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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One) Annual Report Pursuant to Section 13 or 15(d) of
[X] the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
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 0-29826
LONG ISLAND FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 11-3453684
--------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Suffolk Square, Islandia, New York 11722
-------------------------------------- -----------
(Address of Principal Executive Offices) (Zip Code)
(631) 348-0888
-----------------
(Registrant's telephone number, including area code)
None
----------
(Securities registered pursuant to Section 12(b) of the Act)
Common Stock, $.01 par value
-------------------------------
(Securities registered pursuant to Section 12(g) of the Act)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports); Yes ( X ) No ( ); and (2) has been subject to
such filing requirements for the past 90 days; Yes ( X ) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K of any
amendment to this Form 10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the last reported sales price of such stock
on the NASDAQ Stock Market was $17,595,109 on March 24, 2000.
The number of shares outstanding of the registrant's common stock was 1,646,326
as of March 24, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
1. Portions of the 1999 Annual Report to Stockholders for fiscal year 1999 are
incorporated herein by reference - Parts II and IV.
2. Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on April 26, 2000 are incorporated herein by
reference - Part III.
LONG ISLAND FINANCIAL CORP.
1999 FORM 10-K
TABLE OF CONTENTS
Page
PART I Number
Item 1. Business................. .................................. 3
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders ........ 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 15
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 15
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.. 15
Item 8. Financial Statements and Supplementary Data................. 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................... 15
Part III
Item 10. Directors and Executive Officers of the Registrant.......... 16
Item 11. Executive Compensation...................................... 16
Item 12. Security Ownership of Certain Beneficial Owners
and Management.............................................. 16
Item 13. Certain Relationships and Related Transactions.............. 17
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K ................................................ 17-54
Signatures.................................................. 18
PART I
ITEM 1. BUSINESS
Long Island Financial Corp. ("the Company") is a registered bank holding
company, incorporated in Delaware in 1998, at the direction of the Directors of
Long Island Commercial Bank (the "Bank") for the purpose of becoming a holding
company to own all the outstanding common stock of the Bank. At a special
meeting on December 8, 1998, the stockholders of Long Island Commercial Bank
approved a Plan of Acquisition dated as of September 15, 1998, which
subsequently became effective January 28, 1999, and as a result of which: (i)
the Bank became a wholly-owned subsidiary of Long Island Financial Corp., a
Delaware corporation, and (ii) all of the outstanding shares of the Bank's
common stock were converted, subject to dissenter's rights, on a one-for-one
basis, into outstanding shares of the common stock of Long Island Financial
Corp. No stockholders asserted dissenter's rights. This transaction is
hereinafter referred to as the "Reorganization." In addition, the stockholders
ratified the Long Island Financial Corp. 1998 Stock Option Plan.
The Reorganization created a bank holding company structure providing
greater operating flexibility by allowing the Company to conduct a broader range
of business activities and permits the Board of Directors of the Company to
determine whether to conduct such activities at the Bank or in separate
subsidiaries of the Company. The reorganization also permits expansion into a
broader range of financial services and other business activities that are not
currently permitted to the Bank as a New York state-chartered commercial bank.
Such activities include, among others, operating non-bank depository
institutions or engaging in financial and investment advisory services,
securities brokerage and management consulting activities.
General
The primary business of the Company is the operation of its wholly-owned
subsidiary, the Bank. The Bank is a New York state-chartered commercial bank,
founded in 1989, which is engaged in commercial banking in Islandia, New York
and the surrounding communities in Suffolk and Nassau Counties. The Bank offers
a broad range of commercial and consumer banking services, including loans to
and deposit accounts for small and medium-sized businesses, professionals, high
net worth individuals and consumers. The Bank is an independent local bank,
emphasizing personal attention and responsiveness to the needs of its customers.
The Bank's senior management has substantial banking experience, and senior
management and the Board of Directors of the Bank have extensive commercial and
personal ties to the communities in Nassau and Suffolk Counties, New York.
The Bank conducts a commercial and consumer banking business, which
primarily consists of attracting deposits from the areas served by its branch
network and using those deposits to originate a variety of commercial, consumer
and real estate loans. During periods in which the demand for loans which meet
the Bank's underwriting and interest rate risk standards is less than the amount
of funds available for investment, the Bank invests excess funding in federal
funds, mortgage-backed securities, securities issued by the U.S. Government and
agencies thereof and municipal obligations. The Bank's revenues are derived
principally from interest income on its loan and securities portfolios. The
Bank's principal expenses are interest paid on deposits, interest paid on
borrowed funds and other operating expenses. Funding sources, other than
deposits include: secured borrowings, available lines of credit, sales of
securities under agreements to repurchase, and cash flow from lending and
investing activities.
The Bank's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its loan and
security portfolios and its cost of funds, consisting of interest paid on
deposits and borrowings. Results of operations are also affected by the Bank's
provision for loan losses and other operating income. The Bank's other operating
expense principally consists of salaries and employee benefits, occupancy,
premises and equipment expense, and other expenses. Results of operations are
also significantly affected by general economic and competitive conditions,
particularly changes in interest rates, government policies and action of
regulatory authorities.
In March 1999, the Bank formed a subsidiary, Long Island Commercial Capital
Corporation, which was formed to qualify as a real estate investment trust. Long
Island Commercial Capital Corporation became an active subsidiary of the Bank on
April 23, 1999.
Market Area and Competition
The Company's primary customer base is established small to medium-sized and
expanding businesses, professionals, and high net worth individuals and
consumers. The Company believes that emphasizing personal attention and
responsiveness to the needs of its customers, including providing state of the
art electronic banking services and expanded service hours, contributes to the
Company's competitiveness as a financial services provider.
The Company faces extensive competition in originating loans and in
attracting deposits. Competition among financial institutions is generally based
upon interest rates offered on deposit accounts, interest rates charged on
loans, fees assessed for services performed, the quality and scope of the
services rendered, and the convenience of banking facilities.
A significant number of financial service entities operate within the Banks
market area. In one or more aspects of its business, the Bank competes directly
with other commercial banks, savings banks, mortgage banking companies, mortgage
brokers, and other providers of financial services. Some of these entities are
significantly larger than the Bank and have substantially greater resources and
lending limits, and may offer certain services the Bank does not provide. In
addition, many non-bank competitors are not subject to the same extensive
Federal regulations that govern bank holding companies and Federally insured
banks.
Lending Activities
The Bank offers a variety of commercial and consumer loan products to serve
the needs of it's customers. The interest rates charged by the Bank on loans are
affected principally by rates offered by its competitors, the supply of money
available for lending purposes and demand for such loans. General and economic
conditions, monetary policies of the federal government including the Federal
Reserve Board, legislative tax policies and governmental budgetary matters also
affect interest rates charged by the Bank.
Loan Approval and Underwriting. In general, the Bank utilizes a committee
process to approve its loans. The President and Chief Lending Officer, are
authorized to approve loans up to $250,000. All other loans are brought before
the Loan Committee. The Loan Committee which consists of Directors Auerbach,
Duryea, Del Duca, Esposito, Kern, Manditch, Neuburger, Roberts, Romito, Tsunis
and Vizzini, meet one day each month; however, additional meetings are held as
the need arises. The Board of Directors receives a monthly report summarizing
the loan portfolio activity, and actions taken by the Loan Committee.
It is the policy of the Bank that all loans satisfy basic lending criteria
with respect to the character of the applicant, including any guarantor, such as
the ability to repay the loan within a completed term, the applicant's financial
strength, the adequacy of any required security and compliance with the Bank's
lending policy.
Loan Portfolio
The following table sets forth the composition of the Bank's loan portfolio
at the dates indicated:
At December 31,
1999 1998 1997 1996 1995
-------------------------------------------------------------
(In thousands)
Commercial and industrial loans $ 34,057 $ 30,853 $ 30,909 $ 24,952 $ 15,712
Commercial real estate loans 84,133 53,990 31,254 18,566 15,582
Automobile loans 1,463 8,262 17,524 21,800 8,764
Consumer loans 1,250 1,396 1,726 860 957
Residential real estate loans
held-for-sale 1,019 1,486 - - -
----- ----- ----- ----- -----
Gross loans 121,922 95,987 81,413 66,178 41,015
Less:
Unearned income 42 362 1,322 2,590 1,398
Deferred fees, net 569 410 306 148 141
Allowance for loan losses 1,475 1,071 1,026 780 633
----- ----- ----- ----- -----
Loans, net $119,836 $ 94,144 $ 78,759 $ 62,660 $ 38,843
======== ======== ======== ======== ========
Commercial and Industrial Loans. The Bank offers a variety of commercial loan
services including term loans, demand loans, revolving credit, and loans
guaranteed in part by the Small Businesses Administration. A broad range of
commercial loans, both collateralized and uncollateralized, are made available
to businesses for working capital (including inventory and receivables),
business expansion, and for the purchase of machinery and equipment. The purpose
of a particular loan generally determines it's structure.
Commercial loans are typically underwritten on the basis of the borrowers
repayment capacity from cash flow and are generally collateralized by business
assets such as, but not limited to, inventory, equipment and accounts
receivable. As a result, the availability of funds for the payment of commercial
loans may be substantially dependent on the success of the business itself.
Further, the collateral underlying the loans may depreciate over time, cannot be
appraised and may fluctuate in value based upon the success of the business.
Revolving credit lines are primarily collateralized by short term assets, while
term loans are primarily collateralized by long-term or fixed assets. Personal
guarantees are normally required for commercial loans. At December 31, 1999,
commercial and industrial loans represented 27.9% of the loan portfolio.
Commercial Real Estate Loans. The Bank originates commercial real estate loans
to businesses to finance the acquisition and holding of commercial real estate.
The security for the Bank's commercial real estate loans is generally located in
the Bank's primary market area and is underwritten on the basis of the value of
the underlying real property. Loans secured by commercial real estate generally
involve a greater degree of risk than residential real estate loans. Primary
risks associated with commercial real estate lending include the borrower's
inability to pay the debt due to unsuccessful operation or management of the
property and adverse conditions in the real estate market or economy. At
December 31, 1999, commercial real estate loans represented 69.0% of the loan
portfolio.
Automobile Loans. The Bank formerly maintained a program of making non-recourse
loans to a local automobile leasing company, receiving an assignment of each
individual lease and a collateral interest in each automobile. The program,
which had further diversified the loan portfolio, was curtailed by the auto
leasing company effective in January 1997. At December 31, 1999 automobile loans
represented 1.2% percent of the loan portfolio.
Consumer Loans. Consumer loans made by the Bank include loans for new and used
automobiles, personal secured, personal unsecured, and loans secured by deposit
accounts. Consumer loans generally carry higher rates of interest than those
charged on other types of loans and pose additional risks of collectibility when
compared to other types of loans, such as residential real estate loans. In many
instances, the Bank must rely on the borrower's ability to repay, since the
collateral normally is of reduced value at the time of any liquidation.
Accordingly, the initial determination of the borrower's ability to repay is of
primary importance in the underwriting of consumer loans.
Residential Real Estate Loans. The Bank originates residential real estate loans
primarily in its market area of Nassau and Suffolk counties. Currently, the Bank
sells residential real estate loans together with the servicing rights to these
loans on a non- recourse basis to institutional investors. The Bank limits its
exposure to interest rate fluctuations and credit risk on these loans by
obtaining, at the point of origination, a commitment from an institutional
investor to purchase that loan from the Bank. By selling the servicing rights to
the loans, the Bank avoids the associated risks and expenses of managing and
servicing a loan portfolio. Income is generated from the premiums received on
the sale of loans and servicing rights, and fees charged and interest earned
during the period the Bank holds the loans for sale.
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table shows the approximate contractual maturities and
sensitivities to changes in interest rates of certain loans, exclusive of
non-accrual loans as of December 31, 1999.
Commercial Residential
and Commercial Real Estate
Industrial Real Estate Automobile Consumer Loans Held- Total
Loans Loans Loans Loans For-Sale Loans
---------------------------------------------------------------------------------
(In thousands)
Maturities:
Due within one year $ 18,754 $ 3,651 $ 1,431 $ 54 $ 1,019 $ 24,909
Due after one but within five years 13,060 1,424 - 1,073 - 15,557
Due after five but within ten years 2,201 65,698 - 18 - 67,917
Due after ten years - 13,360 - - - 13,360
------ ------ ------ ----- ----- ------
Total Due after December 31, 2000 15,261 80,482 - 1,091 - 96,834
------ ------ ------ ----- ----- ------
Total amount due $ 34,015 $ 84,133 $ 1,431 $ 1,145 $ 1,019 $ 121,743
====== ====== ===== ===== ===== =======
Rate sensitivity:
Amounts with Fixed Interest Rates $ 7,974 $ 8,953 $ - $ 1,091 $ - $ 18,018
Amounts with Adjustable Interest Rates 7,287 71,529 - - - 78,816
------ ------ ----- ----- ---- ------
Total $ 15,261 $ 80,482 $ - $ 1,091 - $ 96,834
====== ====== ===== ===== ==== ======
Allowance for Loan Losses
The allowance for loan losses is maintained through provisions for loan losses
based on management's on-going evaluation of the risks inherent in its loan
portfolio in consideration of the trends in its loan portfolio, the national and
regional economies and the real estate market in the Bank's primary lending
area. The allowance is maintained at an amount management considers adequate to
cover estimated losses in its loan portfolio which are deemed probable and
estimable based on information currently known to management. While management
believes that, based on information currently available, the Bank's allowance is
sufficient to cover losses inherent in its loan portfolio at this time, no
assurance can be given that the Bank's level of allowance will be sufficient to
cover future loan losses incurred by the Bank or that future adjustments to the
allowance will not be necessary if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current level of the allowance. Management may in the future
increase its level of loan loss allowance as a percentage of total loans and
non-performing loans as deemed necessary. In addition, the Federal Deposit
Insurance Corporation ("FDIC") and New York State Banking Department ("NYSBD")
as an integral part of their examination process periodically review the Bank's
allowance for loan losses. Either the FDIC or the NYSBD may require the Bank to
make additional provisions for estimated loan losses based upon judgments that
may differ from those of management thereby negatively impacting the Bank's
financial condition and earnings.
The following table sets forth the activity in the Bank's allowance for loan
losses for the periods indicated:
At December 31,
1999 1998 1997 1996 1995
------------------------------------------------------------
(Dollars in thousands)
Balance at beginning of year $ 1,071 $ 1,026 $ 780 $ 633 $ 489
Provision for loan losses 600 420 240 302 180
Charge-offs:
Commercial and industrial loans (80) (203) (23) (209) (36)
Automobile loans (66) (58) (75) - -
Consumer loans (81) (145) (21) (35) -
---- ----- ---- ---- ---
Total charge-offs (227) (406) (119) (244) (36)
Recoveries:
Commercial and industrial loans 26 1 125 89 -
Automobile loans 4 15 - - -
Consumer loans 1 15 - - -
--- --- --- --- ---
Total recoveries 31 31 125 89 -
--- --- --- --- ---
Net (charge-offs) recoveries (196) (375) 6 (155) (36)
---- ---- --- ---- ---
Balance at end of year $ 1,475 $ 1,071 $ 1,026 $ 780 $ 633
===== ===== ===== === ===
Ratio of net charge-offs/average net loans .19 % .43 % - % .31 % .12 %
--- --- --- --- ---
The following table sets forth the allocation of the Bank's allowance for loan
losses at the dates indicated:
At December 31,
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Percent Percent Percent Percent Percent
Of Loans Of Loans Of Loans Of Loans Of Loans
In Each In Each In Each In Each In Each
Category Category Category Category Category
To Total To Total To Total To Total To Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
--------------------------------------------------------------------------------------------------
(Dollars in thousands)
Commercial and
industrial loans $ 610 27.9 % $ 589 32.1 % $ 489 38.0 % $ 319 37.7 % $ 273 38.3 %
Commercial real
estate loans 631 69.0 330 56.2 313 38.4 186 28.1 156 38.0
Automobile loans 13 1.2 48 8.6 186 21.5 218 32.9 88 21.4
Consumer loans 61 1.0 104 1.5 22 2.1 9 1.3 14 2.3
Residential real
estate loans held-
for -sale - .9 - 1.6 - - - - - -
Unallocated $ 160 - $ - - $ 16 - $ 48 - $ 102 -
--- --- --- --- --- --- --- --- --- ---
Total allowance for
loan losses $1,475 100.0 % $1,071 100.0 % $1,026 100.0 % $ 780 100.0 % $ 633 100.0 %
===== ===== ===== ===== ===== ===== === ===== === =====
Non-Accrual Loans. The following table sets forth information regarding
non-accrual loans and loans delinquent 90 days or more and still accruing
interest at the dates indicated. It is the Bank's general policy to discontinue
accruing interest on all loans which are past due 90 days or when, in the
opinion of management, it is appropriate to discontinue accruing interest. When
a loan is placed on non-accrual status, the Bank ceases the accrual of interest
owed and previously accrued interest is charged against interest income. Loans
are generally returned to accrual status when principal and interest payments
are current, there is reasonable assurance that the loan will be fully
collectible and a consistent record of performance has been demonstrated.
At December 31,
1999 1998 1997 1996 1995
----------------------------------------------
(Dollars in thousands)
Non-accrual loans:
Commercial and industrial loans $ 42 $ 366 $ 230 $ 231 $ 70
Automobile loans 32 37 165 174 -
Consumer loans 105 108 - - 4
--- --- --- --- ---
Total non-accrual loans 179 511 395 405 74
Loans contractually past due 90 days or
more, other than non-accruing (2) - - 8 43 137
--- --- --- --- ---
Total non-performing loans $ 179 $ 511 $ 403 $ 448 $ 211
=== === === === ===
Allowance for loan losses as a
percent of total loans (1) 1.22% 1.12% 1.29% 1.23% 1.60%
Allowance for loan losses as a
percent of total non-performing loans 824.02 209.59 254.59 174.11 300.00
Non-performing loans as a percent
of total loans (1) .15 .54 .51 .71 .53
(1) Loans include loans, net of unearned income and deferred fees.
(2) Excludes $231,000 and $378,000 of loans at December 31, 1999 and 1998,
respectively, which have matured, however, are current with respect to
scheduled periodic principal and/or interest payments. The Bank is in the
process of renewing these obligations and/or awaiting anticipated
repayment.
Investment Activities
The Bank maintains a portfolio of securities with investable funds in such
instruments as U.S. government and agency securities, mortgage-backed
securities, municipal obligations and equity securities. The investment policy
of the Bank, which is approved by the Board of Directors and implemented by the
Bank's Investment Committee as authorized by the Board, is designed primarily to
generate acceptable yields for the Bank without compromising the Bank's business
objectives or incurring undue interest rate or credit risk, and to provide and
maintain liquidity for the Bank.
The accounting treatment of the Bank's securities is addressed in Note 1 of the
Notes to the Consolidated Financial Statements in the 1999 Annual Report to
Stockholders. The following table sets forth information regarding the amortized
cost (book value) and fair value of the Bank's securities portfolio at the dates
indicated:
At December 31,
1999 1998 1997
------------------- ------------------- -----------------
Amortized Fair Amortized Fair Amortized Fair
(In thousands) cost value cost value cost value
- -------------------------------------------------------------------------------------------------------------
Held-to-maturity:
Mortgage-backed securities:
CMO $ 341 $ 338 $ 664 $ 665 $ 2,665 $ 2,632
--- --- --- --- ----- -----
Available-for-sale:
U.S. Government and
Agency obligations $ 122,423 $ 118,907 $ 78,994 $ 78,980 $ 58,280 $ 58,696
Mortgage-backed securities:
GNMA 41,136 39,580 39,864 39,771 17,927 18,051
FHLMC 1,350 1,369 2,453 2,487 6,198 6,224
FNMA 3,599 3,571 6,060 6,097 12,107 12,184
CMO - - - - 28 28
Municipal obligations 1,166 1,143 12,855 13,002 - -
Other debt securities 92 91 199 199 380 384
--- --- --- --- --- ---
Total debt securities 169,766 164,661 140,425 140,536 94,920 95,567
Equity securities - FHLB stock 5,147 5,147 4,619 4,619 999 999
----- ----- ----- ----- --- ---
Total securities
available-for-sale $ 174,913 $ 169,808 $ 145,044 $ 145,155 $ 95,919 $ 96,566
------- ------- ------- ------- ------ ------
The table below sets forth certain information regarding the amortized cost,
weighted average yields and contractual maturities of the Bank's securities
portfolio as of December 31, 1999.
More Than One More Than Five More
One Year or Less Year to Five Years Years to Ten Years Than Ten Years Total
Weighted Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield Cost Yield
---------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Available-for-sale:
Debt securities:
US Government and
Agency obligations $ 45,397 5.49 % $ 28,518 6.00 % $ 48,508 6.15 % $ - - % $122,423 5.87 %
Mortgage-backed securities:
GNMA - - - - - - 41,136 6.60 41,136 6.60
FHLMC 8 7.45 427 6.84 - - 915 7.16 1,350 7.06
FNMA - - 2,155 6.85 - - 1,444 6.03 3,599 6.52
Municipal obligations(1) - - - - 1,166 5.91 - - 1,166 5.91
Other debt securities - - 92 8.44 - - - - 92 8.44
--- --- --- ---- --- --- --- --- --- ----
Total debt securities 45,405 5.49 31,192 6.08 49,674 6.15 43,495 6.59 169,766 6.07
Equity securities: ------ ---- ------ ---- ------ ---- ------ ---- ------- ----
FHLB stock 5,147 6.80 - - - - - - 5,147 6.80
----- ---- --- --- --- --- --- --- ----- ----
Total equity securities 5,147 6.80 - - - - - - 5,147 6.80 %
Total debt and equity ----- ---- --- --- --- --- --- --- ----- ----
for-sale $ 50,552 5.62 % $ 31,192 6.08 % $ 49,674 6.15 % $ 43,495 6.59 % $174,913 6.09 %
------ ---- ------ ---- ------ ---- ------ ---- ------- ----
Held-to-maturity:
Mortgage-backed securities:
CMO $ - - % $ - - % $ - - % $ 341 6.08 % $ 341 6.08 %
--- --- --- --- --- --- --- ---- --- ----
Total securities, held-to-
maturity and available-
- -for- sale $ 50,552 5.62 % $ 31,192 6.08 % $ 49,674 6.15 % $ 43,836 6.59 % $175,254 6.09 %
====== ==== ====== ==== ====== ==== ====== ==== ======= ====
(1) Yields are presented on a fully-taxable equivalent basis.
Deposits
The Bank offers a variety of deposit accounts with a range of interest rates and
terms. The Bank's deposit accounts consist of checking, savings, NOW accounts,
money market accounts and certificates of deposit. The Bank offers certificates
of deposit with balances in excess of $100,000 at premium rates and also offers
Individual Retirement Accounts and other qualified plan accounts. The Bank
solicits deposit accounts from small businesses, professional firms, households,
and governmental institutions located throughout its market area. The Bank does
not use brokers to obtain deposits. All deposit accounts are insured under the
Bank Insurance Fund of the Federal Deposit Insurance Corporation up to the
maximum limits permitted by law.
The following table shows the distribution of the Bank's average deposit
accounts in each category of deposits presented for the periods indicated:
For the Years Ended December 31,
1999 1998 1997
------------------------------------------------------------------
(Dollars in thousands)
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
Non-interest bearing accounts $ 33,791 - % $ 25,811 - % $ 18,656 - %
Savings accounts 22,747 3.42 9,030 3.42 2,784 2.59
NOW and money market deposits 49,413 1.99 35,852 2.38 24,960 2.32
Certificates issued in excess of $100,000 24,470 5.06 24,695 5.31 22,854 5.41
Other time deposits 79,126 5.66 81,046 6.05 76,428 6.12
------ ---- ------ ---- ------ ----
Total average deposits $209,547 $176,434 $145,682
======= ======= =======
At December 31, 1999, the Bank had outstanding approximately $18.2 million in
certificates of deposit accounts in amounts of $100,000 or more, maturing as
follows:
(In thousands)
3 months or less $ 15,540
Over three through six months 758
Over six through 12 months 1,680
Over 12 months 264
------
Total $ 18,242
======
Borrowings
The Bank utilizes borrowings to leverage the Bank's capital, to optimize net
interest income and supplement earnings. Borrowed funds at December 31, 1999
primarily consisted of $39 million of convertible advances from the Federal Home
Loan Bank of New York ("FHLB") secured by various callable U.S. agency
securities and mortgage-backed securities. In addition to FHLB advances, at
certain times the Bank will use sales of securities sold under agreements to
repurchase as a lower cost alternative to its other sources of funds. The
following table sets forth certain information regarding the Bank's borrowed
funds for the years indicated:
For the Years Ended December 31,
1999 1998 1997
----------------------------------
FHLB Advances:
Maximum amount outstanding at any month-end
during the year $ 39,000 $ 24,000 $ -
Average balance outstanding 38,178 14,449 -
Balance outstanding at end of year 39,000 24,000 -
Weighted average interest rate during the year 4.90 % 5.36 % - %
Weighted average interest rate at the end of the year 4.90 % 5.04 % - %
Repurchase Agreements:
Maximum amount outstanding at any month-end
during the year $ - $ 10,238 $ 25,375
Average balance outstanding 530 853 10,476
Balance outstanding at end of year - - -
Weighted average interest rate during the year 5.09 % 5.46 % 5.69 %
Weighted average interest rate at the end of the year - - -
Federal Funds Purchased:
Maximum amount outstanding at any month-end
during the year $ 6,500 $ 5,000 $ 7,400
Average balance outstanding 1,810 545 2,438
Balance outstanding at end of year - - -
Weighted average interest rate during the year 5.41 % 5.21 % 5.78 %
Weighted average interest rate at the end of the year - % - % - %
Line of Credit:
Maximum amount outstanding at any month-end
during the year $ 500 $ - $ -
Average balance outstanding 139 - -
Balance outstanding at end of year 500 - -
Weighted average interest rate during the year 7.91 % - % - %
Weighted average interest rate at the end of the year 8.50 % - % - %
Personnel
At December 31, 1999, the Bank employed 75 employees, 4 of which are part-time.
No employees are covered by a collective bargaining agreement and the Bank
believes its employee relations are excellent.
Federal and State Taxation
General. The Company, the Bank and its subsidiary report their income on a
consolidated basis, using a calendar year and the accrual method of accounting.
The following discussion of tax matters is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to the
Company or the Bank. The Company and the Bank have not been audited by the
Internal Revenue Service or New York State during the last five years.
Federal Income Taxation. In general, banks are subject to federal income
tax in the same manner as other corporations. However, gains and losses realized
by banks from the sale or exchange of portfolio instruments are generally
treated as ordinary, rather than capital, gains and losses, and a "small bank"
(ie., one with assets having a tax basis of no more than $500 million), such as
the Bank, is permitted to calculate its deductions for bad debts under a reserve
method that is based upon actual charge-offs for the current and preceding five
years or a "grand- fathered" base year reserve, if larger. A bank maintaining a
bad debt reserve may be subject to additional tax if it makes distributions to
shareholders in excess of its current and accumulated earnings and profits, as
calculated for federal income tax purposes, or in redemption of its stock or in
partial or complete liquidation.
Corporate Alternative Minimum Tax. In addition to the regular income tax,
the Code imposes an alternative minimum tax (AMT) in an amount equal to 20% of
alternative minimum taxable income (AMTI) to the extent that the AMT exceeds the
regular tax. AMTI is regular taxable income as modified by certain adjustments
and tax preference items. AMTI includes an amount equal to 75% of the excess of
adjusted current earnings over AMTI (determined without regard to this
adjustment and prior to reduction for net operating losses). Only 90% of AMTI
can be offset by net operating loss carryforwards. The AMT is available as a
credit against future regular income tax. The AMT credit can be carried forward
indefinitely. The Bank does not expect to be subject to the AMT.
Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. A 70% dividends received deduction generally
applies with respect to dividends received from corporations that are not
members of such affiliated group, except that an 80% dividends received
deduction applies if the Company and the Bank own more than 20% of the stock of
a corporation distributing a dividend.
New York State Taxation. The Bank is subject to the New York State
Franchise Tax on Banking Corporations in an amount equal to the greater of ( i )
9% of the Bank's "entire net income" allocable to New York State during the
taxable year, or ( ii ) the applicable alternative minimum tax. The alternative
minimum tax is generally the greatest of (a) .01% of the value of the taxable
assets allocable to New York State (b) 3% of alternative entire net income
allocated to New York or (c) $250. Entire net income is similar to federal
taxable income subject to certain modifications. A bank maintaining such a bad
debt reserve may be subject to additional New York tax if its makes certain
distributions to its shareholders. In addition, net operating losses can not be
carried back or carried forward and alternative entire net income is equal to
entire net income without certain adjustments. The Bank is also subject to the
17% Metropolitan Commuter Transportation District Surcharge on its New York Sate
Franchise Tax. The Company and the Bank file a combined return.
Delaware Taxation. The Company, as a Delaware holding company not earning
income in Delaware, is exempted from the corporate income tax. However, the
Company is required to pay an annual franchise tax based on authorized shares
to the State of Delaware.
Regulation
Holding Company Regulation. As a registered bank holding company, the
Company is subject to examination, regulation, and periodic reporting under the
Bank Holding Company Act, as administered by the Board of Governors of the
Federal Reserve System (the "FRB").
The Company is required to obtain the prior approval of the FRB to acquire
all, or substantially all, of the assets of any bank or bank holding company or
merge with another bank holding company. Prior FRB approval will also be
required for the Company to acquire direct or indirect ownership or control of
any voting securities of any bank or bank holding company if, after giving
effect to such acquisition, the Company would, directly or indirectly, own or
control more than 5% of any class of voting shares of such bank or bank holding
company. In evaluating such transactions, the FRB considers such matters as the
financial and managerial resources of and future prospects of the companies
involved, competitive factors and the convenience and needs of the communities
to be served. Bank holding companies may acquire additional banks in any state,
subject to certain restrictions such as deposit concentration limits. In
addition to the approval of the FRB, before any bank acquisition can be
completed, prior approval may also be required to be obtained from other
agencies having supervisory jurisdiction over banks to be acquired.
A bank holding company is generally prohibited from engaging in, or
acquiring direct or indirect control of more than 5% of the voting securities of
any company engaged in, non-banking activities. One of the principal exceptions
to this prohibition is for activities found by the FRB to be so closely related
to banking or managing or controlling banks to be a proper incident thereto.
Some of the principal activities that the FRB has determined by regulation to be
closely related to banking are: (i) making or servicing loans; (ii) performing
certain data processing services; (iii) providing discount brokerage services;
(iv) acting as fiduciary, investment or financial advisor; (v) finance leasing
personal or real property; (vi) making investments in corporations or projects
designed primarily to promote community welfare; and (vii) acquiring a savings
association, provided that the savings association only engages in activities
permitted bank holding companies. The FRB has adopted capital adequacy
guidelines for bank holding companies (on a consolidated basis). The Company's
total and Tier 1 capital exceeds the requirements established by the FRB.
A bank holding company is generally required to give the FRB prior written
notice of any purchase or redemption of its outstanding equity securities if the
gross consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of the Company's consolidated net worth. The FRB
may disapprove such a purchase or redemption if it determines that the proposal
would constitute an unsafe and unsound practice, or would violate any law,
regulation, FRB order or directive, or any condition imposed by, or written
agreement with, the FRB. There is an exception to this approval requirement for
well-capitalized bank holding companies that meet certain other conditions.
The FRB has issued a policy statement regarding the payment of dividends by
bank holding companies. In general, the FRB's policies provide that dividends
should be paid only out of current earnings and only if the prospective rate of
earnings retention by the bank holding company appears consistent with the
organization's capital needs, asset quality, and overall financial condition.
The FRB's policies also require that a bank holding company serve as a source of
financial strength to its subsidiary bank or banks by standing ready to use
available resources to provide adequate capital funds to those banks during
periods of financial stress or adversity and by maintaining the financial
flexibility and capital-raising capacity to obtain additional resources for
assisting its subsidiary bank or banks where necessary. These regulatory
policies could affect the ability of the Company to pay dividends or otherwise
engage in capital distributions.
The status of the Company as a registered bank holding company under the
BHCA does not exempt it from certain Federal and state laws and regulations
applicable to corporations generally, including, without limitation, certain
provisions of the Federal securities laws.
Under the FDI Act, depository institutions are potentially liable to the
FDIC for losses suffered or anticipated by the FDIC in connection with the
default of a commonly controlled depository institution or any assistance
provided by the FDIC to such an institution in danger of default. This applies
to depository institutions controlled by the same bank holding company.
The Company and its subsidiary are affected by the monetary and fiscal
policies of various agencies of the United States Government, including the FRB.
In view of changing conditions in the national economy and in the money markets,
it is impossible for the management of the Company to accurately predict future
changes in monetary policy or the effect of such changes on the business or
financial condition of the Company or the Bank.
The Bank is organized under the New York Banking Law ("Banking Law"), and
its deposits are insured by the Bank Insurance Fund (the "BIF") of the FDIC to
the extent permitted by law. As a New York bank, the Bank is subject to regular
examination and supervision by the NYSBD. As a depository institution, the
deposits of which are insured by the FDIC, the Bank also is subject to
regulation and supervision by the FDIC. While the Bank is not a member of the
Federal Reserve System, it is subject to certain regulations of the Federal
Reserve Board. In addition to banking laws, regulations and regulatory agencies,
the Bank is subject to various other laws, regulations and regulatory agencies,
all of which directly or indirectly affect the Bank's operations.
Recent Legislation. The Gramm-Leach-Bliley Act of 1999 authorizes a bank holding
company that meets specified conditions, including being "well capitalized" and
"well managed," to opt to become a "financial holding company" and thereby
engage in a broader array of financial activities than previously permitted.
Such activities can include insurance underwriting and investment banking. The
Gramm-Leach-Bliley Act also authorizes banks to engage through "financial
subsidiaries" in certain of the activities permitted for financial holding
companies. Financial subsidiaries are generally treated as affiliates for
purposes of restrictions on a bank's transactions with affiliates.
The Bank conducts its business from its main office located at One Suffolk
Square, Islandia, New York, and five branch offices located in Babylon,
Smithtown, Westbury, Jericho and Shirley, New York. The following table sets
forth information relating to each of the Bank's offices at December 31, 1999.
Lease Net
Expiration Book Value
Date Including at
Location Leased Leased Options Dec. 31, 1999
- --------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Main Office:
One Suffolk Square, Islandia, LI, New York 11722 Leased 1987 2005 $ 153
Branch Offices:
400 West Main Street, Babylon, LI, New York 11702 Leased 1995 2000 26
50 Route 111, Smithtown, LI, New York 11787 Leased 1997 2002 25
900 Merchants Concourse, Westbury, LI, New York 11590 Leased 1997 2003 42
390 North Broadway, Jericho, LI, New York 11753 Leased 1997 2008 63
861 Montauk Highway, Shirley, LI, New York 11967 Leased 1998 2002 59
---
$ 368
===
At present, management of the Company believes the physical facilities are
suitable and adequate, and are being fully utilized.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The above captioned information regarding the market for the Company's
common equity and related stockholder matters appears in the 1999 Annual Report
to Stockholders under the caption "Capital Stock" and is incorporated herein by
this reference.
ITEM 6. SELECTED FINANCIAL DATA
Information regarding selected financial data appears on pages 4 and 5 of
the 1999 Annual Report to Stockholders under the caption "Selected Financial
Data" and is incorporated herein by this reference.
The Bank's dividend pay-out ratios for the years ended December 31, 1999,
1998 and 1997 were 34.78 %, 50.00% and 29.81%, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations appears on pages 8 through 16 of the 1999 Annual Report to
Stockholders under the caption "Management's Discussion and Analysis Of
Financial Condition and Results of Operations" and is incorporated herein by
this reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Management of
Interest Rate Risk" in the 1999 Annual Report to Stockholders is incorporated
herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Long Island Financial Corp.
and the Independent Auditors' Report appear on pages 17 through 30 of the 1999
Annual Report to Stockholders and are incorporated herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained on pages 3 through 6 of the Proxy Statement
for the Annual Meeting of Stockholders to be held April 26, 2000 under the
caption "Election of Directors" is incorporated herein by reference.
The following table sets forth certain information regarding the executive
officers of the Company. Officers are re-elected by the Board of Directors
annually.
Name Age Position(s) Held With the Company
- --------------------------------------------------------------------------
Perry B. Duryea, Jr. 78 Chairman of the Board
Roy M. Kern, Sr. 66 Vice Chairman of the Board
Douglas C. Manditch 52 President and Chief Executive Officer
Thomas Buonaiuto 34 Vice President and Treasurer
Carmelo C. Vizzini 54 Vice President and Secretary
Biographical Information
Positions held by a director or officer have been held for at least the past
five years unless stated otherwise.
Perry B. Duryea, Jr. serves as Chairman of the Board of the Company and of the
Bank; He is Chairman of Perry B. Duryea & Son, Inc., a seafood business located
in Montauk, New York. Mr. Duryea was Speaker of the New York Assembly and also
served as its Minority Leader.
Roy M. Kern, Sr. serves as Vice Chairman of the Board of the Company and of the
Bank. He was formerly President of Bragg Medical Group, Inc., a firm which
provides billing and financial services to the medical community and is located
in Kings Park, New York.
Douglas C. Manditch is President and Chief Executive Officer of the Company and
of the Bank. He joined Long Island Commercial Bank in 1987, then in formation.
Thomas Buonaiuto serves as Vice President and Treasurer of the Company and
Executive Vice President and Chief Financial Officer of the Bank. Mr.
Buonaiuto's responsibilities include oversight of all areas of operations of the
Bank excluding lending.
Carmelo C. Vizzini serves as Vice President and Secretary of the Company and
Executive Vice President and Chief Lending Officer of the Bank. Mr. Vizzini's
responsibilities include oversight of all areas of lending within the Bank, as
well as loan operations and compliance with the Community Reinvestment Act
("CRA").
ITEM 11. EXECUTIVE COMPENSATION
The information contained on pages 7 through 12 of the Proxy Statement for the
Annual Meeting of Stockholders to be held on April 26, 2000 under the captions
"Executive Compensation" and "Directors Compensation" is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained on page 4 through 6 of the Proxy Statement for the
Annual Meeting of Stockholders to be held April 26, 2000 under the caption
"Information with Respect to the Nominees, Continuing Directors and Executive
Officers" is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained on page 13 of the Proxy Statement for the Annual
Meeting of Stockholders to be held April 26, 2000 under the caption
"Transactions with Certain Related Persons" is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. Financial Statements
The following financial statements of the Bank are included in the
Company's Annual Report to Stockholders for the year ended December 31, 1999 and
are incorporated by this reference:
* Consolidated Balance Sheets at December 31, 1999 and 1998
* Consolidated Statements of Earnings for the Years Ended December 31, 1999,
1998 and 1997
* Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997
* Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
* Notes to Consolidated Financial Statements
* Independent Auditors' Report
The remaining information appearing in the 1999 Annual Report to Stockholders is
not deemed to be filed as part of this report, except as expressly provided
herein.
(A) 2. Financial Statement Schedules
Financial Statement Schedules have been omitted because they are not applicable
or the required information is shown in the Financial Statements or Notes
thereto.
(B) Reports on Form 8-K Filed During the Last Quarter of 1999.
None
( C) Exhibits Required by Securities and Exchange Commission Regulation S-K
Exhibit Number
2.0 Plan of Acquisition between Long Island Financial Corp. and Long Island
Commercial Bank dated as of September 15, 1998. *
3.1 Certificate of Incorporation of Long Island Financial Corp., dated
September 10, 1998. *
3.2 By-Laws of Long Island Financial Corp., effective as of September 10,
1998.*
10.0 Long Island Financial Corp. 1998 Stock Option Plan. *
11.0 Statement re computation of per share earnings
13.0 1999 Annual Report to Stockholders
23.0 Consent of experts and counsel
27.0 Financial Data Schedule
================
* Incorporated herein by reference in this document to the S-4 Registration
Statement initially filed on September 22, 1998, Registration No. 333-63971
SIGNATURES
Pursuant to the requirements of Section 13 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 FINANCIAL CORP.
By: /s/ Douglas C. Manditch
-------------------------------------
Douglas C. Manditch
President and Chief Executive Officer
Date: March 30, 2000
By: /s/ Thomas Buonaiuto
------------------------------------
Thomas Buonaiuto
Vice President and Treasurer
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 30, 2000 by the following persons on behalf of
the Registrant and in the capacities indicated.
/s/ Perry B. Duryea Jr. /s/ Walter J. Mack, M.D.
------------------------------- ---------------------------------
Perry B. Duryea, Jr. Walter J. Mack, M.D.
Chairman of the Board Director
/s/ Roy M. Kern, Sr. /s/ Douglas C. Manditch
------------------------------- ---------------------------------
Roy M. Kern, Sr. Douglas C. Manditch
Vice Chairman of the Board Director, President and
Chief Executive Officer
/s/ Harvey Auerbach /s/ Werner S. Neuburger
------------------------------- ---------------------------------
Harvey Auerbach Werner S. Neuburger
Director Director
/s/ John L. Ciarelli, Esq. /s/ Thomas F. Roberts, III
------------------------------- ---------------------------------
John L. Ciarelli, Esq. Thomas F. Roberts, III
Director Director
/s/ Donald Del Duca /s/ Alfred Romito
------------------------------- --------------------------------
Donald Del Duca Alfred Romito
Director Director
/s/ Frank J. Esposito /s/ Sally Ann Slacke
------------------------------- --------------------------------
Frank J. Esposito Sally Ann Slacke
Director Director
/s/ Waldemar Fernandez /s/ John C. Tsunis, Esq
------------------------------- ---------------------------------
Waldemar Fernandez John C. Tsunis, Esq.
Director Director
/s/ Gordon A. Lenz
-------------------------------
Gordon A. Lenz
Director
EXHIBIT 11. COMPUTATION OF PER SHARE EARNINGS
Long Island Financial Corp.
Statement Re: Computation of Per Share Earnings
(In thousands, except per share amounts)
Year Ended
December 31, 1999
Net income................................................. $ 1,606
Weighted average common shares outstanding................. 1,751,407
Basic and diluted earnings per common and common share equivalents $ .92
EXHIBIT 13. ANNUAL REPORT
CAPITAL STOCK
On January 28, 1999, Long Island Financial Corp. became the holding company
of Long Island Commercial Bank and the common stock began trading on the Nasdaq
National Market under the symbol "LICB". The common stock of Long Island
Commercial Bank had traded on the Nasdaq National Market under the symbol "LGCB"
since January 14, 1998. Prior to that, the common stock of the Bank was traded
infrequently on the over-the-counter market through the OTC Electronic Bulletin
Board. The following table shows the high and low sales price of the common
stock and the dividends declared during the period indicated.
Dividends
High Low Declared (1)
----------------------------------------------------
1999
1st Quarter $ 12.50 $ 11.63 $ 0.08
2nd Quarter $ 12.13 $ 11.00 $ 0.08
3rd Quarter $ 12.50 $ 11.38 $ 0.08
4th Quarter $ 12.50 $ 10.00 $ 0.08
1998
1st Quarter $ 17.00 $ 15.88 $ 0.08
2nd Quarter $ 17.50 $ 15.50 $ 0.08
3rd Quarter $ 16.63 $ 12.00 $ 0.08
4th Quarter $ 13.63 $ 11.50 $ 0.08
At December 31, 1999, there were approximately 441 shareholders of record of the
common stock.
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the last five
years.
At or For the Years Ended December 31,
1999 1998 1997 1996 1995
(Dollars in thousands, except share data)
-----------------------------------------------------------------
Selected Operating Data:
Interest income $ 18,410 $ 15,285 $ 12,726 $ 8,998 $ 5,977
Interest expense 9,482 8,229 7,303 4,786 3,058
Net interest income 8,928 7,056 5,423 4,212 2,919
Provision for loan losses 600 420 240 302 180
Other operating income 1,706 918 378 364 338
Other operating expenses 7,581 5,799 3,737 2,709 2,217
Income before income taxes 2,453 1,755 1,824 1,565 860
Income taxes 847 630 760 530 173
Net income $ 1,606 $ 1,125 $ 1,064 $ 1,035 $ 687
----- ----- ----- ----- ---
Basic and diluted earnings per share $ 0.92 $ 0.64 $ 1.04 $ 1.18 $ 1.14
---- ---- ---- ---- ----
Selected Financial Condition Data:
Total assets $ 331,054 $ 266,543 $ 211,956 $ 190,898 $102,507
Loans, net 119,836 94,144 78,759 62,660 38,843
Allowance for loan losses 1,475 1,071 1,026 780 633
Securities 170,149 145,819 99,231 92,053 $43,060
Deposits 269,740 217,867 187,626 178,314 94,683
Borrowed funds 39,500 24,000 - - -
Stockholders' equity 18,343 21,868 21,408 9,890 5,845
Book value per share $ 11.14 $ 12.35 $ 12.18 $ 10.60 $ 9.74
Stockholders' equity (1) 21,327 21,803 21,029 9,638 5,598
Book value per share (1) $ 12.95 $ 12.31 $ 11.96 $ 10.33 $ 9.33
Shares outstanding 1,776,326 1,771,306 1,757,709 933,181 600,000
------------------------------------------------------------------
Average Balance Sheet Data:
Loans, net $ 104,512 $ 86,647 $ 66,961 $ 49,233 $ 29,917
Securities 139,072 101,296 94,509 60,470 34,565
Assets 273,736 216,941 172,583 122,970 80,438
Demand deposits 33,791 25,811 18,657 15,003 11,704
Savings deposits 22,747 9,030 2,784 2,361 1,983
NOW and money market deposits 49,413 35,852 24,960 24,965 20,304
Certificates of deposit 103,596 105,741 99,282 69,292 39,644
Stockholders' equity $ 20,470 $ 21,717 $ 11,368 $ 8,618 $ 5,288
------------------------------------------------------------------
Performance Ratios:
Return on average assets .59 % 0.52 % 0.62 % 0.84% 0.85 %
Return on average equity 7.85 5.18 9.36 12.00 12.99
Average equity to average assets 7.48 10.01 6.59 7.01 6.58
Equity to total assets at end of year 5.54 8.20 10.10 5.18 5.70
Interest rate spread (2) 2.88 2.53 2.51 2.79 2.92
Net interest margin (3) 3.53 3.49 3.29 3.60 3.84
Ratio of interest-earning assets to
interest-bearing liabilities 1.18 1.24 1.18 1.20 1.23
Non-interest expense to average assets 2.77 2.67 2.17 2.20 2.76
Efficiency ratio (4) 71.29 72.72 64.42 59.20 68.07
------------------------------------------------------------------
Asset Quality Ratios and Other Data:
Total non-performing loans $ 179 $ 511 $ 403 $ 448 $ 211
Allowance for loan losses 1,475 1,071 1,026 780 633
Non-performing loans as a percent of
total loans (5) (6) 0.15 % 0.54 % 0.51 % 0.71 % 0.53 %
Non-performing loans as a percent of
total assets (5) 0.05 0.19 0.19 0.23 0.21
Allowance for loan losses as a percent of:
Non-performing loans (5) 824.02 209.59 254.59 174.11 300.00
Total loans (6) 1.22 % 1.12 % 1.29 % 1.23 % 1.60 %
Full service offices 6 6 4 2 2
------------------------------------------------------------------
(1) Excludes the unrealized appreciation (depreciation) in available-for-sale
securities.
(2) Interest rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest-bearing
liabilities.
(3) The net interest margin represents net interest income divided by average
interest-earning assets.
(4) The efficiency ratio represents the ratio for operating expenses divided by
the sum of net interest income and other operating income.
(5) Non-performing loans consist of all non-accrual loans and all other
loans 90 days or more past due. It is the Company's policy to
generally cease accruing interest on all loans 90 days or more past
due.
(6) Loans include loans receivable, net, before allowance for possible
loan losses.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
Long Island Financial Corp. ("the Company") is a registered Delaware bank
holding company, organized in 1999, and the parent company of Long Island
Commercial Bank ("the Bank"). The Bank, founded in 1989, is a New York
state-chartered commercial bank which is engaged in commercial banking in
Islandia, New York and the surrounding communities in Suffolk and Nassau
counties. The Company's results of operations are dependent primarily on net
interest income, which is the difference between the income earned on its loan
and security portfolios and its cost of funds, consisting of interest paid on
deposits and borrowings. Results of operations are also affected by the
Company's provision for loan losses and other operating income. The Company's
other operating expense consists principally of salaries and employee benefits,
occupancy, premises and equipment expense, and other expenses. Results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in interest rates, government policies and
action of regulatory authorities.
In 1998, the Company began originating residential real estate loans
primarily in its market area of Nassau and Suffolk counties. Currently, the
Company sells residential real estate loans together with the servicing rights
to these loans on a non-recourse basis to institutional investors. The Company
limits its exposure to interest rate fluctuations and credit risk on these loans
by obtaining, at the point of origination, a commitment from an institutional
investor to purchase that loan from the Company. Furthermore, by selling the
servicing rights to the loans, the Company avoids the associated risks and
expenses of managing and servicing a loan portfolio. Income is generated from
the premiums received on the sale of loans with servicing rights, and fees
charged and interest earned during the period the Company holds the loans for
sale.
Management Strategy
The Company offers a broad range of commercial and consumer banking
services, including loans to and deposit accounts for small and medium-sized
businesses, professionals, high net worth individuals and consumers. The Bank is
an independent local bank, emphasizing personal attention and responsiveness to
the needs of its customers. The Company has set in place an aggressive expansion
plan which began in the second half of 1994, which the Company intends to
continue. The key components of this plan are to (i) expand the Company's
network of branch offices, (ii) originate commercial loans, (iii) develop strong
customer relationships that generate multiple services for individual customer
relationships and repeat business, (iv) add high quality employees and (v)
leverage capital with increased deposits from branch expansion and borrowed
funds.
The establishment of the bank holding company structure in 1999 provides
greater operating flexibility by allowing the Company to conduct a broader range
of business activities and permits the Board of Directors of the Company to
determine whether to conduct such activities at the Company or in separate
subsidiaries of the Company. Finally, the new structure will permit expansion
into a broader range of financial services and other business activities that
are not currently permitted to the Company as a New York state-chartered
commercial bank. Such activities include, among others, operating non-bank
depository institutions or engaging in financial and investment advisory
services, securities brokerage and management consulting activities.
Management of Interest Rate Risk
The principal objective of the Company's interest rate risk management is to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Company's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Directors approved
guidelines. Through such management, the Company seeks to reduce the
vulnerability of its operations to changes in interest rates. The Investment
Committee reviews the Company's interest rate risk position on a quarterly
basis.
Funds management is the process by which the Company seeks to maximize the
profit potential which is derived from the spread between the rates earned on
interest-earning assets and the rates paid on interest-bearing liabilities
through the management of various balance sheet components. It involves
virtually every aspect of the Company's management and decision-making process.
Accordingly, the Company's results of operations and financial condition are
largely dependent on movements in market interest rates and its ability to
manage its assets and liabilities in response to such movements.
At December 31, 1999, 79.1% of the Company's gross loans had adjustable
interest rates and its loan portfolio had an average weighted maturity of 7.7
years. At such date, $12.2 million, or 7.2%, of the Company's securities had
adjustable interest rates, and its securities portfolio had a weighted average
maturity of 4.9 years. At December 31, 1999, the Company had $64.3 million of
certificates of deposit with maturities of one year or less and $18.2 million of
deposits over $100,000, which tend to be less stable sources of funding as
compared to core deposits and represented 30.2% of the Company's
interest-bearing liabilities. Due to the Company's level of shorter term
certificates of deposit, the Company's cost of funds may increase at a greater
rate in a rising rate environment than if it had a greater amount of core
deposits which, in turn, may adversely affect net interest income and net
income. Accordingly, in a rising interest rate environment, the Company's
interest-bearing liabilities may adjust upwardly more rapidly than the yield on
its adjustable-rate loans, adversely affecting the Company's net interest rate
spread, net interest income and net income.
The Company's interest rate sensitivity is monitored by management through
the use of a quarterly interest rate risk analysis model which evaluates (i) the
potential change in net interest income over the succeeding four quarter period
and (ii) the potential change in the fair market value of equity of the Company
("Net Economic Value of Equity"), which would result from an instantaneous and
sustained interest rate change of zero and plus or minus 200 basis points, in
100 basis point increments.
At December 31, 1999, the effects of instantaneous and sustained interest
rate changes on the Company's Net Interest Income and Net Economic Value of
Equity are as follows:
Change in
Interest Rates Potential Change in Potential Change in
in Basis Points Net Interest Income Net Economic Value of Equity
- ----------------------------------------------------------------------------------------------------
$ Change % Change $ Change % Change
- ----------------------------------------------------------------------------------------------------
(Dollars in thousands)
200 $ 84 .80 % $ (3,310) (15.41) %
100 51 .49 78 .36
Static - - - -
(100) (205) (1.96) 5,372 25.01
(200) (752) (7.20) 7,367 34.30
- ----------------------------------------------------------------------------------------------------
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon both the volume of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
The following table sets forth certain information relating to the Company's
average balance sheets and its statements of earnings for the years ended
December 31, 1999, 1998 and 1997, and reflects the average yield on
interest-earning assets and average cost of interest-bearing liabilities for the
periods indicated. Such yields and costs are derived by dividing income or
expense, annualized, by the average balance of interest-earning assets or
interest-bearing liabilities, respectively. Average balances are derived from
average daily balances.
Years Ended December 31,
------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------------------------------
Average Average Average
Average Yield / Average Yield / Average Yield /
Balance Interest Cost Balance Interest Cost Balance Interest Cost
(Dollars in thousands)
Assets:
Interest-earning assets:
Federal funds sold and
interest-earning deposits $ 6,695 $ 317 4.73 % $ 11,181 $ 598 5.35 % $ 3,194 $ 168 5.26 %
Securities, net(1) 139,072 8,769 6.31 101,296 6,571 6.49 94,509 6,407 6.78
Municipal obligations (2) 4,400 260 5.91 7,757 497 6.41 - - -
Loans, net (3) 104,512 9,134 8.74 86,647 7,780 8.98 66,961 6,151 9.19
------- ----- ------ ----- ------ -----
Total interest-earning assets 254,679 18,480 7.26 206,881 15,446 7.47 164,664 12,726 7.73
Non-interest-earning assets 19,057 10,060 7,919
------ ------ -----
Total assets $273,736 $216,941 $172,583
======= ======= =======
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Savings deposits 22,747 777 3.42 % $ 9,030 $ 309 3.42 % $ 2,784 $ 72 2.59 %
NOW and money
market deposits 49,413 985 1.99 35,852 854 2.38 24,960 579 2.32
Certificates of deposit 103,596 5,715 5.52 105,741 6,216 5.88 99,282 5,915 5.96
------- ----- ------- ----- ------ -----
Total interest-bearing deposit 175,756 7,477 4.25 150,623 7,379 4.90 127,026 6,566 5.17
Borrowed funds 40,657 2,005 4.93 15,847 850 5.36 12,914 737 5.71
------ ----- ------ --- ------ ---
Total interest-bearing liabilities 216,413 9,482 4.38 166,470 8,229 4.94 139,940 7,303 5.22
Other non-interest bearing
liabilities 36,853 28,754 21,275
------ ------ ------
Total liabilities 253,266 195,224 161,215
Stockholders' equity 20,470 21,717 11,368
------ ------ ------
Total liabilities and
stockholders' equity $273,736 $216,941 $172,583
======= ======= =======
Net interest income / interest
rate spread (4) $8,998 2.88 % $ 7,217 2.53 % $ 5,423 2.51 %
----- ---- ----- ---- ----- ----
Net interest margin (5) 3.53 % 3.49 % 3.29 %
Ratio of interest-earning assets to ---- ---- ----
interest-bearing liabilities 1.18 % 1.24 % 1.18 %
---- ---- ----
(1) Securities, net, excludes municipal obligations.
(2) Interest income and yields are presented on a fully-taxable equivalent
basis using the Federal Statutory income tax rate of 34%.
(3) Amount is net of deferred loan fees and allowance for possible loan
losses and includes non-performingloans.
(4) Interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
The following table represents 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 interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (change in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (change
in rate multiplied by prior volume) and (iii) the net change. Changes
attributable to the combined impact of volume and rate have been allocated
proportionately to separately reflect the changes due to the volume and the
changes due to rate:
Year Ended Year Ended
December 31, 1999 December 31, 1998
Compared to Compared to
Year Ended Year Ended
December 31, 1998 December 31, 1997
Increase/(Decrease) Due to Increase/(Decrease) Due to
------------------------------------------------------------------
Volume Rate Net Volume Rate Net
------------------------------------------------------------------
(Dollars in thousands)
Interest-Earning Assets:
Federal funds sold and interest
earning deposits $ (219) $ (62) $(281) $ 426 $ 4 $ 430
Securities held-to-maturity and
available for sale, net (2) 2,387 (189) 2,198 448 (284) 164
Municipal obligations (201) (36) (237) 497 - 497
Loans receivable, net (1) 1,566 (212) 1,354 1,770 (141) 1,629
----- ----- ----- ----- ----- -----
Total interest-earning assets 3,533 (499) 3,034 3,141 (421) 2,720
Interest-Bearing Liabilities:
Deposits:
Savings deposits 469 (1) 468 208 29 237
NOW and money market deposits 286 (155) 131 259 16 275
Certificates of deposit (124) (377) (501) 381 (80) 301
Total deposits 631 (533) 98 848 (35) 813
Borrowed funds 1,229 (74) 1,155 159 (46) 113
----- ---- ----- --- ---- ---
Total interest-bearing liabilities $ 1,860 $ (607) $1,253 $ 1,007 $ (81) $ 926
(1) Securities, net exclude municipal obligations.
(2) Amount is net of residential real estate loans held-for-sale, deferred
loan fees and allowance for possible loan losses and includes
non-performing loans.
Comparison of Financial Condition at December 31, 1999 and 1998
Total assets increased by $64.6 million, or 24.2%, from $266.5 million at
December 31, 1998 to $331.1 million at December 31, 1999. The increase in assets
is primarily attributable to a $25.7 million, or 27.3%, increase in loans, net,
which at December 31, 1998 were $94.1 million compared to $119.8 million at
December 31, 1999. In addition, securities, net increased by $24.7 million, or
17.0%, to $169.8 million at December 31, 1999, from $145.2 million at December
31, 1998. The increase in cash and cash equivalents of $6.3 million reflects the
timing of seasonal municipal deposits and investment of those deposits in short
term debt and equity securities prior to the year end. At December 31, 1999 and
1998, seasonal municipal deposits amounted to $75.0 million and $44.8 million,
respectively. In March 1999, the Company purchased $5.7 million of bank owned
life insurance, covering the directors and executive officers of the Company.
The purchase of this insurance provides benefits to both the Company and the
covered directors and employees.
Total deposits increased $51.9 million, or 23.8%, from $217.9 million at
December 31, 1998 to $269.7 million at December 31, 1999, primarily reflecting
in an increase in NOW and money market deposits. The increase in NOW and money
market deposits of $31.4 million, or 43.9%, from $71.7 million at December 31,
1998 to $103.1 million at December 31, 1999 is attributable to the increase in
seasonal municipal deposits at December 31, 1999. In addition, savings deposits
increased by $16.0 million, or 128.0%, from $12.5 million at December 31, 1998
to $28.4 million at December 31, 1999. Although at December 31, 1999, demand
deposits decreased $414,000, or 1.1%, from $36.6 million at December 31, 1998,
the average balance of demand deposits increased by $8.0 million, or 31.0%, from
$25.8 million in 1998 to $33.8 million in 1999. This increase is attributable to
the Company's branch expansion in 1998 and the introduction of new savings
deposit products. Time certificates issued in excess of $100,000 were $18.2
million at December 31, 1999, a decrease of $756,000, or 4.0%, from the prior
year. Other time deposits increased $5.6 million, or 7.2%, to $83.7 million at
December 31, 1999.
Stockholder's equity was $18.3 million at December 31, 1999 compared to
$21.9 million at December 31, 1998. Net income amounted to $1.6 million for the
year ended December 31, 1999, and the net unrealized depreciation on the
Company's available-for- sale securities portfolio, net of taxes, increased by
$3.0 million. In addition, the Company commenced a stock repurchase program in
April 1999. During the year ended December 31, 1999, the Company repurchased
$1.5 million of common stock.
Comparison of Operating Results for the Years ended December 31, 1999 and 1998
General
Net income for the year ended December 31, 1999 increased by $481,000, or
42.8%, from $1,125,000 for the year ended December 31, 1998 to $1,606,000 for
1999. The increase was primarily due to an increase in net interest income after
the provision for possible loan losses of $1,692,000, or 25.5%, and other
operating income of $788,000, or 85.8%, which was offset by a $1,782,000, or
30.7% increase in other operating expenses.
Interest Income
Total interest income, on a fully-taxable equivalent basis, increased $3.0
million, or 19.6%, to $18.5 million for the year ended December 31, 1999, from
$15.4 million for the corresponding period in 1998. The increase was primarily
the result of an increase in the average balance of interest-earning assets of
23.1%, from $206.9 million during the year ended December 31, 1998, to $254.7
million during the year ended December 31, 1999. The average balance of
securities, net (exclusive of municipal obligations), increased by $37.8
million, or 37.3%, to $139.1 million in the 1999 period, from $101.3 million in
the 1998 period, with a decrease in the average yield from 6.49% in 1998 to
6.31% in 1999. The average balance of loans, net increased by $17.9 million, or
20.6%, to $104.5 million in the 1999 period from $86.6 million in the 1998
period. The average yield on loans, net decreased 24 basis points to 8.74% in
1999 from 8.98% for the comparable period in 1998. That decrease reflects lower
market interest rates resulting from increasingly competitive pricing in 1999 in
commercial real estate lending.
Interest Expense
Total interest expense increased $1.3 million, or 15.2%, for the year ended
December 31, 1999, to $9.5 million compared to $8.2 million for the year ended
December 31, 1998. The increase reflects both an increase in the average balance
of interest bearing liabilities of $49.9 million, or 30.0%, which was offset in
part by a decrease of 56 basis points in the average rate paid on interest
bearing liabilities. Although the average balance of borrowed funds increased
$24.8 million, or 156.6%, from 1998 to 1999, the average rate paid on borrowed
funds decreased 43 basis points to 4.93% in 1999. This method of funding has
been used in conjunction with the Company's leveraging of the balance sheet. The
average balance of savings deposits increased by $13.7 million, or 151.9%, with
no change in the average rate paid. The average balance of NOW and money market
deposits increased $13.6 million, or 37.8%, with a decrease of 39 basis points
in the average rate paid. The increases in the average balances of savings, NOW
and money market deposits reflects the Company's branch network expansion and
successful implementation of a sales focus throughout the Company. The $2.1
million, or 2.0%, decrease in the average balance of certificates of deposits
from 1998 to 1999, reflects the Company's emphasis on lower cost core deposits.
In 1999, the average cost of certificates of deposits decreased by 36 basis
points to 5.52%.
Net Interest Income
Net interest income for the year ended December 31, 1999 was $9.0 million
(on a taxable equivalent basis) compared to $7.2 million for the year ended
December 31, 1998. This increase resulted from an increase of 23.1% in the
average balance of interest-earning assets from $206.9 million during the year
ended December 31, 1998, to $254.7 million during the year ended December 31,
1999. Despite the interest rate increases by the Federal Reserve Bank totaling
75 basis points in 1999, the Company's average interest rate spread on a tax
equivalent basis increased 35 basis points from 2.53% for the 1998 period to
2.88% for the 1999 period.
Provision for Loan Losses
The Company's increased provision for loan losses increased by $180,000, or
42.9%, from $420,000 for the year ended December 31, 1998 to $600,000 for the
year ended December 31, 1999. The increased provision was made to reflect the
growth within the loan portfolio, the average balance of which increased by
$17.9 million, or 20.6%, to $104.5 million for the year ended December 31, 1999.
Management of the Company assesses the adequacy of the allowance for loan losses
based on evaluating known and inherent risks in the loan portfolio and upon
continuing analysis of the factors underlying the quality of the loan portfolio.
While management believes that, based on information currently available, the
Company's allowance for loan losses is sufficient to cover losses inherent in
its loan portfolio at this time, no assurances can be given that the Company's
level of allowance for loan losses will be sufficient to cover future loan
losses incurred by the Company or that future adjustments to the allowance for
loan losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current level of the allowance for loan losses. Management may in
the future increase its level of allowance for loan losses as a percentage of
total loans in the event it increases the level of commercial real estate,
commercial, construction or consumer lending as a percentage of its total loan
portfolio. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for loan
losses.
Other Operating Income
Other operating income increased by $788,000, or 85.8%, to $1,706,000 for
the year ended December 31, 1999, compared to $918,000 for the year ended
December 31, 1998. The increase is primarily attributable to the net gain of
$530,000 associated with the origination and sale of residential mortgages for
the year ended December 31, 1999 following the establishment of the Company's
residential mortgage department in May 1998. In addition, service charges on
deposit accounts increased by $232,000, or 55.6 %, reflecting the growth in the
Company's depositor base and an overall increase in the Company's fee schedule.
Other operating income increased $225,000, or 105.1%, primarily as a result of
dividends earned on bank owned life insurance and certain loan prepayment fees.
Other Operating Expense
Other operating expense increased $1.8 million, or 30.7%, to $7.6 million
for the year ended December 31, 1999, compared to $5.8 million incurred for the
year ended December 31, 1998. This increase was primarily attributable to an
increase in salaries and benefits expense of $1.1 million, or 37.8%, from $2.8
million in 1998 to $3.9 million in 1999, reflecting a moderate increase in staff
in connection with both the Company's branch expansion, establishment of the
residential mortgage department and continued internal growth. Although the
number of full time equivalent employees increased from 69 at December 31, 1998
to 73 at December 31, 1999, 38% of the full time equivalent employee growth in
1998 occurred in the second half of 1998. The branch expansion also contributed
significantly to the growth in expenses in the other categories of other
operating expenses.
Income Taxes
Income taxes provides for Federal and New York State income taxes. The 1999
income tax expense was $847,000, compared to $630,000 in 1998. The income tax
expense increase is primarily attributable to increased levels of taxable
income. The effective tax rate for 1999 was 34.5% compared to 35.9% in 1998.
Comparison of Operating Results for the Years ended December 31, 1998 and 1997
General
Net income for the year ended December 31, 1998 increased by $61,000, or
5.7%, from $1,064,000 for the year ended December 31, 1997 to $1,125,000 for
1998. The increase was primarily due to an increase in net interest income after
the provision for loan losses of $1,453,000, or 28.0%, and other operating
income of $540,000, or 142.9%, which was offset by a $2,062,000, or 55.2%
increase in other operating expenses.
Interest Income
Total interest income increased $2.7 million, or 21.3%, to $15.4 million
for the year ended December 31, 1998, from $12.7 million for the corresponding
period in 1997. The increase was primarily the result of an increase in the
average balance of interest-earning assets of 25.6%, from $164.7 million during
the year ended December 31, 1997, to $206.9 million during the year ended
December 31, 1998. The average balance of securities, net (exclusive of
municipal obligations), increased by $6.8 million, or 7.2%, to $101.3 million in
the 1998 period, from $94.5 million in the 1997 period, reflecting management's
decision to resume leveraging the balance sheet to increase the earnings of the
Company. The average balance of loans, net increased by $19.6 million, or 29.3%,
to $86.6 million in the 1998 period from $67.0 million in the 1997 period. The
average yield on interest earning assets decreased 26 basis points, reflecting a
21 basis point decrease in the average yield on loans, and a 29 basis point
decrease in the average yield on securities, net (exclusive of municipal
obligations). The decrease in the average yield on interest-earning assets is,
in part, reflective of the Federal Reserve Bank's three interest rate cuts in
1998 totaling 75 basis points. The Company began purchasing municipal securities
in the second quarter of 1998, because the taxable equivalent yields on these
securities were attractive. For the 1998 period, the average balance of
municipal securities was $7.8 million with a taxable equivalent yield of 6.41%.
Interest Expense
Total interest expense increased $926,000, or 12.7%, for the year ended
December 31, 1998, to $8.2 million compared to $7.3 million for the year ended
December 31, 1997. The increase reflects both an increase in the average balance
of interest bearing liabilities of $26.5 million, or 19.0%, and a decrease in
the average rate paid on interest bearing liabilities of 28 basis points.
Although the average balance of borrowed funds increased $2.9 million, or 22.7%,
from 1997 to 1998, the average rate paid on borrowed funds decreased 35 basis
points to 5.36%. This method of funding has been used in conjunction with the
Company's leveraging of the balance sheet. The average balance of savings
deposits has increased by $6.2 million, or 224.4%, along with an increase in the
average rate paid of 83 basis points, reflecting the introduction of tiered
savings products in 1998. These products, while increasing the cost of
traditional savings products, remain significantly below the cost of time
deposit funding, which also require more maintenance in the branches. The
increase in the average balance of NOW and money market deposits of $10.9
million, or 43.6%, reflects the Company's increased sales emphasis within the
expanded branch network. The cost of these deposits increased slightly from
2.32% in 1997 to 2.38% in 1998. The increase in the average balance of
certificates of deposits of $6.5 million, or 6.5%, from 1997 to 1998, reflects
the Company's branch expansion. The average cost of certificates of deposits
decreased slightly from 1998 to 1997 by 8 basis points.
Net Interest Income
Net interest income for the year ended December 31, 1998 was $7.2 million
(on a taxable equivalent basis) compared to $5.4 million for the year ended
December 31, 1997. This increase resulted from an overall increase of 25.6% in
the average balance of interest- earning assets from $164.7 million during the
year ended December 31, 1997, to $206.9 million during the year ended December
31, 1998. Despite the interest rate decreases by the Federal Reserve Bank in
1998 totaling 75 basis points, the Company's average interest rate spread on a
tax equivalent basis remained relatively unchanged from 2.51% for the 1997
period to 2.53% for the 1998 period.
Provision for Possible Loan Losses
The Company's provision for loan losses increased by $180,000, or 75.0%,
from $240,000 for the year ended December 31, 1997 to $420,000 for the year
ended December 31, 1998. The provision for loan losses for the year ended
December 31, 1998 reflects management's qualitative assessment of the loan
portfolio. The increase resulted from management's assessment of the loan
portfolio, the level of the Company's allowance for loan losses and its
assessment of the local economy and market conditions. At December 31, 1998 and
1997, the allowance for the loan losses as a percent of total loans was 1.12%
and 1.29%, respectively.
Other Operating Income
Other operating income increased by $540,000, or 142.9%, to $918,000 for
the year ended December 31, 1998, compared to $378,000 for the year ended
December 31, 1997. The increase is primarily attributable to the establishment
of the Company's residential mortgage department in May 1998 and the net gain
associated with the origination and sale of residential mortgages which amounted
to $274,000 for the year ended December 31, 1998. In addition, service charges
on deposit accounts increased by $156,000 or 59.8%, reflecting the growth in the
Company's depositor base and an overall increase in the Company's fee schedule.
Other Operating Expense
Other operating expense increased $2.1 million, or 55.2%, to $5.8 million
for the year ended December 31 , 1998, compared to $3.7 million for the year
ended December 31, 1997. This increase was primarily attributable to an increase
in salaries and benefits expense of $1.0 million, or 56.6%, from $1.8 million in
1997 to $2.8 million in 1998, reflecting a substantial increase in staff in
connection with both the Company's branch expansion, establishment of the
residential mortgage department and continued internal growth. The number of
full time equivalent employees increased from 43 at December 31, 1997 to 69 at
December 31, 1998. The branch expansion also contributed significantly to the
growth in expenses in the other categories of other operating expenses.
Although, on a year to year comparison, the number of full service offices
increased from four at December 31, 1997 to six at December 31, 1998, the
Westbury office did not open until November 1997, whereby the expense effect had
minimal impact on other operating expense in 1997.
Income Taxes
Total income tax expense was $630,000 for the year ended December 31, 1998
compared to $760,000 for the same period in 1997, a decrease of $130,000, or
17.1%. The decrease is attributable to a decrease in income before income taxes
of $69,000, or 3.8%, combined with approximately $12.9 million of tax exempt
municipal obligations purchased in 1998.
Liquidity and Capital Resources
Liquidity management for the Company requires that funds be available to pay
all deposit withdrawal and maturing financial obligations and to meet credit
funding requirements promptly and fully in accordance with their terms. Over a
very short time frame, maturing assets provide only a limited portion of the
funds required to pay maturing liabilities. The balance of the funds required is
provided by liquid assets and the acquisition of additional liabilities, making
liability management integral to liquidity management in the short term.
The primary investing activities of the Company are the purchase of
securities available-for-sale and the originations of loans. During the years
ended December 31, 1999 and 1998, the Company's purchases of securities were all
classified available-for-sale and totaled $276.1 million and $274.1 million,
respectively. Loan originations and principal repayments on loans, net totaled
$26.9 million and $14.4 million, for the years ended December 31, 1999 and 1998,
respectively. These activities were funded primarily by deposit growth,
principal repayments on loans, borrowings and principal repayments on
securities.
The Company maintains levels of liquidity that it considers adequate to meet
its current needs. The Company's principal sources of cash include incoming
deposits, the repayment of loans and conversion of investment securities. When
cash requirements increase faster than cash is generated, either through
increased loan demand or withdrawal of deposited funds, the Company can arrange
for the sale of loans and liquidate available-for-sale securities and access its
lines of credit, totaling $6.0 million, with unaffiliated financial institutions
which enables it to borrow funds on an unsecured basis. In addition, the Company
has available lines of credit with the Federal Home Loan Bank of New York
("FHLB") equal to 6.5% of the Company's assets, which enables it to borrow funds
on a secured basis. In addition, the Company could engage in other borrowings,
including FHLB advances and reverse repurchase agreements on a secured basis. At
December 31, 1999 and 1998, such borrowings amounted to $39.0 million and $24.0
million, respectively.
Management of the Company has set minimum liquidity level of 10% as a
target. The Company's average liquid assets (cash and due from banks, federal
funds sold, interest-earning deposits with other financial institutions and
securities available-for-sale, less securities pledged as collateral) as a
percentage of average assets of the Company during the year ended December 31,
1999 was 13.8%.
Year 2000
The Company successfully entered the Year 2000 without any disruptions in
any of its computer systems. As of this date, the Company is not aware of any
issues that would significantly affect the Company's ability to conduct its
normal business operations.
Impact of Inflation and Changing Prices
The Financial Statements and Notes thereto presented herein have been
prepared in accordance with generally accepted accounting principles ("GAAP"),
which require the measurement of financial position and operating results in
terms of historical dollar amounts without considering the changes in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Company's operations. Unlike
industrial companies, nearly all of the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have a greater impact on the
Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
Impact of New Accounting Standards
See Note 13 to Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) December 31,
1999 1998
---------- ---------
Assets:
Cash and due from banks $ 9,301 13,170
Interest earning deposits 204 269
Federal funds sold 18,300 8,050
------ ------
Total cash and cash equivalents 27,805 21,489
Securities held-to-maturity, net
(estimated fair value of $338 and $665, respectively) 341 664
Securities available-for-sale, at fair value 169,808 145,155
Loans, net of unearned income and deferred fees 121,311 95,215
Less allowance for loan losses 1,475 1,071
----- -----
Loans, net 119,836 94,144
Premises and equipment, net 2,089 1,975
Accrued interest receivable 2,062 1,614
Bank owned life insurance 5,921 -
Prepaid expenses and other assets 3,192 1,502
----- -----
Total assets $ 331,054 266,543
------- -------
Liabilities and Stockholders' Equity:
Deposits:
Demand deposits $ 36,191 36,605
Savings deposits 28,444 12,476
NOW and money market deposits 103,126 71,689
Time certificates issued in excess of $100,000 18,242 18,998
Other time deposits 83,737 78,099
------ ------
Total deposits 269,740 217,867
Borrowed funds 39,500 24,000
Accrued expenses and other liabilities 3,471 2,808
----- -----
Total liabilities 312,711 244,675
------- -------
Stockholders' equity:
Common stock (par value $.01 per 10,000,000 shares, authorized; 1,776,326
shares issued; 1,776,326
and 1,771,306 outstanding in 1999 and 1998, respectively) 18 18
Surplus 20,185 20,126
Accumulated surplus 2,587 1,659
Accumulated other comprehensive income (loss) (2,984) 65
Treasury stock at cost, (130,000 shares) (1,463) -
------- ----
Total stockholders' equity 18,343 21,868
------- ------
Total liabilities and stockholders' equity $ 331,054 266,543
------- -------
CONSOLIDATED STATEMENTS OF EARNINGS
For the years
(In thousands, except share data) ended December 31,
1999 1998 1997
--------- --------- --------
Interest income:
Loans $ 9,134 7,780 6,151
Securities 8,959 6,907 6,407
Federal funds sold 304 578 158
Earning deposits 13 20 10
------ ------ ------
Total interest income 18,410 15,285 12,726
------ ------ ------
Interest expense:
Savings deposits 777 309 72
NOW and money market deposits 985 854 579
Time certificates issued in excess of $100,000 1,239 1,310 1,234
Other time deposits 4,476 4,906 4,681
Borrowed funds 2,005 850 737
----- ----- -----
Total interest expense 9,482 8,229 7,303
----- ----- -----
Net interest income 8,928 7,056 5,423
Provision for loan losses 600 420 240
Net interest income after provision --- --- ---
for loan losses 8,328 6,636 5,183
----- ----- -----
Other operating income:
Service charges on deposit accounts 649 417 261
Net gain on sale of securities 88 13 2
Net gain on sale of residential loans 530 274 -
Other 439 214 115
--- --- ---
Total other operating income 1,706 918 378
----- --- ---
Other operating expenses:
Salaries and employee benefits 3,910 2,838 1,812
Occupancy expense 534 456 281
Premises and equipment expense 735 524 301
Other 2,402 1,981 1,343
----- ----- -----
Total other operating expenses 7,581 5,799 3,737
----- ----- -----
Income before income taxes 2,453 1,755 1,824
Income taxes 847 630 760
--- --- ---
Net income $ 1,606 1,125 1,064
----- ----- -----
Basic and diluted earnings per share $ .92 .64 1.04
--- --- ----
Weighted average shares outstanding 1,751,407 1,766,154 1,024,532
--------- --------- ---------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
other
Common Accumulated comprehensive Treasury
(In thousands, except share data) stock Surplus surplus income(loss) stock Total
--------------------------------------------------------------------
Balance at December 31, 1996 $ 10 $ 9,236 $ 392 $ 252 $ -- $ 9,890
Comprehensive income:
Net income -- -- 1,064 -- -- 1,064
Other comprehensive income, net of tax:
Unrealized appreciation in
available for sale securities,
net of reclassification adjustment (1) -- -- -- 127 -- 127
Total Comprehensive income -- -- -- -- -- 1,191
Stock offering,
issued 807,018 shares 8 10,448 -- -- -- 10,456
Dividend reinvestment and stock
purchase plan, issued 17,510 shares -- 228 -- -- -- 228
Dividends declared on common
stock ($.31 per common share) -- -- (357) -- -- (357)
-----------------------------------------------------------------------
Balance at December 31, 1997 $ 18 $ 19,912 $ 1,099 $ 379 $ -- $ 21,408
Comprehensive income:
Net income -- -- 1,125 -- -- 1,125
Other comprehensive income,
net of tax:
Unrealized depreciation in
available-for-sale securities,
net of reclassification adjustment (1) -- -- -- (314) -- (314)
Total Comprehensive income -- -- -- -- -- 811
Dividend reinvestment and stock
purchase plan, issued 13,597 shares -- 214 -- -- -- 214
Dividends declared on common
stock ($.32 per common share) -- -- (565) -- -- (565)
-----------------------------------------------------------------------
Balance at December 31, 1998 $ 18 $ 20,126 $ 1,659 $ 65 $ -- $ 21,868
Comprehensive income:
Net income -- -- 1,606 -- -- 1,606
Other comprehensive income,
net of tax:
Unrealized depreciation in
available-for-sale securities,
net of reclassification adjustment (1) -- -- -- (3,049) -- (3,049)
Total Comprehensive loss -- -- -- -- -- (1,443)
Reorganization costs -- -- (115) -- -- (115)
Dividend reinvestment and stock
purchase plan, issued 5,020 shares -- 59 -- -- -- 59
Dividends declared on common
stock ($.32 per common share) -- -- (563) -- -- (563)
Common stock repurchased (130,000 shares) -- -- -- -- (1,463) (1,463)
-----------------------------------------------------------------------
Balance at December 31, 1999 $ 18 $ 20,185 $ 2,587 $(2,984) $(1,463) $ 18,343
-----------------------------------------------------------------------
December 31, 1999 December 31, 1998 December 31, 1997
(1) Other comprehensive income (loss), before tax:
Net unrealized holding gain (loss) on securities ($ 5,105) $ 111 $ 647
Reclassification adjustment for gains included in income 88 13 2
Other comprehensive income (loss), before tax (5,017) 124 649
Income tax benefit (expense) related to items of other
comprehensive income 1,968 (438) (522)
----- ----- -----
Other comprehensive income (loss), net of tax ($ 3,049) ($ 314) $ 127
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(In thousands)
1999 1998 1997
Cash flows from operating activities:
Net income $ 1,606 1,125 1,064
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 600 420 240
Depreciation and amortization 579 406 222
Amortization of premiums, net
of discount accretion (50) 176 132
Gain on sale of securities (88) (13) (2)
Loans originated for sale,
net of proceeds from sales and gains 467 (1,486) -
Net deferred loan origination fees 159 104 158
Deferred income taxes (36) 118 (62)
Changes in asset and liability accounts:
Accrued interest receivable (448) 36 (362)
Prepaid expenses and other assets 261 (89) (294)
Accrued expenses and other liabilities 709 (10) 200
--- ---- ---
Net cash provided by operating activities 3,759 787 1,296
----- --- -----
Cash flows from investing activities:
Purchases of securities available-for-sale (276,104) (274,109) (78,122)
Proceeds from the sale of securities
available-for-sale 12,777 4,773 4,185
Proceeds from maturities of securities 220,195 199,350 57,621
Principal repayments on securities 13,724 22,699 9,224
Loan originations net of principal
repayments (26,918) (14,423) (16,497)
Purchase of premises and equipment (693) (1,242) (703)
Purchase of bank owned life insurance (5,715) - -
------- ---- ----
Net cash used in investing activities (62,734) (62,952) (24,292)
-------- -------- --------
Cash flows from financing activities:
Net increase (decrease) in demand deposit,
savings, NOW, and
money market accounts 46,991 36,320 (5,993)
Net increase (decrease) increase in
certificates of deposit 4,882 (6,079) 15,305
Net increase in borrowed funds 15,500 24,000 -
Payments for cash dividends (563) (565) (356)
Proceeds from stock offering, net - - 10,456
Purchase of treasury stock (1,463) - -
Corporate reorganization costs (115) - -
Proceeds from shares issued under the
dividend reinvestment and stock purchase plan 59 214 228
-- --- ---
Net cash provided by financing activities 65,291 53,890 19,640
------ ------ ------
Net increase (decrease) in cash
and cash equivalents 6,316 (8,275) (3,356)
Cash and cash equivalents at beginning of year 21,489 29,764 33,120
------ ------ ------
Cash and cash equivalents at end of year $ 27,805 21,489 29,764
------ ------ ------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 9,527 8,085 6,578
----- ----- -----
Income taxes $ 467 744 786
--- --- ---
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(1) Summary of Significant Accounting Policies
Long Island Financial Corp. ("the Company") is a registered Delaware bank
holding company, organized in 1999 (see note 15), and the parent company of Long
Island Commercial Bank ("the Bank"). The Bank, founded in 1989, is a New York
state-chartered bank which is engaged in commercial banking in Islandia, New
York and the surrounding communities in Suffolk and Nassau Counties.
In March 1999, the Bank formed a subsidiary corporation, Long Island
Commercial Capital Corporation, which was formed to qualify as a real estate
investment trust.
The consolidated financial information included herein combines the results
of operations, the assets, liabilities and stockholders' equity of the Company,
the Bank and Long Island Commercial Capital Corporation for all periods
presented. All significant intercompany balances and transactions are eliminated
in consolidation. A description of significant accounting policies is presented
below.
(A) Basis of Financial Presentation
The consolidated financial statements have been prepared in accordance with
GAAP. In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
for the period. Actual results could differ from those estimates.
(B) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash,
Federal funds sold and other short-term investments, all of which have initial
maturities of less than ninety days.
(C) Securities
Management determines the appropriate classification of debt and equity
securities at the time of purchase. Securities are classified as held-
to-maturity when the Company has the positive intent and ability to hold the
securities to maturity. Held-to-maturity securities are stated at amortized
cost. Debt securities not classified as held-to-maturity and marketable equity
securities are classified as available-for-sale. Available-for-sale securities
are stated at fair value, with the unrealized gains and losses, net of tax,
excluded from earnings and reported as a separate component of accumulated other
comprehensive income, in stockholders' equity.
Premiums and discounts on debt and mortgage-backed securities are amortized
to expense and accreted to income using a method which approximates the
level-yield method over the remaining period to contract maturity, adjusted for
anticipated prepayments. Dividend and interest income are recognized when
earned. Realized gains and losses on the sale of securities are included in net
gain on sale of securities. The cost of securities sold is based on the specific
identification method.
(D) Loans, Net
Loans are carried at the principal amount outstanding net of unearned income
and fees. Residential real estate loans held-for-sale are carried at the
aggregate lower of cost or market value as determined by outstanding commitments
from investors. Interest on loans is recognized on the accrual basis. The
accrual of income on loans is discontinued when, in management's judgment,
collection of principal or interest is uncertain or payments of principal or
interest become contractually ninety days past due. Loans on which the accrual
of income has been discontinued are designated as non-accrual loans and income
is recognized subsequently only in the period collected. Any accrued but
uncollected interest previously recorded on such loans is reversed against
interest income of the current period.
Loan origination fees, less certain direct origination costs, are deferred
and recognized as an adjustment of the loan's yield over the life of the loan by
the interest method, which results in a constant rate of return.
(E) Allowance for Loan Losses
The determination of the amount of the allowance for loan losses is based on
an analysis of the loan portfolio and reflects an amount which, in management's
judgment, is adequate to provide for probable loan losses in the existing
portfolio. This analysis considers, among other things, present and known and
inherent risks in the portfolio, adverse situations which may affect the
borrower's ability to repay, overall portfolio quality, and current and
prospective economic conditions. While management uses available information to
provide for loan losses, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, various regulatory
agencies, as a integral part of the examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the Company to
recognize additions to the allowance based on their judgement of information
available to them at the time of their examination.
Management considers a loan to be impaired if, based on current information,
it is probable that the Company will be unable to collect all scheduled payments
of principal or interest when due according to the contractual terms of the loan
agreement. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expendient,
at the loan's observable market price or the fair value of collateral if the
loan is collateral dependent. Management excludes large groups of smaller
balance homogeneous loans which are collectively evaluated. Impairment losses
are included in the allowance for loan losses through a charge to the provision
for loan losses.
(F) Premises and Equipment, Net
Premises and equipment are stated at cost, less accumulated depreciation
computed using the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the estimated useful lives of
the improvements or terms of the related lease, whichever is shorter.
(G) Income Taxes
Income taxes are based upon results reported for financial statement
purposes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(H) Earnings Per Share
Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted average number of shares outstanding during
the year. Diluted earnings per share is calculated by dividing net income
available to common stockholders by the weighted average number of shares
outstanding during the year plus the maximum dilutive effect of stock issuable
upon conversion of stock options.
(I) Treasury Stock
The cost of treasury stock is shown on the consolidated balance sheet as a
separate component of stockholders' equity and is a reduction to total
stockholders' equity.
(J) Segment Reporting
As a community oriented financial institution, substantially all of the
Company's operations involve the delivery of loan and deposit products to
customers. Management makes operating decisions and assesses performance based
on an ongoing review of these community banking operations, which constitute the
Company's only operating segment for financial reporting purposes.
(K) Comprehensive Income
Comprehensive income represents net income plus the net change in unrealized
gains or losses on securities available for sale for the period and its
presented in the consolidated statements of changes in stockholders' equity.
Accumulated other comprehensive income represents the net unrealized gains or
losses on securities available-for-sale as of the balance sheet dates.
(L) 401(k) plan
On January 1, 1996, the Company adopted a 401(k) Profit Sharing Plan ("401(k)
Plan") for all qualified employees. The terms of the 401(k) Plan provide for
employee contributions on a pre-tax basis up to the maximum dollar limit set by
law in a taxable year. A discretionary matching contribution will be determined
each year by the Bank. During 1999, 1998, and 1997, the Bank's matching
contribution was , $81,671, $59,533 and $23,133, respectively.
(M) Dividend Reinvestment and Stock Purchase Plan
The Company has a dividend reinvestment and stock purchase plan ("Plan").
The Plan provides shareholders of common stock with a means of automatically
reinvesting cash dividends in shares of common stock. The Plan also provides
certain investors with a systematic and convenient method to purchase shares of
common stock through optional cash payments. Since the Bank's common stock is
currently listed on the NASDAQ National Market, the purchase price on each
investment date will be equal to the average price of all shares of common stock
purchased on the investment date by the Plan Administrator on behalf of the
Plan, including the cost of brokerage commissions, if any.
(N) Reclassification
Certain reclassifications have been made to prior period amounts to conform
to current year presentation.
(2) Securities
The amortized cost, gross unrealized gains, gross unrealized losses and fair
value of the securities held-to-maturity and available-for-sale at December 31,
1999 and 1998 are as follows:
December 31, 1999
Gross Gross
Amortized unrealized unrealized Fair
(In thousands) cost gains losses value
--------------------------------------------------------------------
Held-to-maturity:
Mortgage-backed securities:
CMO $ 341 - (3) 338
Available-for-sale: --- --- --- ---
U.S. government and
Agency obligations $ 122,423 2 (3,518) 118,907
Mortgage-backed securities:
GNMA 41,136 60 (1,616) 39,580
FHLMC 1,350 21 (2) 1,369
FNMA 3,599 5 (33) 3,571
Municipal obligations 1,166 - (23) 1,143
Other debt securities 92 - (1) 91
-- -- -- --
Total debt securities 169,766 88 (5,193) 164,661
Equity securities - FHLB stock 5,147 - - 5,147
----- -- -- -----
Total securities
available-for-sale $ 174,913 88 (5,193) 169,808
------- -- ------- -------
December 31, 1998
Gross Gross
Amortized unrealized unrealized Fair
(In thousands) cost gains losses value
------------------------------------------------------------------
Held-to-maturity, net:
Mortgage-backed securities:
CMO $ 664 1 - 665
Available-for-sale: --- --- --- ---
U.S. government and
Agency obligations $ 78,994 277 (291) 78,980
Mortgage-backed securities:
GNMA 39,864 79 (172) 39,771
FHLMC 2,453 38 (4) 2,487
FNMA 6,060 50 (13) 6,097
Municipal obligations 12,855 171 (24) 13,002
Other debt securities 199 - - 199
--- --- --- ---
Total debt securities 140,425 615 (504) 140,536
Equity securities - FHLB stock 4,619 - - 4,619
----- --- --- -----
Total securities
available-for-sale $ 145,044 615 (504) 145,155
------- --- ----- -------
In connection with the Company's ability to borrow from the federal home loan
bank of New York ("FHLB"), the Company is required to purchase shares of FHLB
non-marketable equity securities at par.
The amortized cost and fair value of debt securities at December 31, 1999,
by contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
December 31, 1999
Held-to-Maturity Available-for-Sale
-------------------------------------------------------------------
Amortized Fair Amortized Fair
(In thousands) cost value cost value
-------------------------------------------------------------------
Due in one year or less $ - - 45,405 45,405
Due after one year through
five years - - 31,192 30,148
Due after five years through
ten years - - 49,674 47,153
Due after ten years 341 338 43,495 41,955
--- --- ------ ------
$ 341 338 169,766 164,661
--- --- ------- -------
Proceeds from the sale of securities available-for-sale totaled approximately
$12.8 million, $4.8 million, and $4.2 million during the years ended December
31, 1999, 1998 and 1997, respectively. Gains from the sale of these securities
totaled approximately $104,000, $13,000, and $28,000 for the years ended
December 31, 1999, 1998 and 1997, respectively. Losses from the sale of these
securities totaled approximately $16,000 and $26,000 for the years ended
December 31, 1999 and 1997, respectively. There were no losses from the sale of
securities in 1998
At December 31, 1999 and 1998, securities classified as available-for-sale of
approximately $161.5 million and $129.0 million, respectively, were pledged for
various purposes as required by law.
(3) Loans, Net
Loans, net are summarized as follows:
December 31,
(dollars in thousands) 1999 1998
------------------------------------------------
Commercial and
industrial loans $ 34,057 27.9 % $ 30,853 32.1 %
Commercial real estate loans 84,133 69.0 53,990 56.2
Automobile loans 1,463 1.2 8,262 8.6
Consumer loans 1,250 1.0 1,396 1.5
Residential real estate
loan held-for-sale 1,019 .9 1,486 1.6
----- -- ----- ---
121,922 100.0 95,987 100.0
Less:
Unearned income 42 362
Deferred fees, net 569 410
Allowance for
loan losses 1,475 1,071
----- -----
$ 119,836 $ 94,144
======= ======
The Company grants commercial and industrial loans as well as commercial
mortgages and consumer loans in Nassau and Suffolk County, New York. A portion
of the Company's loan portfolio is concentrated in commercial loans and business
revolving lines of credit which are secured or partially secured by accounts
receivable, inventory and other assets. These loans comprise approximately 27.9%
and 32.1% of the portfolio at December 31, 1999 and 1998, respectively. The
Company's commercial loan borrowers are generally small local businesses whose
cash flow and ability to service debt are susceptible to changes in economic
conditions. Accordingly, the deterioration of local economic conditions could
increase the credit risk associated with this segment of the portfolio.
At December 31, 1999, 1998 and 1997, there were 15, 20 and 10 loans,
respectively, with a remaining balance of approximately $179,000, $511,000 and
$395,000, respectively, on which the accrual of interest had been discontinued.
The impact of such non-accrual loans on the Company's interest income for years
ended December 31, 1999, 1998 and 1997 is not material.
The Company recorded investment in loans that are considered impaired
totaling $764,000 and $1,115,000 at December 31, 1999 and 1998, respectively,
which required no corresponding impairment reserve. The average recorded
investment in impaired loans was $939,500 in 1999 and $557,500 in 1998. Interest
on all impaired loans remains current under the extended terms. The impact of
such impaired loans on the Company's interest income for the years ended
December 31, 1999, 1998 and 1997 is not material.
Loans to related parties include loans to directors of the Company and their
related companies. Such loans are made in the ordinary course of business on
substantially the same terms as loans to other individuals and businesses of
comparable risks. The following analysis shows the activity of related party
loans:
For the Years Ended December 31,
(In thousands) 1999 1998
---------------------------------------
Balance at beginning of year $ 2,185 236
New loan and
additional disbursements 2,426 2,142
Repayments (1,574) (193)
------- ------
Balance at end of year $ 3,037 2,185
(4) Allowance for Loan Losses
An analysis of the changes in the allowance for loan losses account is as
follows:
For the Years Ended December 31,
(In thousands) 1999 1998 1997
---------------------------------------------------
Balance at beginning of year $ 1,071 1,026 780
Provision for loan losses 600 420 240
Charge-offs:
Commercial and industrial loans (80) (203) (23)
Automobile loans (66) (58) (75)
Consumer loans (81) (145) (21)
---- ----- ----
Total charge-offs (227) (406) (119)
Recoveries: ----- ----- -----
Commercial and industrial loans 26 1 125
Automobile loans 4 15 -
Consumer loans 1 15 -
-- -- --
Total recoveries 31 31 125
-- -- ---
Net (charge-offs) recoveries (196) (375) 6
----- ----- ---
Balance at end of year $ 1,475 1,071 1,026
===== ===== =====
(5) Premises and Equipment
A summary of premises and equipment at cost, less accumulated depreciation
and amortization are as follows:
December 31
(In thousands) 1999 1998
------------------------------
Leasehold improvements $ 703 703
Furniture, fixtures
and equipment 3,259 2,566
----- -----
3,962 3,269
Less accumulated depreciation
and amortization 1,873 1,294
----- -----
$ 2,089 1,975
===== =====
Depreciation and amortization charged to operations for the years ended
December 31, 1999, 1998 and 1997 amounted to approximately $579,000, $406,000
and $222,000, respectively.
(6) Deposits
Included in NOW and money market deposits, at December 31, 1999 and 1998, were
approximately $75.0 million and $44.8 million, respectively, of seasonal
municipal deposits.
(7) Borrowed Funds
The Company enters into sales of securities under agreements to repurchase
(reverse-repurchase agreements). These are fixed coupon agreements which are
treated as financing transactions, and the obligations to repurchase are
reflected as a liability in the balance sheet. The dollar amount of securities
underlying the agreements remains in the asset account. During the period of the
agreement, the securities are delivered to either a third-party, or directly to
the broker, who holds the collateral until maturity. There were no outstanding
reverse-repurchase agreements at December 31, 1999 and 1998.
Reverse-repurchase agreements averaged approximately $.5 million, $.9 million
and $10.5 million for the years ended December 31, 1999, 1998 and 1997,
respectively. There were no reverse-repurchase agreements outstanding at the end
of any month during 1999. The maximum amount outstanding at the end of any month
was $10.2 million and $25.3 million, respectively, for the years ended December
31, 1998 and 1997.
There were no federal funds purchased at December 31, 1999 and 1998. Federal
funds purchased averaged approximately $1.8 million, $.5 million and $2.4
million for the years ended December 31, 1999, 1998 and 1997, respectively. The
maximum amount outstanding at the end of any month was $ 6.5 million, $5.0
million and $7.4 million, respectively, for the years ended December 31, 1999,
1998 and 1997.
The Company has a line of credit agreement with another financial institution
permitting borrowing at that institution's prime rate. At December 31, 1999, the
line of credit was fully utilized with a balance outstanding of $500,000.
The Bank has available lines of credit with FHLB which enable it to borrow
funds on a secured basis. At December 31, 1999, the majority of the Bank's
borrowings consisted of $14.0 million, $10.0 million and $15.0 million of
convertible advances from the FHLB. These 10 year advances, bear interest at
5.49%, 4.24% and 4.59% respectively, and have contractual maturity dates of
February 19, 2008 and October 8, 2008, and January 21, 2009, respectively. The
convertible feature of these advances allow the FHLB, as of February 19, 2003,
October 8, 2000 and January 21, 2002, respectively, and quarterly thereafter, to
convert these advances into replacement funding for the same or lesser principal
amount, based on any advance then offered by the FHLB, at then current market
rates. If the FHLB elects to convert these advances, the Bank may repay any
portion of the advances without penalty. These convertible advances are secured
by various mortgage-backed and callable agency securities.
(8) Income Taxes
Income tax expenses are summarized as follows:
For the Years Ended December 31,
(In thousands) 1999 1998 1997
-----------------------------------------------
Current
Federal $ 618 369 625
State 265 143 197
--- --- ---
883 512 822
Deferred
Federal (25) 90 (45)
State (11) 28 (17)
---- -- ----
(36) 118 (62)
---- --- ----
Income tax expense $ 847 630 760
==== === ===
The effective income tax rates for the years ended December 31, 1999, 1998
and 1997 were 35%, 36% and 42%, respectively. The reconciliation between the
statutory Federal income tax rate and the effective tax rate is as follows:
For the Years Ended December 31,
1999 1998 1997
---------------------------------------
Tax on income at statutory rate 34% 34% 34%
Tax effects of:
State income tax, net of federal
income tax benefit 7 7 7
Tax exempt income (8) (6) -
Other, net 2 1 1
-- -- --
Tax at effective rate 35% 36% 42%
== == ==
The Company is required to establish deferred tax assets and liabilities for
the temporary differences between the financial reporting and tax bases of its
assets and liabilities.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities are as follows:
December 31
(In thousands) 1999 1998
-----------------------------
Deferred tax assets:
Allowance for loan losses $ 397 335
Accrued expenses 75 149
Unrealized depreciation in
available-for-sale securities 2,121 -
Other 56 2
-- --
Gross deferred tax assets 2,649 486
----- ---
Deferred tax liabilities:
Unrealized appreciation in
available-for-sale securities - (46)
Other 6 -
-- --
Gross deferred tax liabilities 6 (46)
-- --
Net deferred tax asset $ 2,643 440
===== ===
(9) Regulatory Matters
The Company and the Bank is subject to various regulatory capital requirements
by Federal banking agencies. The risk based capital guidelines are designed to
make regulatory capital requirements more sensitive to differences in risk
profiles to account for off-balance sheet exposure and to minimize disincentives
for holding liquid assets. Under these guidelines, assets and off-balance sheet
items are assigned to broad risk categories, each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total risk
weighted assets and off-balance sheet items. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary actions by regulators, that, if undertaken, could have a direct
material effect on the Company's financial statements. As of December 31, 1999,
the most recent notification from the federal banking regulators categorized the
Company as well capitalized under the regulatory framework for prompt corrective
action. Under the capital adequacy guidelines, a well capitalized institution
must maintain a minimum total risk based capital to total risk weighted assets
ratio of at least 10%, a minimum Tier 1 capital to total risk weighted assets
ratio of at least 6%, a minimum leverage ratio of at least 5% and is not subject
to any written order, agreement or directive. There are no conditions or events
since such notification that management believes have changed this
classification.
The following tables set forth the regulatory capital at December 31, 1999 and
1998, under the rules applicable at such dates. At such dates, management
believes that the Company and the Bank meet all capital adequacy requirements to
which it is subject.
December 31, 1999
Actual Regulatory Minimum
(Dollars in thousands) Amount Ratio Amount Ratio
-----------------------------------------------------
Tier 1 Capital (to Average Adjusted Assets)
The Company $ 21,327 8.13 % $ 10,489 4.00 %
The Bank 21,880 8.34 10,489 4.00
Tier 1 Capital (to Risk Weighted Assets)
The Company 21,327 13.08 6,522 4.00
The Bank 21,880 13.42 6,522 4.00
Total Risk Based Capital (to Risk Weighted Assets)
The Company 22,802 13.98 13,045 8.00
The Bank $ 23,355 14.32 % $ 13,045 8.00 %
December 31, 1998
Actual Regulatory Minimum
(Dollars in thousands) Amount Ratio Amount Ratio
-------------------------------------------------------
Tier 1 Capital (to Average Adjusted Assets)
The Company $ - - % $ - - %
The Bank 21,803 9.60 9,080 4.00
Tier 1 Capital (to Risk Weighted Assets)
The Company - - - -
The Bank 21,803 17.62 4,951 4.00
Total Risk Based Capital (to Risk Weighted Assets)
The Company - - - -
The Bank $ 22,874 18.48 $ 9,901 8.00 %
(10) Lease Commitments
The Company has obligations under a number of non-cancellable leases on
properties used for banking purposes. Rental expense for the years ended
December 31, 1999, 1998 and 1997 was approximately $468,000, $416,000 and
$255,000, respectively. Minimum annual rentals, exclusive of taxes and other
charges, under operating leases are summarized as follows:
(In thousands) Minimum rentals
Years ending December 31,
2000 $ 494
2001 454
2002 410
2003 383
2004 372
Thereafter 606
-----
Total $ 2,719
(11) Disclosures About Fair Value of Financial Instruments
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments,"
requires that the Bank disclose estimated fair values for its financial
instruments. Fair value estimates, methods, and assumptions are set forth below.
December 31,1999 December 31, 1998
-----------------------------------------------------------------
Carrying Estimated Carrying Estimated
(In thousands) Value Fair Value Value Fair Value
-----------------------------------------------------------------
Cash and due from banks $ 9,301 9,301 13,170 13,170
Interest earning deposits 204 204 269 269
Federal funds sold 18,300 18,300 8,050 8,050
Securities held-to-maturity * 341 338 664 665
Securities available-for-sale * 169,808 169,808 145,155 145,155
Loans, net of
unearned income
and deferred fees 121,311 121,225 95,215 95,843
Deposits:
Demand, savings, NOW and
money market deposits 167,761 167,761 120,770 120,770
Time certificates and
other time deposits 101,979 102,041 97,097 97,781
Borrowings $ 39,500 39,192 24,000 24,079
* See Note 2 for more detailed information regarding fair values by type of
security.
Cash and Due from Banks, Interest Earning Deposits, Federal Funds Sold,
and Securities
The carrying amounts for cash and due from banks approximate fair value as they
mature in 90 days or less and do not present unanticipated credit concerns.
Interest earning deposits are subject to rate changes at any time and therefore
are considered to be carried at their estimated fair value. The fair values of
federal funds sold, held-to-maturity securities and available-for-sale
securities are estimated based on bid quotations received from securities
dealers or from prices obtained from firms specializing in providing securities
pricing services.
Loans
The fair value of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit risks. For potential problem loans, which include non-performing loans,
the present value result is separately discounted consistent with management's
assumptions in evaluating the adequacy of the allowance for loan losses.
Deposits
All deposits, except certificates of deposit, are subject to rate changes at
any time, and therefore are considered to be carried at estimated fair value.
The fair value of certificates of deposit was estimated by computing the present
value of contractual future cash flows for each certificate. The present value
rate utilized was the rate offered by the Company at the date of estimation on
certificates with an initial maturity equal to the remaining term to maturity of
the existing certificates.
Borrowings
The estimated fair values of borrowings are valued using estimated discounted
cash flow analysis based on the current incremental borrowing rates for similar
types of borrowing arrangements.
Commitments
The fair value of commitments is estimated using the fees charged at the date
of estimation to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counter parties. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates.
The commitments existing at December 31, 1999 and 1998 would be offered at
substantially the same rates and under substantially the same terms that would
be offered by the Company at December 31, 1999 and 1998 to the counter parties,
therefore, the carrying value of existing commitments is considered to be
equivalent to the estimated fair value.
Limitations
SFAS No. 107 requires disclosures of the estimated fair value of financial
instruments. Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates do
not reflect any premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular financial instrument nor
the resultant tax ramifications or transaction costs. Because no market exists
for a significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and-off balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets of the Company that are not
considered financial assets include premises and equipment and deferred tax
assets. In addition, the tax ramifications related to the unrealized gains and
losses can have a significant effect on fair value estimates and have not been
considered.
(12) Other Commitments and Contingent Liabilities
(A) Off-Balance Sheet Risks
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and unused
lines of credit. Such financial instruments are reflected in the Company's
financial statements when and if proceeds associated with the commitments are
disbursed.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
unused lines of credit is represented by the contractual notional amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
financial instruments.
Contract or notional amounts
(In thousands) December 31, 1999 December 31, 1998
------------------------------------------------
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $ 5,667 $ 14,020
Unused lines of credit 17,039 10,204
Standby letters of credit 585 349
--- ---
$ 23,291 $ 24,573
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
management's credit evaluation of the counter party. Collateral held aries but
may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
(b) Other Matters
The Company is required to maintain balances with the Federal Reserve Bank of
New York for reserve and clearing requirements. During the years ended December
31, 1999, 1998 and 1997, these balances averaged $6.0 million, $4.5 million and
$3.6 million, respectively.
The Company is subject to certain pending and threatened legal actions which
arise out of the normal course of business. Management believes that the
resolution of any pending or threatened litigation will not have a material
effect on the Company's financial statements.
(13) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. The accounting for changes in the
fair value of a derivative depends on the intended use for the derivative and
its specific designation.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities- Deferral of the effective date of FASB
Statement No. 133 - an amendment of FASB Statement No. 133." This statement
delays the effective date for one year of SFAS No. 133, to fiscal years
beginning after June 15, 2000. SFAS No's 133 and 137 apply to quarterly and
annual financial statements. The Company does not believe that there will be
material impact on its financial condition or results of operations upon the
adoption of SFAS No. 133.
(14) Stock Option Plan
At a special meeting on December 8, 1998, the stockholders ratified the
Long Island Financial Corp. 1998 Stock Option Plan (the Stock Option Plan). The
Stock Option Plan authorizes the granting of options to purchase 175,000 shares
of common stock of the Company. All officers and other employees of the Company
and directors who are not also serving as employees of the Company are eligible
to receive awards under the Stock Option Plan. Options under this plan are
either non-statutory stock options or incentive stock options. Each option
entitles the holder to purchase one share of the Common Stock at an exercise
price equal to the fair market value on the date of grant.
The Company applies APB Opinion No. 25 in accounting for stock based
compensation, and accordingly, no compensation cost has been recognized for
stock options in the accompanying consolidated financial statements. Had the
Company determined compensation coast based on the fair value of its stock
options at the date of grant under SFAS No. 123, the Company's net income and
earnings per share would have been reduced to proforma amounts indicated in the
following table:
Non Non Weighted
Incentive Statutory Qualified Average
Stock Stock Option to Exercise
Options Options Directors Price
-----------------------------------------------------------------
Balance outstanding at December 31, 1998 - - - $ -
Granted 40,250 - 73,500 12.50
Forfeited 500 - - 12.50
Exercised - - - -
---- ---- ---- ----
Balance outstanding at December 31, 1999 39,750 - 73,500 12.50
Shares exercisable at December 31, 1999 36,750 - 73,500 $ 12.50
December 31,1999
(Dollars in thousands, except per share data)
Net Income As Reported $ 1,606
Pro forma 1,014
Net Income per Common Share:
Basic As Reported .92
Pro forma .58
Diluted As Reported .92
Pro forma $ .58
The fair value of the share grants were estimated on the date of grant
using the Black-Scholes option-pricing model using the following assumptions in
fiscal 1999; dividend yield of 2.73%; expected volatility of 45.11%; risk-free
interest rates of 4.73%; and expected option lives of 7 years.
(15) Condensed Parent Company-Only Financial Statements
The earnings of the Bank are recognized by the Company using the equity
method of accounting. Accordingly, undistributed earnings of the Bank are
recorded as increases in the Company's investment in the Bank. The following are
the condensed financial statements of the Company as of and for the year ended
December 31, 1999 (although the Company did not commence operations until the
Reorganization on January 28, 1999, the full year results have been presented).
CONDENSED BALANCE SHEET
-----------------------
(In thousands) December 31,
1999
Assets:
Cash and cash equivalent $ 284
Investment in Bank 18,892
Other assets 5
-----
Total assets $ 19,181
------
Liabilities and Stockholders' Equity:
Borrowed funds $ 500
Other liabilities 338
Stockholders' equity 18,343
------
Total liabilities and stockholders' equity $ 19,181
------
CONDENSED STATEMENT OF EARNINGS
-------------------------------
(In thousands) For the Year ended
December 31, 1999
--------------------
Dividends received from Bank $ 1,601
Interest income 1
-----
Total income 1,602
-----
Interest expense - line of credit 12
Other operating expense 3
---
Total expense 15
---
Income before income taxes and equity in undistributed
earnings of the Bank 1,587
Income tax benefit 5
----
Income before equity in undistributed earnings of the Bank 1,592
Equity in undistributed earnings of Bank 14
----
Net Income $ 1,606
-----
CONDENSED STATEMENT OF CASH FLOWS
---------------------------------
(In thousands) For the year ended
December 31, 1999
--------------------
Cash Flows From Operating Activities:
Net Income $ 1,606
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in the undistributed earnings of subsidiary (14)
Changes in asset and liability accounts:
Increase in other assets (5)
Increase in other liabilities 338
----
Net cash provided by operating activities 1,925
Cash Flows From Investing Activities:
Net cash used in investing activities 0
Cash Flows From Financing Activities:
Net increase in borrowed funds 500
Payments for cash dividends (563)
Corporate reorganization costs (115)
Purchase of treasury stock (1,463)
-------
Net cash used in financing activities (1,641)
-------
Net increase in cash and cash equivalents 284
Cash and cash equivalents at beginning of year -
---
Cash and cash equivalents at the end of the year $ 284
---
Quarterly Financial Data (Unaudited)
The following table is a summary of financial data by quarter end for the
years ended December 31, 1999 and 1998:
1999 1998
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
(In thousands, except share data)
-----------------------------------------------------------------------------------------------
Selected Operating Data:
Interest income $ 4,551 $ 4,622 $ 4,582 $ 4,655 $ 3,835 $ 3,911 $3,696 $ 3,843
Interest expense 2,374 2,391 2,321 2,396 2,066 2,148 1,961 2,054
----- ----- ----- ----- ----- ----- ----- -----
Net interest income 2,177 2,231 2,261 2,259 1,769 1,763 1,735 1,789
Provision for loan losses 150 150 150 150 90 90 120 120
Net interest income --- --- --- --- -- -- --- ---
after provision for
loan losses 2,027 2,081 2,111 2,109 1,679 1,673 1,615 1,669
Other operating income 317 596 415 378 112 183 246 377
Other operating expenses 1,822 1,916 1,925 1,918 1,187 1,370 1,518 1,724
----- ----- ----- ----- ----- ----- ----- -----
Income before income taxes 522 761 601 569 604 486 343 322
Income taxes 190 262 220 175 242 190 108 90
--- --- --- --- --- --- --- --
Net income $ 332 $ 499 $ 381 $ 394 $ 362 $ 296 $ 235 $ 232
Basic and diluted === === === === === === === ===
earnings per share $ 0.19 $ 0.28 $ 0.22 $ 0.23 $ 0.21 $ 0.17 $ 0.13 $ 0.13
Weighted average ==== ==== ==== ==== ==== ==== ==== ====
shares outstanding 1,775,991 1,776,326 1,758,364 1,696,949 1,760,432 1,764,571 1,768,166 1,771,306
Independent Auditors' Report
To The Stockholders And Board of Directors of Long Island financial corp.:
We have audited the accompanying consolidated balance sheets of Long Island
Financial Corp. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of earnings, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Long Island
Financial Corp. and subsidiaries as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
KPMG, LLP
Melville, New York
January 18, 2000