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, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 0-23526
Long Island Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-3198508
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
201 Old Country Road, Melville, New York 11747-2724
(Address of principal executive offices) (Zip Code)
(516) 547-2000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all the
reports required to be filed by Section 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.
24,182,823 Shares were outstanding as of June 30, 1998
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, 1998 and September 30, 1997 3
Consolidated Statements of Operations for the three and nine
months ended June 30, 1998 and 1997 4
Consolidated Statement of Changes in Stockholders' Equity for the
nine months ended June 30, 1998 5
Consolidated Statements of Cash Flows for the nine months ended
June 30, 1998 and 1997 6
Notes to the Consolidated Financial Statements 7 - 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 19
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 20- 21
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 22
ITEM 2. Changes in Securities 22
ITEM 3. Defaults Upon Senior Securities 22
ITEM 4. Submission of Matters to a Vote of Security Holders 22
ITEM 5. Other Information 22
ITEM 6. Exhibits and Reports on Form 8-K 23
Signature Page 24
LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Financial Condition
(In thousands, except share data)
June 30, September 30,
1998 1997
----------------------------------------
ASSETS
Cash and cash equivalents (including interest-earning assets of
$119,058 and$9,735, respectively) $ 167,406 $ 43,705
Investment in debt and equity securities, net:
Available-for-sale 390,388 138,578
Mortgage-backed securities, net:
Held-to-maturity (estimated fair value of
$19,164 and $20,188, respectively) 21,052 22,223
Available-for-sale 1,889,014 1,808,471
Stock in Federal Home Loan Bank of New York, at cost 50,548 48,724
Loans held for sale 363,453 157,617
Loans receivable held for investment, net:
Real estate loans, net 3,211,964 3,333,185
Commercial loans, net 9,478 6,465
Other loans, net 185,110 178,325
--------------------------------------
Loans, net 3,406,552 3,517,975
Less allowance for possible loan losses (34,277) (33,881)
--------------------------------------
Total loans receivable held for investment, net 3,372,275 3,484,094
Mortgage servicing rights, net 47,694 41,789
Office properties and equipment, net 84,416 88,466
Accrued interest receivable, net 37,094 35,334
Investment in real estate, net 7,712 9,103
Deferred taxes 15,406 16,547
Excess of cost over fair value of assets acquired 4,767 5,069
Prepaid expenses and other assets 32,662 31,064
--------------------------------------
Total assets $ 6,483,887 $ 5,930,784
======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 3,678,195 $ 3,730,503
Official checks outstanding 29,983 26,840
Borrowed funds,net 2,042,534 1,501,456
Mortgagors' escrow payments 67,673 69,353
Accrued expenses and other liabilities 88,006 56,257
--------------------------------------
Total liabilities 5,906,391 5,384,409
Stockholders' equity:
Preferred stock ($0.01 par value, 5,000,000 shares authorized;
none issued)
--- ---
Common stock ($0.01 par value, 130,000,000 and 45,000,000 shares
authorized, respectively; 26,816,464 shares issued, 24,182,823 and
24,022,924 outstanding, respectively) 268 268
Additional paid-in capital 314,196 309,372
Unallocated Employee Stock Ownership Plan (17,575) (18,079)
Unearned Management Recognition & Retention Plan (2,681) (3,816)
Unrealized gain on securities available-for-sale, net of tax 9,178 12,947
Retained income-partially restricted 346,866 319,756
Treasury stock, at cost (2,633,641 and 2,793,540 shares, (72,756) (74,073)
respectively)
--------------------------------------
Total stockholders' equity 577,496 546,375
--------------------------------------
Total liabilities and stockholders' equity $ 6,483,887 $ 5,930,784
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 NINE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ------------ -----------
Interest income:
Real estate loans $ 64,478 $ 63,086 $ 193,815 $ 184,151
Commercial loans 192 143 535 472
Other loans 4,336 3,987 12,954 11,650
Mortgage-backed securities 30,047 29,533 88,711 88,041
Debt and equity securities 8,343 3,667 20,894 11,339
---------- ---------- ----------------------
Total interest income 107,396 100,416 316,909 295,653
---------- ---------- ----------------------
Interest expense:
Deposits 39,013 39,941 119,994 118,217
Borrowed funds 28,617 20,426 77,791 57,001
---------- ---------- ----------------------
Total interest expense 67,630 60,367 197,785 175,218
---------- ---------- ----------------------
Net interest income 39,766 40,049 119,124 120,435
Provision for possible loan losses 1,500 1,500 4,500 4,500
---------- ---------- ----------------------
Net interest income after provision 38,266 38,549 114,624 115,935
for possible loan losses
---------- ---------- ----------------------
Non-interest income:
Fees and other income:
Loan fees and service charges 967 764 2,663 2,659
Loan servicing fees 1,671 2,417 6,040 8,907
Income from insurance and securities 933 655 2,320 1,753
commissions
Deposit service fees 1,915 1,275 4,763 4,216
---------- ---------- ----------------------
Total fee income 5,486 5,111 15,786 17,535
Other income 2,204 699 4,021 2,558
---------- ---------- ----------------------
Total fees and other income 7,690 5,810 19,807 20,093
---------- ---------- ----------------------
Net gains on sale activity:
Net gains on loans and mortgage-backed 3,782 3,087 11,054 7,325
securities
Net gains (loss) on investment in debt 101 236 1,027 334
and equity securities
---------- ---------- ----------------------
Total net gains on sale activity 3,883 3,323 12,081 7,659
Net gain (loss) on investment in real 1,469 765 745 (293)
estate and premises
---------- ---------- ----------------------
Total non-interest income 13,042 9,898 32,633 27,459
Non-interest expense:
General and administrative expense:
Compensation, payroll taxes and fringe 12,918 15,000 40,385 43,988
benefits
Advertising 826 1,218 2,070 3,562
Office occupancy and equipment 4,940 5,761 15,806 16,724
Federal insurance premiums 796 792 2,392 3,474
Other general and administrative 4,818 5,027 14,345 13,688
expense
---------- ---------- ----------------------
Total general and administrative 24,298 27,798 74,998 81,436
expense
Litigation expense - goodwill lawsuit 583 234 1,293 868
Amortization of excess of cost over fair 97 125 302 343
value of assets acquired
---------- ---------- ----------------------
Total non-interest expense 24,978 28,157 76,593 82,647
---------- ---------- ----------------------
Income before income taxes 26,330 20,290 70,664 60,747
Provision for income taxes 10,474 7,864 27,689 24,271
---------- ---------- ----------------------
Net income $ 15,856 $ 12,426 $ 42,975 $ 36,476
========== ========== ======================
Basic earnings per common share $ 0.71 $ 0.56 $ 1.92 $ 1.62
========== ========== ======================
Diluted earnings per common share $ 0.68 $ 0.54 $ 1.85 $ 1.56
========== ========== ======================
(a) Net income per common share amounts for the 1997 periods have been restated
to reflect the adoption of SFAS No. 128.
See accompanying notes to unaudited consolidated financial statements.
LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
Consolidated Statement of Changes In Stockholders' Equity
Nine Months Ended June 30, 1998
(In thousands, except share data)
UNALLOCATED UNEARNED UNREALIZED
EMPLOYEE MANAGEMENT GAIN ON RETAINED
ADDITIONAL STOCK RECOGNITION SECURITIES INCOME -
COMMON PAID-IN OWNERSHIP & RETENTION AVAILABLE PARTIALLY TREASURY
STOCK CAPITAL PLAN PLAN FOR SALE RESTRICTED STOCK TOTAL
-------- --------- ---------- ------------ ------------ ------------ ---------- ----------
Balance at September 30, 1997 $ 268 $ 309,372 $ (18,079) $ (3,816) $ 12,947 $ 319,756 $ (74,073) $ 546,375
Net income 42,975 42,975
Allocation/amortization of ESOP
and MRP stock and related
tax benefits 2,633 504 1,135 4,272
,
Change in unrealized gains on
securities available-for-sale,
net of taxes (3,769) (3,769)
Dividends (11,214) (11,214)
Repurchase of common stock (138,000 shares)
net of exercise of stock options
(49,490 shares)and related tax 2,191 (4,651) (1,317) (1,143)
benefits
--------- ------------- --------- ----------- ----------- ----------- ----------- -------------
Balance at March 31, 1998 $ 268 $ 314,196 $ (17,575) $ (2,681) $ 9,178 $ 346,866 $ (72,756) $ 577,496
========== =========== ========== =========== ===+======= =========== =========== ============
See accompanying notes to unaudited consolidated financial statements.
LONG ISLAND BANCORP, INC.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(in thousands)
For the Nine Months Ended
---------------------------------
June 30,
---------------------------------
1998 1997
---------------- --------------
Operating activities:
Net income $ 42,975 $ 36,476
Adjustments to reconcile net income to net cash used by operating activities:
Provision for possible loan losses 4,500 4,500
Write-off of real estate owned and investment in real estate 329 420
Gains on sale of real estate owned and investment in real estate, net (2,135) (220)
Depreciation and amortization 17,455 11,904
Amortization of premiums, net of discount accretion-debt, equity
and mortgage-backed securities 3,931 ---
Accretion of discounts, net of amortization of premiums-purchase
accounting and goodwill amortization 179 549
Employee Stock Ownership Plan/Management Recognition & Retention 3,622 4,590
Plan expense
Gains on sales of loans and mortgage-backed securities, net (11,054) (7,325)
Originations of loans held-for-sale, net of proceeds from sales (216,458) (33,118)
Gains on sales of debt and equity securities, net (1,027) (334)
Increase in accrued interest receivable (1,760) (1,618)
Increase (decrease) in accrued expenses and other liabilities 31,749 (53,811)
Increase (decrease) in official checks outstanding 3,143 (20,176)
Net (increase) decrease in deferred taxes and prepaid expenses and (457) 17,645
other assets
Net increase (decrease) in unearned income 4,320 (7,789)
---------------- --------------
Net cash used by operating activities (120,688) (48,307)
---------------- --------------
Investing activities:
Proceeds from sales of debt and equity securities, 30,244 21,046
available-for-sale
Proceeds from sales of mortgage-backed securities, 710,444 372,993
available-for-sale
Proceeds from maturities of and principal payments on debt and 595,042 127,609
equity securities
Principal payments on mortgage-backed securities 360,270 250,991
Purchases of debt and equity securities, available-for-sale (868,979) (110,043)
Purchases of Federal Home Loan Bank stock (1,824) (7,970)
Purchases of mortgage-backed securities, available-for-sale (744,788) (50,015)
Originations and purchases of loans held-for-investment, net of (308,290) (1,038,790)
principal payments
Proceeds from sale of real estate owned, office properties and 3,515 7,988
equipment
Purchases of office properties and equipment (4,286) (6,791)
Purchase of mortgage servicing rights --- (4,045)
---------------- --------------
Net cash used by investing activities (228,652) (437,027)
---------------- --------------
Financing activities:
Net increase (decrease) in demand deposits, NOW accounts and 5,504 (38,424)
savings accounts
Net decrease in mortgagors' escrow accounts (1,680) (4,547)
Net (decrease) increase in certificates of deposit (57,810) 111,674
Costs to repurchase common stock (6,894) (24,016)
Proceeds from the exercise of stock options 3,560 682
Cash dividends paid on common stock (10,717) (9,652)
Net decrease in short-term borrowings (109,064) (275,600)
Net increase in long-term borrowings 650,142 812,339
---------------- --------------
Net cash provided by financing activities 473,041 572,456
---------------- --------------
Increase in cash and cash equivalents 123,701 87,122
Cash and cash equivalents at the beginning of the period 43,705 76,348
---------------- --------------
Cash and cash equivalents at the end of the period $ 167,406 $ 163,470
================ ==============
Supplemental disclosures of cash flow information: Cash paid during the quarters
for:
Interest on deposits and borrowed funds $ 187,160 $ 172,039
================ ==============
Income taxes $ 15,753 $ 18,844
================ ==============
Non-cash investing activities:
Additions to real estate owned, net $ 5,818 $ 7,665
================ ==============
Securitization of loans $ 408,005 $ 547,484
================ ==============
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 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, 1998 are not necessarily indicative of the results of operations to
be expected for the remainder of the year. Certain information and note
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC").
These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report to Shareholders
and Form 10-K for the fiscal year ended September 30, 1997.
Certain reclassifications have been made to conform the prior period's
consolidated financial statements to the current presentation.
2. Earnings Per Share of Common Stock
Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings per Share". This statement establishes standards for
computing and presenting EPS for entities with publicly held common
stock and common stock equivalents. The statement simplifies the
computations of EPS that were previously found in APB Opinion No. 15
"Earnings Per Share". This statement requires a reconciliation of the
numerator and denominator of the two EPS calculations and the
restatement of all prior period EPS data presented after adoption.
Basic EPS is determined by dividing net income available to common
stockholders for the period by the weighted average number of common
shares outstanding during the same period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock which then shared in the
earnings of the entity. The weighted average number of common shares
outstanding for basic and diluted EPS calculations for the three months
and nine months ended June 30, 1998 and 1997 are presented on page 23
herein. The additional number of shares included in the calculation of
diluted EPS arising from stock options was 920,698 and 827,351,
respectively for the quarters ended June 30, 1998 and 1997 and 937,160
and 827,716, respectively, for the nine months ended June 30, 1998 and
1997.
3. Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and short-term loans to commercial
banks with original terms to maturity of less than three months.
4. Recent Developments
On June 23, 1998, the Company announced the declaration of its
fifteenth quarterly dividend, in the amount of twenty cents ($0.20) per
common share. The dividend is payable on September 1, 1998 to
shareholders of record at the close of business on August 14, 1998. The
dividend is intended to conform the dividend payment schedule of the
Company with Astoria Financial Corporation ("Astoria"), with whom the
Company has signed a definitive agreement to merge with and into, in a
tax-free exchange of common stock.
The Company announced the agreement on April 3, 1998, in which the
Company will merge with and into Astoria. Under the terms of the
agreement, holders of the Company's common stock will receive 1.15
shares of Astoria common stock for each share of the Company's common
stock. The transaction, which is subject to regulatory and shareholder
approvals and is expected to be accounted for as a pooling of
interests, is anticipated to close during the third calendar quarter of
1998. In connection with the merger, the Company announced that its
stock repurchase program has been terminated.
Item 2. Management's Discussion and Analysis
General
The Company was incorporated in the State of Delaware in December 1993 at the
direction of the Board of Directors of the Bank for the purpose of becoming a
holding company to own all of the outstanding capital stock of the Bank upon its
conversion from a mutual to a stock form of organization. The mutual-to-stock
conversion was completed on April 14, 1994.
Financial Condition
Total assets at June 30, 1998 were $6.5 billion, an increase of $553.1 million,
or 9.3%, from September 30, 1997. The growth in assets is primarily due to an
increase in investment in debt and equity securities, net, of $251.8 million to
$390.4 million at June 30, 1998 from $138.6 million at September 30, 1997 and an
increase in cash and cash equivalents of $123.7 million to $167.4 million at
June 30, 1998 from $43.7 million at September 30, 1997. Further contributing to
the growth in assets was the increase in total loans receivable held for
investment and sale, net, of $94.0 million to $3.7 billion at June 30, 1998 from
$3.6 billion at September 30, 1997 and an increase in mortgage-backed securities
("MBS's") of $79.4 million to $1.9 billion at June 30, 1998 from $1.8 billion at
September 30, 1997.
Non-performing assets increased by $2.2 million, or 4.2%, to $56.0 million at
June 30, 1998 from $53.7 million at September 30, 1997, reflecting a $3.6
million increase in non-performing loans offset by a $1.4 million decrease in
real estate owned. Despite the increase in non-performing assets, the ratios of
non-performing assets to total assets improved by 5 basis points to 0.86% at
June 30, 1998 from 0.91% at September 30, 1997. This improvement reflects the
growth in total assets and total gross loans.
Total liabilities at June 30, 1998 were $5.9 billion, an increase of $522.0
million since September 30, 1997. The increase in total liabilities primarily
reflects an increase in borrowed funds of $541.1 million to $2.0 billion, offset
by a decrease in deposit liabilities of $52.3 million to $3.7 billion at June
30, 1998. The increase in borrowed funds reflects the issuance of $150.0 million
medium-term note and $440.0 million increase in reverse-repurchase agreements.
Stockholders' equity increased by $31.1 million to $577.5 million since
September 30, 1997. The increase consists of earnings of $43.0 million and $6.4
million related to the Company's stock benefit plans. These increases were
offset by a decline of $3.8 million in unrealized gains on securities classified
as available-for-sale, net of tax, the net purchase (prior to April 3, 1998) of
treasury stock of $3.3 million, and the declaration of $11.2 million in
dividends. At June 30, 1998 book value per share amounted to $23.88.
Liquidity, Regulatory Capital and Capital Resources
General. The Company's primary sources of funds are deposits and proceeds from
principal and interest payments on loans, MBS's and other securities. While
maturities and scheduled amortization of loans and MBS's are predictable sources
of funds, deposit flows and mortgage prepayments are greatly influenced by
general interest rates, economic conditions and competition. In addition, the
Company uses borrowings as an additional and sometimes a less costly source of
funds. The Company's primary sources of borrowings are through the sales of
securities under agreements to repurchase ("reverse-repurchase agreements"), a
funding note issued in fiscal 1996 and a medium-term note issued in fiscal 1997.
The Bank is required to maintain minimum levels of liquid assets as defined by
Office of Thrift Supervision ("OTS") regulations. During November 1997, the OTS
lowered the liquidity requirements from 5% to 4% of a bank's liquidity base.
Additionally, the OTS streamlined the calculations used to measure compliance
with liquidity requirements, expanded the types of assets that can be considered
liquid and reduced the liquidity base by modifying the definition of net
withdrawable accounts to exclude accounts with maturities exceeding one year. At
June 30, 1998, the Bank's liquid asset ratio was 22.14%. The current liquidity
ratio is above the regulatory requirements in accordance with the Bank's
investment objective of investing in short-term debt securities and MBS's.
Future levels may vary.
The Company's most liquid assets are cash and short-term investments. The levels
of these assets are dependent on the Company's operating, financing, lending and
investing activities during any given period.
The primary investment activity of the Bank is the origination and purchase of
real estate loans and other loans. During the nine months ended June 30, 1998,
the Bank originated or purchased real estate loans in the amount of $2.2
billion, including $8.1 million which represents the bulk purchase of loans, and
originated or purchased other loans in the amount of $75.5 million. The Bank
purchases MBS's to reduce liquidity not otherwise required to meet loan demand.
Purchases of MBS's totaled $737.0 million for the nine months ended June 30,
1998. Other investing activities may include investing in U.S. government
securities, federal agency obligations and asset-backed securities.
Liquidity management of the Company is both a daily and long-term component of
management's strategy. Excess funds are generally invested in short-term and
intermediate-term securities. In the event that the Bank should require funds
beyond its ability to generate them internally, additional sources of funds are
available through the use of Federal Home Loan Bank ("FHLB") advances,
reverse-repurchase agreements and additional borrowings of up to $550.0 million
under the Bank's medium-term note program. In addition, the Bank may access
funds, if necessary, through lines of credit totaling $150.0 million at June 30,
1998 from an unrelated financial institution.
In accordance with the requirements of the OTS the Bank established a
liquidation account in the amount equal to its capital as of the date of the
latest consolidated statement of financial condition appearing in the final
prospectus related to the Company's initial public offering in April 1994. The
liquidation account is maintained for the benefit of eligible pre-conversion
depositors who continue to maintain their account at the Bank after the
conversion. The liquidation account is reduced annually to the extent that
eligible account holders reduce their qualifying deposits. In the unlikely event
of a complete liquidation of the Bank, each eligible account holder will be
entitled to receive a distribution from the liquidation account. The Bank is not
permitted to declare or pay a dividend on or to repurchase any of its capital
stock if the effect would be to cause the Bank's regulatory capital to be
reduced below the amount required for the liquidation account. Unlike the Bank,
the Company is not subject to OTS regulatory restrictions on the declaration or
payment of dividends to its stockholders, although the source of such dividends
could depend upon dividend payments from the Bank. The Company is subject,
however, to the requirements of Delaware law, which generally limit dividends to
an amount equal to the excess of its net assets (the amount by which total
assets exceed total liabilities) over its stated capital or, if there is no such
excess, to its net profits for the current and/or immediately preceding fiscal
year.
Regulatory Capital Position. Under OTS capital regulations, the Bank is required
to comply with each of three separate capital adequacy standards. At June 30,
1998, 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 June 30,1998 and 1997
General. The Company had net income of $15.9 million and diluted EPS of $0.68
for the quarter ended June 30, 1998 ("1998 quarter"). For the quarter ended June
30, 1997 ("1997 quarter"), net income was $12.4 million and diluted EPS was
$0.54 per share. Basic EPS for the 1998 and 1997 quarters was $0.71 and $0.56,
respectively.
Net Interest Income. Net interest income declined marginally to $39.8 million
during the quarter ended June 30, 1998 from $40.0 million in the same quarter of
1997. The decline in net interest income is attributable to the continued
flattening of the treasury yield curve, coupled with a higher level of average
borrowed funds. These factors contributed to a decline in the net interest
margin to 2.58% for the quarter ended June 30, 1998 as compared with 2.88% for
the quarter ended June 30, 1997.
Provision for Possible Loan Losses. The provision for possible loan losses was
$1.5 million for both the 1998 and 1997 quarter. Non-performing loans decreased
by $2.6 million to $50.7 million at June 30, 1998 compared with $53.3 million at
June 30, 1997. At June 30, 1998, the ratio of the allowance for possible loan
losses to non-performing loans improved to 67.61% from 63.10% at June 30, 1997.
Although management considers the allowance for possible loan losses to be
adequate at June 30, 1998, if general economic trends and real estate values
were to decline, the level of non-performing loans may increase. Such an
increase could result in greater provisions for possible loan losses thereby
adversely affecting future operating results.
Non-Interest Income. Total non-interest income increased by $3.1 million, or
31.8%, to $13.0 million for the quarter ended June 30, 1998 compared with the
same period in 1997. This increase is attributable to increases in other income
of $1.5 million, an increase of $0.7 million in net gains on investments in real
estate and premises, an increase of $0.6 million in net gains on asset sales, an
increase of $0.6 million in deposit service fee income, and an increase of $0.3
million in income from insurance and securities commissions. These improvements
were partially offset by a decrease of $0.7 million in loan servicing fee
income. The increase in other income was due to the 1998 settlement of a real
estate dispute in the amount of $1.6 million. Net gains on investments in real
estate and premises increased reflecting greater income from joint venture
operations in the 1998 quarter as compared with the 1997 quarter. Net gains from
asset sales primarily reflect increases of $0.3 million in the Company's
mortgage banking activities and $0.4 million from the sale of MBS's classified
as available-for-sale. Deposit service fee income increased from recently
implemented deposit pricing initiatives. The decline in loan service fee income
is due to a $1.6 million increase in the amortization of mortgage servicing
rights (MSR's) which resulted from increased mortgage refinancing activity.
Partially offsetting the rise in amortization was greater fee income stemming
from a net increase of $440.7 million in the mortgage servicing portfolio.
Non-Interest Expense. Total non-interest expense decreased by $3.2 million, or
11.3%, to $25.0 million for the quarter ended June 30, 1998 compared with the
same period in 1997. This decrease represents the fourth consecutive quarter of
declining general and administrative ("G&A") expense. Contributing to this
decrease were reductions in compensation and benefit costs of $2.1 million,
office occupancy and equipment expense of $0.8 million, advertising expense of
$0.4 million, and other G&A expense of $0.2 million Compensation and benefit
costs decreased due to greater net deferred loan costs resulting from increased
loan production and a decline in the number of employees. Office occupancy and
equipment expense decreased due to reduced machine maintenance costs of $0.4
million, and real estate tax certiorari refunds of $0.2 million. Advertising
costs decreased due to fewer marketing initiatives. The Company announced
to its employees an early retirement package for all eligible employees. The
Company anticipates this cost to be incurred during the fourth fiscal quarter
of 1998.
Provision for Income Taxes. Income tax expense increased by $2.6 million,
or 33.2%, to $10.5 million in the 1998 quarter from $7.9 million in the 1997
quarter. This increase primarily reflects higher pre-tax income.
Comparison of Operating Results for the Nine Months Ended June 30, 1998 and 1997
General. The Company had net income of $43.0 million and diluted EPS of $1.85
for the nine months ended June 30, 1998 ("1998 period"). For the nine months
ended June 30, 1997 ("1997 period"), net income was $36.5 million and diluted
EPS was $1.56. Basic EPS for the 1998 and 1997 periods was $1.92 and $1.62,
respectively.
Net Interest Income. Net interest income decreased by $1.3 million, or 1.1%, to
$119.1 million in the 1998 period from $120.4 million in the 1997 period. This
decrease is attributable to a flat yield curve coupled with an increase in
average borrowed funds. The decrease in net interest income primarily reflects a
29 basis point decline in the net interest margin to 2.66% for the 1998 period
from 2.95% for the 1997 period. Contributing to the lower margin were declines
in the average yield on MBS's and real estate loans of 31 and 13 basis points,
respectively, resulting from the flattening of the treasury yield curve and
increased competition for mortgage loan originations. The cost of
interest-bearing liabilities increased, further constricting the net interest
margin. The increased cost of deposit liabilities arose from rising short term
interest rates and the migration of lower-cost core deposits into time deposits.
The rise in the cost of borrowed funds is primarily due to an increase in the
effective cost to borrow under the medium term note program. Further
contributing to the decline in the net interest margin was the increase in
average borrowed funds and average deposits. Average borrowed funds increased
$429.6 million to $1.8 billion for the 1998 period as compared with $1.3 billion
for the 1997 period. Average deposits increased $72.5 million to $3.8 billion
for the 1998 period as compared with $3.7 billion for the 1997 period. The
primary investment vehicle used by the Company for the additional borrowed funds
and deposits was real estate loans. Average real estate loans increased by
$234.0 million to $3.5 billion for the 1998 period as compared with $3.3 billion
for the 1997 period.
Provision for Possible Loan Losses. The provision for possible loan losses was
$4.5 million for both the 1998 and 1997 periods, reflecting management's
assessment of the stable level of non-performing assets.
Non-Interest Income. Total non-interest income increased by $5.2 million, or
18.8%, to $32.6 million during the 1998 period compared with $27.4 million for
the 1997 period. The increase in total non-interest income primarily reflects
increases in the net gains on asset sales of $4.4 million, an increase of $1.5
million in other income, an increase of $1.0 million in net gains on investment
in real estate and premises, an increase of $0.6 million in income from
insurance and securities commissions, and an increase of $0.5 million in deposit
service fee income. These improvements were partially offset by a decline in
loan servicing fees of $2.9 million. The increased gains on asset sales is
primarily due to an improvement of $1.7 million in the Company's mortgage
banking activities and greater profits of $2.1 million from the sale of MBS's
classified as available for sale. Other income increased due to the settlement
of a real estate dispute. Net gains on investment in real estate and premises
increased reflecting greater income from joint venture operations in the 1998 as
compared with the 1997 period.
The decline in loan service fee income is due to additional MSR amortization of
$4.7 million, as a result of increased mortgage refinance activity, which was
partially offset by the expansion of the mortgage servicing portfolio.
Non-Interest Expense. Total non-interest expense decreased by $6.1 million, or
7.3%, to $76.6 million in the 1998 period from $82.6 million in the 1997 period.
Contributing to this decrease were reductions in compensation and benefit costs
of $3.6 million, office occupancy and equipment expense of $0.9 million and
advertising expense of $1.5 million. Compensation and benefit costs decreased
due to greater net deferred loan costs resulting from increased loan production
and a decline in the number of employees. Office occupancy and equipment expense
decreased due to reduced machine maintenance costs and real estate tax
certiorari refunds. Advertising costs decreased due to fewer marketing
initiatives.
Provision for Income Taxes. Income tax expense increased by $3.4 million,
or 14.1%, to $27.7 million in the 1998 period from $24.3 million in the 1997
period. This increase primarily reflects higher pre-tax income.
Year 2000
The Company is continuing with its plans to address the possible exposures
related to the impact on its computer systems of the year 2000 irrespective of
the recent definitive merger agreement with Astoria. Key financial, information
and operational systems are being assessed and plans are being developed to
address system modifications required by December 31, 1999. At this time, the
Company has not yet determined the cost, which will be expensed as incurred, of
evaluating its computer software or databases, or of making any modifications
required to correct any year 2000 problems. While the Company believes it is
doing everything technologically possible to assure year 2000 compliance, it is
to some extent dependent upon vendor cooperation and any year 2000 compliance
failures could result in additional expense to the Company.
Impact of New Accounting Standards
Effective January 1, 1997, the Company adopted SFAS 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
except for those transactions that are governed by SFAS 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125." SFAS 127 was
issued in December 1996 to extend the effective date of the provisions of SFAS
125 for one year as they relate to secured borrowings, collateral and repurchase
agreements, dollar rolls, securities lending and similar transactions. SFAS 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 based on consistent application of a financial-components approach that
focuses on control. Under this approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. This statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. This statement
supersedes SFAS 76, "Extinguishment of Debt," and SFAS 77, "Reporting by
Transferors for Transfers of Receivable with Recourse," and SFAS 122,
"Accounting for Mortgage Servicing Rights," and amends SFAS 115, "Accounting for
Certain Investments in Debt and Equity Securities," and SFAS 65, "Accounting for
Certain Mortgage Banking Activities." SFAS 125, as amended by SFAS 127, has not
had a material effect on the financial statements of the Company.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130 is effective for
fiscal years beginning after December 15, 1997 and requires reclassification of
financial statements for earlier periods provided for comparative purposes. The
statement establishes standards for reporting and display of comprehensive
income and its components. This statement requires that all items that are
required to be recognized as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is defined as all changes in equity
during a period except those resulting from investments by owners and
distributions to owners. The Company has not yet determined the impact of SFAS
130 on its financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information". SFAS 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. The statement
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. As the requirements of SFAS
131 are disclosure-related, its implementation will have no impact on the
Company's financial condition or results of operations.
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" ("SFAS No. 132"). SFAS No. 132 revises employers' disclosures about
pension and other postretirement benefit plans, but does not change the
measurement or recognition of those plans. SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are not considered useful.
SFAS No. 132 is effective for fiscal years beginning after December 15, 1997 and
requires restatement of prior periods presented. As the requirements of SFAS No.
132 are disclosure related, its implementation will have no impact on the
Company's financial condition or results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS No. 133
applies to all entities and is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company has not yet determined the impact of
SFAS 133 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 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 June 30, 1998
and 1997, and reflects the annualized average yield on assets and average cost
of liabilities for the periods indicated. Such annualized yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances are derived
from the average daily balances. The yields and costs include fees which are
considered adjustments to yields.
FOR THE THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------------------------
1998 1997
-------------------------------------------- -----------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD\ AVERAGE YIELD\
BALANCE INTEREST COST BALANCE INTEREST COST
-------------- ------------ -------------- -------------- -------------- ---------------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS
Interest-earning cash
equivalents $ 120,938 $ 1,899 6.30 % $ 57,452 $ 789 5.50 %
Debt and equity securities
and FHLB-NY stock, net (1) 390,651 6,444 6.60 199,213 2,878 5.78
Mortgage-backed securities, 1,917,060 30,047 6.27 1,725,124 29,533 6.85
net (1)
Real estate loans, net (2) 3,567,338 64,478 7.23 3,428,548 63,086 7.36
Commercial and other loans, 181,012 4,528 10.01 150,068 4,130 11.01
net (2)
-------------- ------------ ------------ -------------- -------------- -------------
Total interest-earning assets 6,176,999 107,396 6.95 5,560,405 100,416 7.22
Other non-interest-earning 276,125 210,194
assets
-------------- ------------ -------------- --------------
Total assets $ 6,453,124 $ 107,396 $ 5,770,599 $ 100,416
============== ============ ============== ==============
INTEREST BEARING LIABILITIES
Deposits, net $ 3,771,750 $ 39,013 4.15 % $ 3,723,610 $ 39,941 4.30 %
Borrowed funds 1,959,276 28,617 5.86 1,420,092 20,426 5.77
-------------- ------------ ------------ -------------- -------------- -------------
Total interest-bearing 5,731,026 67,630 4.73 5,143,702 60,367 4.71
liabilities
Non-interest-bearing 150,546 99,339
liabilities
-------------- --------------
Total liabilities 5,881,572 5,243,041
Total stockholders' equity 571,552 527,558
-------------- ------------ ------------ -------------- -------------- -------------
Total liabilities and
stockholders'
equity $ 6,453,124 $ 67,630 $ 5,770,599 $ 60,367
============== ------------ ============== --------------
Net interest income/spread (3) $ 39,766 2.22 % $ 40,049 2.51 %
============ ============ ============== =============
Net interest margin as %
of interest-earning assets 2.58 % 2.88 %
(4)
============ =============
Ratio of interest-earning
assets to
interest-bearing 107.78 % 108.10 %
liabilities
============ =============
(1) Debt and equity and mortgage-backed securities are shown including the
average market value appreciation of $20.4 million and $12.1 million,
before tax, from SFAS 115 for the three months ended June 30, 1998 and
1997, respectively.
(2) Net of unearned discounts, premiums, deferred loan fees, purchase
accounting discounts and premiums and allowance for possible loan losses,
and including non-performing loans and loans held for sale.
(3) Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
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, 1998
and 1997, and reflects the annualized average yield on assets and average cost
of liabilities for the periods indicated. Such annualized yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances are derived
from the average daily balances. The yields and costs include fees which are
considered adjustments to yields.
FOR THE NINE MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------------------------
1998 1997
------------------------------------------- -------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
-------------- ------------ ------------- ------------- ------------ --------------
(DOLLARS IN THOUSANDS)
INTEREST-EARNING ASSETS
Interest-earning cash
equivalents $ 87,848 $ 3,721 5.66 % $ 63,098 $ 2,509 5.32 %
Debt and equity securities
and FHLB-NY stock, net (1) 359,090 17,173 6.38 207,906 8,830 5.66
Mortgage-backed securities, 1,825,359 88,711 6.48 1,728,772 88,041 6.79
net (1)
Real estate loans, net (2) 3,523,489 193,815 7.33 3,289,507 184,151 7.46
Commercial and other loans, 176,883 13,489 10.17 145,296 12,122 11.12
net (2)
-------------- ------------ ---------- ------------- ------------ -----------
Total interest-earning assets 5,972,669 316,909 7.07 5,434,579 295,653 7.25
Other non-interest-earning 253,169 258,575
assets
-------------- ------------ ------------- ------------
Total assets $ 6,225,838 $ 316,909 $ 5,693,154 $ 295,653
============== ============ ============= ============
INTEREST-BEARING LIABILITIES
Deposits, net $ 3,785,670 $ 119,994 4.24 % $ 3,713,154 118,217 4.26 %
Borrowed funds 1,760,508 77,791 5.91 1,330,944 57,001 5.73
-------------- ------------ ---------- ------------- ------------ -----------
Total interest-bearing 5,546,178 197,785 4.77 5,044,098 175,218 4.64
liabilities
Non-interest-bearing 118,576 123,122
liabilities
-------------- -------------
Total liabilities 5,664,754 5,167,220
Total stockholders' equity 561,084 525,934
-------------- ------------ ---------- ------------- ------------ -----------
Total liabilities and
stockholders'
equity $ 6,225,838 $ 197,785 $ 5,693,154 $ 175,218
============== ------------ ============= ------------
Net interest income/spread (3) $ 119,124 2.30 % $ 120,435 2.61 %
============ ========== ============ ===========
Net interest margin as %
of interest-earning assets 2.66 % 2.95 %
(4)
========== ===========
Ratio of interest-earning assets to
interest-bearing 107.69 % 107.74 %
liabilities
========== ===========
(1) Debt and equity and mortgage-backed securities are shown including the
average market value appreciation of $21.3 million and $14.7 million,
before tax, from SFAS 115 for the nine months ended June 30, 1998 and 1997,
respectively.
(2) Net of unearned discounts, premiums, deferred loan fees, purchase
accounting discounts and premiums and allowance for possible loan losses,
and including non-performing loans and loans held for sale.
(3) Interest rate spread represents the difference between the average rate on
interest-earning assets and the average cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
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, 1998 NINE MONTHS ENDED JUNE 30, 1998
COMPARED TO COMPARED TO
THREE MONTHS ENDED JUNE 30, 1997 NINE MONTHS ENDED JUNE 30, 1997
INCREASE/(DECREASE) INCREASE/(DECREASE)
--------------------------------------- ----------------------------------------
DUE TO DUE TO
--------------------------------------- ----------------------------------------
VOLUME RATE NET VOLUME RATE NET
------------ ------------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Interest-earning assets:
Interest-earning cash
equivalents(1) $ 982 $ 128 $ 1,110 $ 1,039 $ 173 $ 1,212
Debt and equity 3,108 458 3,566 7,110 1,233 8,343
securities(2)(3)
Mortgage-backed 3,128 (2,614) 514 4,796 (4,126) 670
securities(3)
Real estate loans(4) 2,523 (1,131) 1,392 12,914 (3,250) 9,664
Commercial and other 798 (400) 398 2,473 (1,106) 1,367
loans(4)
------------ ------------- ------------ ----------- ---------- ----------
Total 10,539 (3,559) 6,980 28,332 (7,076) 21,256
------------ ------------- ------------ ------------- ------------ ------------
Interest-bearing liabilities:
Deposits 511 (1,439) (928) 2,584 (807) 1,777
Borrowed funds 7,870 321 8,191 18,930 1,860 20,790
------------ ------------- ------------ ------------- ------------ ------------
Total 8,381 (1,118) 7,263 21,514 1,053 22,567
------------ ------------- ------------ ------------- ------------ ------------
Net change in interest income $ 2,158 $ (2,441) $ (283) $ 6,818 $ $ (8,129) $ (1,311)
$
============ ============= ============ ============= ============ ============
(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 $20.4 million and $12.1 million,
before tax, from SFAS 115 for the three months ended June 30, 1998 and
1997, respectively and $21.3 million and $14.7 million for the nine
months ended June 30, 1998 and 1997, respectively.
(4) In computing the volume and rate components of net interest
income for loans, non-performing loans and loans held for sale have
been included.
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,
---------------------------------- ----------------------------------
1998 1997 1998 1997
-------------- --------------- --------------- ---------------
Selected Financial Ratios: (a)
Return on average assets ...................... 0.98% 0.86% 0.92% 0.85%
Return on average stockholders' equity ........ 11.10 9.42 10.21 9.25
Average stockholders' equity to average assets. 8.86 9.14 9.01 9.24
Stockholders' equity to total assets .......... 8.91 8.99 8.91 8.99
Interest rate spread during period............. 2.22 2.51 2.30 2.61
Net interest margin............................ 2.58 2.88 2.66 2.95
Operating expenses to average assets........... 1.51 1.93 1.61 1.91
Efficiency ratio (b) .......................... 51.20 60.62 53.98 57.95
Average interest-earning assets to average
interest-bearing 107.78 108.10 107.69 107.74
liabilities....................................
Net interest income to operating expenses ..... 1.64x 1.44x 1.59x 1.48x
Selected Data:
Basic earnings per common share................ $0.71 $0.56 $1.92 $1.62
Weighted average number of shares outstanding
.for basic earnings per common share 22,393,867 22,280,610 22,326,626 22,503,284
computation (c)
Diluted earnings per common share............ $0.68 $0.54 $1.85 $1.56
Weighted average number of shares outstanding
for diluted earnings per share computation 23,314,565 23,107,961 23,263,786 23,331,000
(c)
Book value per share........................... $23.88 $22.17 $23.88 $22.17
Number of shares outstanding for book value per
share computation........................... 24,182,823 23,968,303 24,182,823 23,968,303
Cash dividends declared per share.............. $0.20 $0.15 $0.50 $0.45
Dividend payout ratio.......................... 29.41% 27.78% 27.03% 28.85%
At June 30,
----------------------------
1998 1997
------------ -----------
Asset Quality Ratios:
Non-performing loans to total gross loans.................... 1.35% 1.47%
Non-performing assets to total assets........................ 0.86 1.03
Allowance for possible loan losses to non-performing loans... 67.61 63.10
Regulatory Capital at June 30, 1998 for The Long Island Savings Bank, FSB:
Regulatory Regulatory Excess
Capital Capital Capital
Requirement Level Level
Amount Percent (d) Amount Percent (d) Amount Percent (d)
(Dollars in thousands)
Tangible capital (e)....................... $96,493 1.50 % $476,007 7.40 % $379,514 5.90%
Core capital (e)........................... 192,986 3.00 476,007 7.40 283,021 4.40
Risk-based capital (f)..................... 270,066 8.00 510,284 15.12 240,218 7.12
(a) Ratios for the three months ended June 30,1998 and 1997 were calculated on
an annualized basis.
(b) Amount is determined by dividing total general and administrative expense
by net interest income (before the provision for possible loan losses) plus
total fee income and other income.
(c) The weighted average common shares outstanding for periods prior to December
31, 1997, have been restated to reflect the adoption of SFAS No. 128.
(d) Tangible and core capital levels are shown as a percentage of total
adjusted assets, as computed based on regulatory guidelines. Risk-based
capital levels are shown as a percentage of risk-weighted assets.
(e) This figure represents GAAP capital excluding the effect of SFAS 115,
goodwill and a portion of mortgage servicing rights.
(f) The difference between GAAP capital and regulatory risk-based capital
represents the exclusion of the effect of SFAS 115, goodwill, a portion of
mortgage servicing rights and an addition for the allowance for possible
loan losses.
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,
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------- ------------ -------------
(In thousands)
Opening allowance......................................... $34,041 $33,954 $33,881 $33,912
Provision................................................. 1,500 1,500 4,500 4,500
Net charge-offs........................................... (1,264) (1,831) (4,104) (4,789)
------------- ------------- ----------- -------------
Ending allowance.......................................... $34,277 $33,623 $34,277 $33,623
============= ============= =========== =============
Non-Performing Assets
Loans are considered non-performing if they are in foreclosure and/or are 90 or
more days delinquent (excluding those restructured loans that have been returned
to performing status after developing a satisfactory payment history, generally
six months). Loans, other than education loans, accrue interest until considered
doubtful of collection by management, but in no case beyond 90 days delinquent.
Consumer loans (other than education loans) are generally written off upon
becoming 120 days delinquent in the case of installment loans and 180 days in
the case of revolving credit lines. Delinquent interest on education loans
continues to accrue, however, since these loans are backed by a government
agency guarantee and all interest and principal is ultimately expected to be
received. Once management reaches a decision to place a loan on non-accrual
status, all delinquent previously accrued interest on such loan is reversed
against previously recorded income.
The level of non-performing residential property loans is also affected by the
Company's loan restructuring activities. Where borrowers have encountered
hardship, but are able to demonstrate to the Company's satisfaction and ability
and willingness to resume regular monthly payments, the Company seeks to provide
them with an opportunity to restructure their loans. Where successful, these
restructurings avoid the cost of completing the foreclosure process, as well as
any losses on acquisition of the properties and the costs of maintaining and
disposing of real estate owned. Once restructured residential loans comply with
the terms of their restructure agreement for a satisfactory period (generally
six months), the Company returns such loans to performing status.
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,
1998 1997
------------------- ---------------------
(Dollars in thousands)
Non-performing loans (1):
Residential:
One-to-four family.................................................... $43,496 $37,621
Co-operative apartments............................................... 1,035 1,207
Home equity........................................................... 1,434 1,478
Second mortgage....................................................... --- 172
Multi-family.......................................................... 94 246
Total residential .................................................. 46,059 40,724
Non-residential:
Commercial real estate................................................ 2,788 2,923
Construction.......................................................... --- 453
Land.................................................................. --- 585
Total real estate loans (2)................................................ 48,847 44,685
Other loans (3)............................................................ 1,852 2,389
Total non-performing loans................................................. 50,699 47,074
Real estate owned net (4).................................................. 5,252 6,643
Total non-performing assets................................................ $55,951 $53,717
Non-performing loans to total gross loans.................................. 1.34% 1.28%
Non-performing assets to total assets...................................... 0.86 0.91
Non-performing assets to total stockholders' equity and
Allowance for possible loan 9.15 9.26
losses.....................................................
Allowance for possible loan losses to non-performing loans................. 67.61 71.97
Allowance for possible loan losses to total gross loans 0.91 0.92
(1) All non-performing loans are in non-accrual status. There are no
loans 90 days or more past due and still accruing interest(other than
education loans which are guaranteed).
(2) Includes loans considered impaired in accordance with SFAS 114 in the
amount of $0.6 million at September 30, 1997 for which there is a related
allowance for possible loan losses.
(3) Includes commercial loans considered impaired in accordance with
SFAS 114 in the amount of $0.3 million at both June 30, 1998 and
September 30, 1997 for which there is a related allowance for possible
loan losses.
(4) Included in Investment in real estate on the Consolidated Statements
of Financial Condition.
Item 3. Disclosures about Market risk
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 1998, which are anticipated
by the Company, based upon certain assumptions, to reprice or mature in each of
the future time periods shown. Except as stated below, the amounts of assets and
liabilities shown to reprice or mature during a particular period were
determined in accordance with the earlier of term to repricing or the
contractual terms of the asset or liability. Prepayment assumptions ranging from
0% to 15% per year were applied, dependent upon the loan type and coupon.
Run-off rate assumptions for passbook savings, statement savings, NOW and money
market accounts, in the one year or less category, were 51%, 51%, 40% and 100%
respectively, rather than the OTS assumptions which, in the one year or less
period, are 17%, 17%, 37% and 79%, respectively. These withdrawal rates and
prepayment assumptions are based on assumptions and analyses prepared internally
and are used in preparing the Regulatory Thrift Bulletin-13 Report and the
quarterly management reports. These assumptions were used rather than the
assumptions published by the OTS because management believes they are more
indicative of the actual prepayments and withdrawals experienced by the Company.
The assumptions do not reflect any increases or decreases in interest rates paid
on various categories of deposits (whether by the Company or in general) since
June 30, 1998.
INTEREST RATE SENSITIVITY GAP ANALYSIS
AT JUNE 30, 1998
-------------------------------------------------------------------------------------
MORE THAN MORE THAN MORE THAN MORE THAN
3 MONTHS 3 MONTHS 6 MONTHS 1 YEAR 3 YEARS MORE THAN
OR LESS TO 6 TO 1 YEAR TO 3 YEARS TO 5 YEARS 5 YEARS TOTAL
MONTHS
----------- ----------- ---------- ----------- ----------- ----------- -----------
(Dollars in Thousands)
Interest-earning assets(1):
Real estate loans(2) $ 293,619 $ 287,018 $ 595,249 $ 996,512 $ 663,640 $ 723,200 $3,529,238
Commercial loans(2) 212 281 1,733 2,861 663 940 6,690
Other loans (2) 76,626 9,937 18,662 43,727 19,247 15,177 183,376
Mortgage-backed 456,858 362,716 634,836 221,200 164,117 55,391 1,895,118
securities (3)
Interest-earning 119,059 --- --- --- --- --- 119,059
cash equivalents
Debt and equity 68,367 349 981 5,187 100,000 214,431 389,315
securities (3)
Stock in FHLB-NY --- --- --- --- --- 50,548 50,548
----------- ----------- ---------- ----------- ----------- ----------- -----------
Total interest- 1,014,741 660,301 1,251,461 1,269,487 917,667 1,059,687 6,173,344
earning assets
Interest-bearing liabilities:
Passbook accounts 108,210 86,158 102,457 94,198 90,273 98,736 580,032
Statement savings 117,906 93,914 111,681 102,672 98,394 107,629 632,196
accounts
NOW accounts 34,856 4,605 9,210 36,840 35,305 1,535 122,351
Checking & demand
deposit accounts 3,673 1,574 3,146 --- --- --- 8,393
Money market accounts 62,702 11,758 23,511 --- --- --- 97,971
Certificate accounts 564,160 310,811 551,713 491,242 133,683 7,491 2,059,100
Borrowings 139,534 --- --- 478,000 950,000 475,000 2,042,534
----------- ----------- ---------- ----------- ----------- ----------- -----------
Total interest- 1,031,041 508,820 801,718 1,202,952 1,307,655 690,391 5,542,577
bearing liabilities ----------- ----------- ---------- ----------- ----------- ----------- -----------
Interest sensitivity $( 16,300) $ 151,481 $ 449,743 $ 66,535 $ (389,988) $ 369,296 $ 630,767
gap per period
Effect of interest rate $ 450,000 $ --- $ --- $ --- $ (450,000) $ --- $ ---
swap ----------- ----------- ---------- ----------- ----------- ----------- -----------
Adjusted interest $ (446,300) $ 151,481 $ 449,743 $ 66,535 $ 60,012 $ 369,296 $ 630,767
sensitivity gap per
period =========== =========== ========== =========== =========== =========== ===========
Cumulative interest $(446,300) $ (314,819) $ 134,924 $ 201,459 $ 261,471 $ 630,767
sensitivity gap =========== =========== ========== =========== =========== ===========
Cumulative interest
sensitivity gap
as a percentage of (7.19) % (4.86) % 2.08 % 3.11 % 4.03 % 9.73 %
total assets (4)
Cumulative net
interest-earning
assets as a
percentage of net
interest-bearing 98.42 % 108.78% 124.98 % 118.38 % 105.39 % 111.38 %
liabilities
(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 $16.0 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 asset sensitive $134.9 million at June 30, 1998. A liability
sensitive interest rate gap would tend to decrease earnings over a period of
rising interest rates, where declining rates would increase earnings. The
cumulative one-year sensitivity gap was positive 2.08% of total assets at June
30, 1998, compared to negative 7.38% at September 30, 1997.
Interest rate contracts such as interest rate swaps, caps, floors and collars
may be used to hedge interest rates on certain assets and liabilities. The
notional amounts of these instruments are not reflected in the Company's balance
sheet, but are included in the interest rate sensitivity table for purposes of
analyzing interest rate risk.
The Company has three interest rate swap agreements outstanding, each of which
hedges the interest rate risk associated with outstanding medium-term notes. The
first swap, for a notional amount of $300.0 million, converted a medium-term
note issued in fiscal 1997 with a fixed rate obligation of 7.0% into a variable
rate of LIBOR minus 3 basis points. The agreement will expire in January, 2008.
As of June 30, 1998, LIBOR minus 3 basis points was 5.66% and the interest rate
swap had a fair market value of $3.5 million. The second swap, for a notional
amount of $75.0 million, converted a medium-term note issued in the third
quarter of
fiscal 1998 with a fixed rate obligation of 6.20% into a variable rate of LIBOR
minus 18 basis points. The agreement will expire in April,2003. As of June 30,
1998 LIBOR minus 18 basis points was 5.53% and the interest rate swap had a fair
market value of $0.2 million. The third swap, for a notional amount of $75.0
million, converted a medium-term note issued in the third quarter of fiscal 1998
with a fixed rate obligation of 6.20% into a variable rate of LIBOR minus 38
basis points. The agreement will expire in April, 2005. As of June 30, 1998
LIBOR minus 38 basis points was 5.33% and the interest rate swap had a fair
value of $0.3 million.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
No change as in previously filed.
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
Statement re: Computation of Per Share Earnings
(In thousands, except per share data)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------- --------------------------------
1998 1997 1998 1997
---------- --------- ------------ ------------
Basic EPS Computation
Numerator
Net Income available to common
stockholders $ 15,856 $ 12,426 $ 42,975 $ 36,476
============= ============= =============== ===============
Denominator
Weighted average common shares
outstanding 22,394 22,281 22,327 22,503
------------- ------------- --------------- ---------------
Basic EPS $ 0.71 $ 0.56 $ 1.92 $ 1.62
============= ============= =============== ===============
Diluted EPS Computation
Numerator
Net Income available to common
shareholders $ 15,856 $ 12,426 $ 42,975 $ 36,476
============= ============= =============== ===============
Denominator
Weighted average common shares
outstanding 22,394 22,281 22,327 22,503
Additional shares due to dilutive
options 921 827 937 828
------------- ------------- --------------- ---------------
Total shares 23,315 23,108 23,264 23,331
============= ============= =============== ===============
Diluted EPS $ 0.68 $ 0.54 $ 1.85 $ 1.56
============= ============= =============== ===============
(b) Reports on Form 8-K
On April 28, 1998 and May 20, 1998, 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 and six months ended March 30, 1997. The May press release
amended the Company's Agreement and Plan of Merger by and between
Astoria Financial Corporation and the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Long Island Bancorp, Inc.
Dated: 8/14/98 By: /s/ John J. Conefry, Jr.
John J. Conefry, Jr.
Chairman of the Board and Chief
Executive Officer
Dated: 8/14/98 By: /s/ Mark Fuster
Mark Fuster
Chief Financial Officer