owned net (4).................................................. 7,819 8,155
-------- --------
Total non-performing assets................................................ $61,106 $61,321
======= ========
Non-performing loans to total gross loans.................................. 1.47% 1.70%
Non-performing assets to total assets...................................... 1.03 1.14
Non-performing assets to total stockholders' equity and
allowance for possible loan losses...................................... 10.82 11.09
Allowance for possible loan losses to non-performing loans................. 63.10 63.79
Allowance for possible loan losses to total gross loans.................... 0.92 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 June 30, 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 June 30, 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 June 30, 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
June 30, 1997.
INTEREST RATE SENSITIVITY GAP ANALYSIS
AT JUNE 30, 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 TO 1 YEAR TO 3 YEARS TO 5 5 YEARS TOTAL
MONTHS YEARS
----------- ----------- ----------- ----------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS)
Interest-earning assets(1):
Real estate loans (2) $ 284,370 $ 259,708 $ 536,506 $ 846,092 $ 548,233 $ 943,583 $ 3,418,492
Commercial loans (2) 121 112 858 2,675 837 1,001 5,604
Other loans (2) 59,231 12,289 7,113 48,869 27,284 12,313 167,099
Mortgage-backed 263,261 255,773 466,126 356,569 331,575 28,856 1,702,160
securities (3)
Interest-earning
cash equivalents 129,513 --- --- --- --- --- 129,513
Debt and equity
securities (3) 17,277 2,697 14,548 10,113 541 100,195 145,371
Stock in FHLB-NY --- --- --- --- --- 48,724 48,724
---------- ----------- ---------- ----------- ---------- ----------- -----------
Total interest-
earning assets 753,773 530,579 1,025,151 1,264,318 908,470 1,134,672 5,616,963
Interest-bearing liabilities:
Passbook accounts 114,465 92,409 109,890 101,025 96,816 105,910 620,515
Statement savings 121,057 96,417 114,660 105,432 101,039 110,510 649,115
accounts
NOW accounts 35,524 4,713 9,426 37,704 36,133 1,571 125,071
Checking & demand
deposit accounts 3,061 1,312 2,624 --- --- --- 6,997
Money market accounts 74,731 14,014 28,027 116,772
Certificate accounts 476,787 335,341 456,017 636,048 148,099 19,080 2,071,372
accounts
Borrowings 200,731 --- 97,400 741,000 475,631 --- 1,514,762
----------- ----------- ----------- ----------- ---------- ----------- -----------
Total interest-
bearing liabilities 1,026,356 544,206 818,044 1,621,209 857,718 237,071 5,104,604
----------- ----------- ----------- ----------- ---------- ----------- -----------
Interest sensitivity
gap per period $ (272,583) $ (13,627) $ 207,107 $ (356,891) $ 50,752 $ 897,601 $ 512,359
Effect of interest rate
swap $ 300,000 $ --- $ --- $ --- $(300,000) $ --- $ ---
---------- ----------- ----------- ----------- ---------- ----------- -----------
Adjusted interest
sensitivity gap per
period $ (572,583) $ (13,627) $ 207,107 $ (356,891) $ 350,752 $ 897,601 $ 512,359
========== =========== =========== =========== ========== =========== ===========
Cumulative interest
sensitivity gap $ (572,583) $(586,210) $ (379,103) $ (735,994) $(385,242) $ 512,359
=========== =========== =========== =========== ========== ===========
Cumulative interest
sensitivity gap as a
percentage of total
assets (4) (9.69) % (9.92) % (6.42) % (12.46) % (6.52) % 8.67 %
Cumulative net
interest-earning assets
as a percentage of net
interest-bearing
liabilities 73.44 81.78 96.69 89.13 92.09 110.04
- ------------------
(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 $17.4 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 $379.1 million at June 30, 1997. A
liability sensitive interest rate gap would tend to decrease earnings over a
period of rising interest rate, where declining rates would increase earnings.
The cumulative one-year sensitivity gap was negative 6.42% of total assets at
June 30, 1996, compared to positive 7.12% at September 30, 1996.
The use of interest rate instruments such as interest rate swaps are integrated
into the Company's interest rate risk management. The notional amount of these
instruments are not reflected in the Company's balance sheet. However, these
instruments are included in the interest rate sensitivity table for purposes of
analyzing interest rate risk.
During the quarter ended June 30, 1997, the Company entered into an interest
rate swap transaction, with a notional amount of $300.0 million. The swap
agreement converted the medium-term note issued in June 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 June 30, 1997 LIBOR
minus 3 basis points was 5.51% and the interest rate swap had a gross negative
market value of $ 0.5 million.
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. On May
22, 1997 the government filed a reply to the Bank's opposition to the
government's cross-motion. No decision has been rendered on the Bank's motion or
the government's 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.
None.
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 Nine Months Ended
June 30, June 30,
------------------------------- ------------------------------
1997 1996 1997 1996
--------------- ------------ ------------- ------------
Net Income $ 12,426 $ 11,294 $ 36,476 $ 34,177
============= ============ ============= ============
Total weighted average common shares and
equivalents outstanding 23,422 23,979 23,641 24,356
============= ============ ============= ============
Primary earnings per common share $ 0.53 $ 0.47 $ 1.54 $ 1.40
============= ============ ============= ============
Total shares for fully dilutive earnings per 23,445 24,030 23,678 24,463
share ============= ============ ============= ============
Fully diluted earnings per common share $ 0.53 $ 0.47 $ 1.54 $ 1.40
============= ============ ============= ============
(b) Reports on Form 8-K
On April 22, 1997 and June 24, 1997, the Company filed with the
SEC Current Reports on Form 8-K which contained press releases.
The April press release announced the Company's earnings for the
three months ended March 31, 1997. The June press release
announced the declaration of the Company's eleventh 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: 8/5/97 By: /s/ Lawerence W. Peters
------------------------
Lawerence W. Peters
President and Chief Operating Officer
Dated: 8/5/97 By: /s/ Mark Fuster
-----------------
Mark Fuster
Chief Financial Officer