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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, 2000
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 11749
(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.[X]
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 $20,157,179 on March 19, 2001.
The number of shares outstanding of the registrant's common stock was 1,479,426
as of March 19, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the 2000 Annual Report to Stockholders for fiscal year 2000
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 25, 2001 are incorporated herein by
reference - Part III.
LONG ISLAND FINANCIAL CORP.
2000 FORM 10-K
TABLE OF CONTENTS
Page
PART I Number
------
Item 1. Business ....................................................... 3
Item 2. Properties ..................................................... 14
Item 3. Legal Proceedings .............................................. 14
Item 4. Submission of Matters to a Vote of Security Holders ............ 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ........................................... 14
Item 6. Selected Financial Data ........................................ 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 14
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ..... 14
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 ............. 15
Item 11 Executive Compensation ......................................... 15
Item 12 Security Ownership of Certain Beneficial Owners and
Management .................................................... 16
Item 13 Certain Relationships and Related Transactions ................. 16
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K .................................................. 16-53
Signatures ............................................................. 17
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This Annual Report on Form 10-K contains certain forward -looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, and
may be identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential." Examples of forward looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to, general economic
conditions, changes in interest rates, deposit flows, loan demand, real estate
values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting our
operations, pricing, products and services.
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 dissenters rights. This transaction is
hereinafter referred to as the "Reorganization."
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 or
the Company as a bank holding Company. Such activities include, among others,
operating non-bank depository institutions or engaging in financial and
investment advisory services, securities brokerage and management consulting
activities.
In November, 2000, the Company elected to become a financial holding company as
provided for in the Financial Services Modernization Act of 1999, also known as
the Gramm-Leach-Bliley Act. That Act repealed provisions of the Glass-Steagall
Act and permits a financial holding company to engage in a statutorily provided
list of financial activities, including insurance and securities underwriting
and agency activities, merchant banking and insurance company portfolio
activities. The Act also provides for the approval for a financial holding
company to conduct other activities determined to be financial in nature or
incidental to or complementary to such financial 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 full service 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 funds in federal
funds, mortgage-backed securities, corporate debt 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 and unsecured borrowings, available lines
of credit, sales of securities under agreements to repurchase, and cash flow
from lending and investing activities.
3
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.
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 Bank's
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 financial holding companies and Federally
insured banks.
Lending Activities
The Bank offers a variety of commercial and consumer loan products to serve the
needs of its 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, 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,
--------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------
(In thousands)
Commercial and industrial loans $ 39,468 $ 34,057 $30,853 $30,909 $24,952
Commercial real estate loans 93,875 84,133 53,990 31,254 18,566
Automobile loans 2,693 1,463 8,262 17,524 21,800
Consumer loans 985 1,250 1,396 1,726 860
Residential real estate loans
held-for-sale 711 1,019 1,486 -- --
--------- -------- ------- ------- -------
Gross loans 137,732 121,922 95,987 81,413 66,178
Less:
Unearned income 395 42 362 1,322 2,590
Deferred fees, net 612 569 410 306 148
Allowance for loan losses 1,872 1,475 1,071 1,026 780
--------- -------- ------- ------- -------
Loans, net $ 134,853 $119,836 $94,144 $78,759 $62,660
========= ======== ======= ======= =======
4
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, 2000,
commercial and industrial loans represented 28.7% 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, 2000, commercial real estate loans represented 68.2% of the loan
portfolio.
Automobile Loans. The Bank maintains 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 continues
to further diversify the loan portfolio, is expected to continue through 2001.
At December 31, 2000 automobile loans represented 1.9% 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, 2000.
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 $24,688 $ 1,105 $ -- $ 48 $ 711 $ 26,552
Due after one but within five years 5,022 1,044 129 488 -- 6,683
Due after five but within ten years 5,683 771 1,400 417 -- 8,271
Due after ten years 3,691 90,955 1,164 -- -- 95,810
------- ------- ------ ---- ----- --------
Total Due after December 31, 2001 14,396 92,770 2,693 905 -- 110,764
------- ------- ------ ---- ----- --------
Total amount due $39,084 $93,875 $2,693 $953 $ 711 $137,316
======= ======= ====== ==== ===== ========
Rate sensitivity:
Amounts with Fixed Interest Rates $ 8,176 $10,861 $2,693 $905 $ -- $ 22,635
Amounts with Adjustable Interest Rates 6,220 81,909 -- -- -- 88,129
------- ------- ------ ---- ----- --------
Total $14,396 $92,770 $2,693 $905 $ -- $110,764
======= ======= ====== ==== ===== ========
5
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 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 (AFDIC@) and
New York State Banking Department (ANYSBD@) 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 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,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------
(Dollars in thousands)
Balance at beginning of year $1,475 $1,071 $1,026 $ 780 $ 633
Provision for loan losses 150 600 420 240 302
Charge-offs:
Commercial and industrial loans (187) (80) (203) (23) (209)
Automobile loans (54) (66) (58) (75) --
Consumer loans (99) (81) (145) (21) (35)
------ ------ ------ ------ ------
Total charge-offs (340) (227) (406) (119) (244)
Recoveries:
Commercial and industrial loans 547 26 1 125 89
Automobile loans 13 4 15 -- --
Consumer loans 27 1 15 -- --
------ ------ ------ ------ ------
Total recoveries 587 31 31 125 89
------ ------ ------ ------ ------
Net recoveries (charge-offs) 247 (196) (375) 6 (155)
------ ------ ------ ------ ------
Balance at end of year $1,872 $1,475 $1,071 $1,026 $ 780
====== ====== ====== ====== ======
Ratio of net charge-offs/average
net loans --% .19% .43% --% .31%
------ ------ ------ ------ ------
The following table sets forth the allocation of the Bank's allowance for loan
losses at the dates indicated:
At December 31,
----------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------
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 $ 723 28.7% $ 610 27.9% $ 589 32.1% $ 489 38.0% $319 37.7%
Commercial real
estate loans 939 68.2 631 69.0 330 56.2 313 38.4 186 28.1
Automobile loans 27 1.9 13 1.2 48 8.6 186 21.5 218 32.9
Consumer loans 26 .7 61 1.0 104 1.5 22 2.1 9 1.3
Residential real
estate loans held- -- .5 -- .9 -- 1.6 -- -- -- --
for-sale
Unallocated $ 157 -- $ 160 -- $ -- -- $ 16 -- $ 48 --
------ ----- ------ ----- ------ ----- ------ ----- ---- -----
Total allowance for
loan losses $1,872 100.0% $1,475 100.0% $1,071 100.0% $1,026 100.0% $780 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ==== =====
6
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,
---------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------
(Dollars in thousands)
Non-accrual loans:
Commercial and industrial loans $384 $ 42 $366 $230 $231
Automobile loans -- 32 37 165 174
Consumer loans 32 105 108 -- --
---- ---- ---- ---- ----
Total non-accrual loans 416 179 511 395 405
Loans contractually past due 90 days or
more, other than non-accruing (2) -- -- -- 8 43
---- ---- ---- ---- ----
Total non-performing loans $416 $179 $511 $403 $448
==== ==== ==== ==== ====
Allowance for loan losses as a
percent of total loans (1) 1.37% 1.22% 1.12% 1.29% 1.23%
Allowance for loan losses as a
percent of total non-performing loans 450.0 824.02 209.59 254.59 174.11
Non-performing loans as a percent
of total loans (1) .30 .15 .54 .51 .71
(1) Loans include loans, net of unearned income and deferred fees.
(2) Excludes $231,000 of loans at December 31, 1999, 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
General. The Bank maintains a portfolio of securities in such instruments as
U.S. government and agency securities, mortgage-backed securities, municipal
obligations, corporate debt 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 (the "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. In reviewing and establishing
investment strategies the Committee considers the business and growth plans of
the Bank, the economic environment, the current interest rate sensitivity
position, the types of securities held and other factors.
At December 31, 2000, the Company had $169.4 million in investment securities
consisting of U.S. Government and Agency obligations, mortgage-backed
securities, municipal obligations, corporate debt and equity securities. The
accounting treatment of the Bank's securities is addressed in Note 1 of the
Notes to the Consolidated Financial Statements in the 2000 Annual Report to
Stockholders.
U.S. Government and Agency Obligations. At December 31, 2000, the Bank's U.S.
Government and Agency obligations portfolio totaled $115.9 million, all of which
was classified as available-for-sale. Included in this total are $65.4 million
of callable securities, which generally possess higher yields than those
securities of similar contractual terms to maturity without callable features.
The remaining balance of $50.5 million represent U.S. Treasury and government
sponsored agency discount notes, which are primarily used as collateral for
seasonal municipal deposits and other short term borrowings.
7
Mortaged-Backed Securities. The Bank purchases mortgage-backed securities in
order to: (a) generate positive interest spreads with minimal administrative
expense; (b) lower its credit risk as a result of the guarantees provided by
FHLMC, FNMA, and GNMA; (c) utilize these securities as collateral for
borrowings; and (d) increase the liquidity of he Bank. At December 31, 2000,
mortgaged-backed securities totaled $42.5 million, or 12.8% of total assets, of
which all was classified as available-for-sale. At December 31, 2000, 24.5% of
the mortgage-backed securities were adjustable rate and 75.5% were fixed rate.
The mortgage-backed securities had coupon rates ranging from 5.00% to 8.83% and
had a weighted average yield of 6.90%.
Municipal Obligations. At December 31, 2000, the Banks municipal obligations
represented a $1.2 million general obligation bond. All of the municipal bonds
purchased by the Bank are required to be rated "A" or better by at least one
national rating agency. At December 31, 2000, the security had a coupon rate of
4.00% and a contractual maturity date of April 1, 2007.
Corporate Debt. The Bank's investment policy was amended in 2000 to include the
purchase of capital notes/trust preferred issued primarily by financial
institutions up to a limit of $10 million dollars. These securities represent
secondary capital and rank subordinate and junior in right of payment to all
indebtedness of the issuing company. These higher yielding securities must be
rated investment grade by at least two of the national rating agencies. At
December 31, 2000, the Company had $4.5 million of corporate debt at an average
yield of 9.50%
Equity Securities. The Bank's equity securites at December 31, 2000 was $5.3
million which represented the Bank's investment in Federal Home Loan Bank of New
York (FHLB) stock. In connection with the Bank's ability to borrow from the
FHLB, the Company is required to purchase shares of FHLB non-marketable equity
securities at par. For the year ended December 31, 2000, the dividend yield on
the FHLB stock was 6.96%.
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,
-------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value Cost Value
-------------------------------------------------------------------------------
Held-to-maturity:
Mortgage-backed securities:
CMO $ 263 $ 254 $ 341 $ 338 $ 664 $ 665
Corporate debt 4,491 4,482 -- -- -- --
-------- -------- -------- -------- -------- --------
Total securities
held-to-maturity $ 4,754 $ 4,736 $ 341 $ 338 $ 664 $ 665
-------- -------- -------- -------- -------- --------
Available-for-sale:
U.S. Government and
Agency obligations $117,364 $115,945 $122,423 $118,907 $ 78,994 $ 78,980
Mortgage-backed securities:
GNMA 36,559 35,963 41,136 39,580 39,864 39,771
FHLMC 969 982 1,350 1,369 2,453 2,487
FNMA 5,279 5,303 3,599 3,571 6,060 6,097
Municipal obligations 1,167 1,149 1,166 1,143 12,855 13,002
Other debt securities -- -- 92 91 199 199
-------- -------- -------- -------- -------- --------
Total debt securities 161,338 159,342 169,766 164,661 140,425 140,536
Equity securities - FHLB stock 5,326 5,326 5,147 5,147 4,619 4,619
-------- -------- -------- -------- -------- --------
Total securities
available-for-sale $166,664 $164,668 $174,913 $169,808 $145,044 $145,155
-------- -------- -------- -------- -------- --------
The following table sets forth certain information regarding the amortized cost,
weighted average yields and contractual maturities of the Bank's securities
portfolio as of December 31, 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
More Than More Than
One Year One Year to Five Years More Than
or Less Five Years to Ten Years 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 $50,345 6.32% $35,020 6.00% $31,999 6.07% $ -- --% $117,364 6.16%
Mortgage-backed securities:
GNMA -- -- -- -- -- -- 36,559 6.79 36,559 6.79
FHLMC 116 11.42 42 7.43 -- -- 811 8.22 969 8.57
FNMA -- -- 1,637 6.99 -- -- 3,642 7.58 5,279 7.40
Municipal obligations(1) -- -- -- -- 1,167 5.83 -- -- 1,167 5.83
------- ----- ------- ---- ------- ---- ------- ---- -------- ----
Total debt securities 50,461 6.33 36,699 6.05 33,166 6.00 41,012 6.89 161,338 6.36
------- ----- ------- ---- ------- ---- ------- ---- -------- ----
Equity securities:
FHLB stock 5,326 6.96 -- -- -- -- -- -- 5,326 6.96
------- ----- ------- ---- ------- ---- ------- ---- -------- ----
Total equity securities 5,326 6.96 -- -- -- -- -- -- 5,326 6.96%
------- ----- ------- ---- ------- ---- ------- ---- -------- ----
Total debt and equity
securities, available-for-sale $55,787 6.39% $36,699 6.05% $33,166 6.00% $41,012 6.89% $166,664 6.36%
------- ----- ------- ---- ------- ---- ------- ---- -------- ----
Held-to-maturity:
Mortgage-backed securities:
CMO $ -- --% $ -- --% $ -- --% $ 263 6.62% $ 263 6.62%
------- ----- ------- ---- ------- ---- ------- ---- -------- ----
Corporate debt $ -- --% $ -- --% $ 1,017 9.60% $ 3,474 9.47% $ 4,491 9.50%
------- ----- ------- ---- ------- ---- ------- ---- -------- ----
Total securities, held-to-
maturity $ -- --% $ -- --% $ 1,017 9.60% $ 3,737 9.27% $ 4,754 9.34%
======== ===== ======== ==== ======== ==== ======== ==== ======== ====
(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,
----------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
----------------------------------------------------------------
(dollars in thousands)
Non-interest bearing accounts $ 40,842 --% $ 33,791 --% $ 25,811 --%
Savings accounts 31,507 3.71 22,747 3.42 9,030 3.42
NOW and money market deposits 43,865 2.31 49,413 1.99 35,852 2.38
Certificates issued in excess of $100,000 25,576 5.97 24,470 5.06 24,695 5.31
Other time deposits 80,503 6.15 79,126 5.66 81,046 6.05
-------- -------- --------
Total average deposits $222,293 $209,547 $176,434
======== ======== ========
9
At December 31, 2000, the Bank had outstanding approximately $35.2 million in
certificates of deposit accounts in amounts of $100,000 or more, maturing as
follows:
(In thousands)
3 months or less $23,159
Over three through six months 8,097
Over six through 12 months 3,469
Over 12 months 503
-------
Total $35,228
=======
Borrowings
The Bank utilizes borrowings to leverage the Bank's capital and provide
liquidity when necessary. Borrowed funds at December 31, 2000 primarily
consisted of $29.0 million of convertible advances from the Federal Home Loan
Bank of New York (AFHLB@) 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. There were no securities sold
under agreements to repurchase at December 31, 2000. At December 31, 2000 the
Bank had available a 12-month commitment for overnight and one month lines of
credit with the FHLB totaling $26.0 million dollars. Both lines of credit are
priced at the federal funds rate plus 10.0 basis points and reprice daily. There
were no overnight line of credit balance outstanding at December 31, 2000. The
Company has a $500,000 secured line of credit with another financial institution
permitting borrowing at that institution's prime rate. At December 31, 2000
there was no balance outstanding under this line of credit agreement. In
addition, the Bank has available $5.5 million in lines of credit with
unaffiliated institutions which enable it to borrow funds on an unsecured basis,
of which there was no balance outstanding at December 31, 2000. The following
table sets forth certain information regarding the Bank's borrowed funds for the
years indicated:
For the Years Ended December 31,
---------------------------------
2000 1999 1998
---------------------------------
(Dollars in thousands)
FHLB Advances:
Maximum amount outstanding at any month-end
during the year $39,000 $39,000 $24,000
Average balance outstanding 36,760 38,178 14,449
Balance outstanding at end of year 29,000 39,000 24,000
Weighted average interest rate during the year 4.94% 4.90% 5.36%
Weighted average interest rate at the end of the year 5.02% 4.90% 5.04%
Repurchase Agreements:
Maximum amount outstanding at any month-end
during the year $29,850 $ -- $10,238
Average balance outstanding 4,719 530 853
Balance outstanding at end of year -- -- --
Weighted average interest rate during the year 5.94% 5.09% 5.46%
Weighted average interest rate at the end of the year -- -- --
Federal Funds Purchased:
Maximum amount outstanding at any month-end
during the year $16,650 $ 6,500 $ 5,000
Average balance outstanding 5,729 1,810 545
Balance outstanding at end of year -- -- --
Weighted average interest rate during the year 6.40% 5.41% 5.21%
Weighted average interest rate at the end of the year -- -- --
Line of Credit:
Maximum amount outstanding at any month-end
during the year $ 500 $ 500 $ --
Average balance outstanding 244 139 --
Balance outstanding at end of year -- 500 --
Weighted average interest rate during the year 9.14% 7.91% --%
Weighted average interest rate at the end of the year --% 8.50% --
10
Subsidiary Activities
The Company has two wholly-owned subsidiaries, Long Island Commercial Bank, and
LIF Statutory Trust I. On September 7, 2000, LIF Statutory Trust issued $7.5
million aggregate liquidation amount of 10.60% Capital Securities due September
7, 2030, referred to as Capital Securities. The Company has fully and
unconditionally guaranteed the Capital Securities along with all obligations of
LIF Statutory Trust I under the trust agreement. LIF Statutory Trust I was
formed for the exclusive purpose of issuing the Capital Securities and common
securities and using the proceeds to acquire an aggregate principal amount of
$7.7 million of the Company's 10.60% Junior Subordinated Debentures due
September 7, 2030, referred to as the Company's Junior Subordinated Debentures.
The Junior Subordinated Debentures are prepayable, in whole or in part, at the
Company's option on or after September 7, 2010 at declining premiums to
maturity. Proceeds totaling approximately $7.2 million are being used for
general corporate purposes, including the repurchase of common stock.
Long Island Commercial Bank currently has one subsidiary, Long Island Commercial
Capital Corporation. Long Island Commercial Capital Corporation was organized
for the purpose of investing in mortgage related assets as a real estate
investment trust. The Bank transferred $48.3 million in commercial real estate
loans to Long Island Commercial Capital Corporation which included certain
associated assets and liabilities. In return, the Bank received shares of common
and preferred stock of Long Island Commercial Capital Corporation.
Personnel
At December 31, 2000, the Bank employed 77 employees, 7 of which are part-time.
No employees are covered by a collective bargaining agreement and the Bank
believes its employee relations are good.
Federal and State Taxation
General. The Company, the Bank and its subsidiary report their income using the
accrual method of accounting and are subject to federal and state income
taxation in the same manner as other corporations. 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, the Bank
or its subsidiary. The Company, the Bank and its subsidiary have not been
audited by the Internal Revenue Service 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 debt 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 carry forwards. 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 ) 8.5% 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 it makes certain distributions to its
shareholders. In addition, net-operating losses cannot 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.
11
Delaware Taxation. The Company, as a Delaware financial holding company not
earning income in Delaware, is exempted from the corporate income tax. However,
the Company is required to file an annual report with and pay an annual
franchise tax based on authorized shares to the State of Delaware.
Supervision and Regulation
Holding Company Regulation. As a registered financial 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 AFRB@). 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.
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.
Gramm-Leach-Bliley. On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999 (also known as the Financial Services
Modernization Act). The Financial Services Modernization Act repealed provisions
of the Glass-Steagall Act which restricted the affiliation of banks with firms
engaged principally in specified securities activities, and provided for
regulation of a new form of bank holding company, known as a financial holding
company under the Bank Holding Company Act. Financial holding companies, such as
the Company, can engage in a statutorily provided list of financial activities,
including insurance and securities underwriting and agency activities, merchant
banking and insurance company portfolio activities.
The general effect of the Financial Services Modernization Act is to establish a
comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms and other financial service providers. In addition,
activities that the Federal Reserve, in consultation with the Secretary of the
Treasury, determines to be financial in nature, incidental to such financial
activities, or complementary activities that do not pose a substantial risk to
the safety and soundness of depository institutions or the financial system
generally are authorized.
In addition to repealing historical restrictions on, and eliminating federal and
state law barriers to affiliations among banks, securities firms, insurance
companies, and other financial service providers, the Financial Services
Modernization Act provides a uniform framework for the functional regulation of
the activities of banks, savings institutions and their holding companies;
provides an enhanced framework for protecting the privacy of consumer
information; modifies the laws governing the implementation of the Community
Reinvestment Act; and addresses a variety of other legal and regulatory issues
affecting both the day-to-day operations and the long-term activities of
financial institutions.
In order for the Company to take advantage of the ability to affiliate with
other financial services providers without obtaining prior approval, the Company
filed a declaration with the Federal Reserve Board, electing to engage in
activities permissible for financial holding companies and certifying that it is
eligible to do so because the Bank is well-capitalized and well-managed. In
addition, the Federal Reserve determined that the Bank and the Company have at
least a satisfactory CRA rating. The Company met those requirements and
qualifies as a financial holding company.
12
The Company does not believe that the Financial Services Modernization Act will
have a material adverse effect on its operations in the near-term. However, to
the extent that it permits banks, securities firms, and insurance companies to
affiliate, the financial services industry may experience further consolidation.
The Financial Services Modernization Act is intended to grant to community banks
certain powers as a matter of right that larger institutions have accumulated on
an ad hoc basis. Nevertheless, that Act may have the result of increasing the
amount of competition that the Company and the Bank face from larger
institutions and other types of companies offering financial products, many of
which may have substantially more financial resources than the Company or the
Bank.
From time to time, various federal and state legislation is proposed that could
result in additional regulation of, and restrictions on, the business of the
Company and the Bank. We cannot predict whether any such legislation will be
enacted or, if enacted, how the legislation would affect the business of the
Company and the Bank. As a consequence of the extensive regulation of commercial
banking activities in the United States, the Company's and the Bank's business
is particularly susceptible to being affected by federal legislation and
regulations that may increase the cost of doing business. Except as specifically
described above, management does not believe that the Financial Services
Modernization Act will have a material effect on the liquidity, capital
resources or results of operations of the Company.
Management is not aware of any other current specific recommendations by
regulatory authorities or proposed legislation, which if they were implemented,
would have a material adverse effect upon the liquidity, capital resources, or
results of operations, although the general cost of compliance with numerous and
multiple federal and state laws and regulations does have, and in the future may
have, a negative impact on the corporation's results of operations.
Further, the business of the Corporation is also affected by the state of the
financial services industry in general. As a result of legal and industry
changes, management believes that the industry will continue to experience and
increase in consolidations and mergers as the financial services industry
strives for greater cost efficiencies and market share. Management also expects
increased diversification of financial products and services offered by the Bank
and its competitors. Management believes that such consolidations and mergers,
and diversification of products and services may enhance the Bank's competitive
position.
New York State and FDIC
The Bank is organized under the New York Banking Law ("Banking Law"), and its
deposits are insured by the Bank Insurance Fund (the ABIF@) 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.
Federal Securities Laws
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. The Company is subject to the
periodic reporting, proxy solicitation, tender offer, insider trading
restrictions and other requirements under the Securities and Exchange Act of
1934, as amended, or Exchange Act.
Delaware Corporation Law
The Company is incorporated under the laws of the State of Delaware. Thus, we
are subject to the regulation by the State of Delaware and the rights of our
shareholders are governed by the Delaware General Corporation Law.
13
ITEM 2. PROPERTIES
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, 2000.
Lease Net
Expiration Book Value
Date Including at
Location Leased Leased Options Dec. 31, 2000
- -------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Main Office:
One Suffolk Square, Islandia, LI, New York 11749 Leased 1987 2005 $133
Branch Offices:
400 West Main Street, Babylon, LI, New York 11702 Leased 1995 2005 19
50 Route 111, Smithtown, LI, New York 11787 Leased 1997 2002 15
900 Merchants Concourse, Westbury, LI, New York 11590 Leased 1997 2003 30
390 North Broadway, Jericho, LI, New York 11753 Leased 1997 2008 36
861 Montauk Highway, Shirley, LI, New York 11967 Leased 1998 2002 41
----
$274
====
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 2000 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
2000 Annual Report to Stockholders under the caption "Selected Financial Data"
and is incorporated herein by this reference.
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 2000 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 2000 Annual Report to Stockholders is incorporated
herein by this reference.
14
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 2000 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 25, 2001 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. 79 Chairman of the Board
Roy M. Kern, Sr. 67 Vice Chairman of the Board
Douglas C. Manditch 53 President and Chief Executive Officer
Thomas Buonaiuto 35 Vice President and Treasurer
Carmelo C. Vizzini 55 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 25, 2001 under the captions
"Executive Compensation" and "Directors Compensation" is incorporated herein by
reference.
15
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 25, 2001 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 16 of the Proxy Statement for the Annual
Meeting of Stockholders to be held April 25, 2001 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, 2000 and are
incorporated by this reference:
_ Consolidated Balance Sheets at December 31, 2000 and 1999
_ Consolidated Statements of Earnings for the Years Ended December 31, 2000,
1999 and 1998
_ Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 2000, 1999 and 1998
_ Consolidated Statements of Cash Flows for the Years Ended December 31 ,
2000, 1999 and 1998
_ Notes to Consolidated Financial Statements
_ Independent Auditors' Report
The remaining information appearing in the 2000 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 2000.
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 2000 Annual Report to Stockholders
23.0 Consent of experts and counsel
================
* Incorporated herein by reference in this document to the S-4 Registration
Statement initially filed on September 22, 1998, Registration No.
333-63971
16
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 Date: March 30, 2001
-------------------------------------
Douglas C. Manditch
President and Chief Executive Officer
By: /s/ Thomas Buonaiuto Date: March 30, 2001
-------------------------------------
Thomas Buonaiuto
Vice President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 30, 2001 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
17
EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Year Ended
December 31, 2000
(In thousands,
except per share data)
----------------------
Net income available to common shareholders $ 1,754
Total weighted average common shares outstanding 1,596,377
Basic earnings per common share $ 1.10
==========
Total weighted average common shares outstanding 1,596,377
Dilutive effect of stock options using the treasury stock method 1,239
----------
Total average common and common equivalent shares 1,597,616
Diluted earnings per common share $ 1.10
==========
18
EXHIBIT 13. ANNUAL REPORT
CAPITAL STOCK
The common stock of Long Island Financial Corp. trades on the Nasdaq
National Market under the symbol "LICB". The following table shows the high and
low sales price of the common stock and the dividends declared during the period
indicated in 2000 and 1999.
Dividends
High Low Declared
---- --- --------
2000
1st Quarter $11.63 $10.13 $0.08
2nd Quarter $11.75 $10.13 $0.08
3rd Quarter $14.63 $11.13 $0.08
4th Quarter $13.63 $12.44 $0.08
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
At December 31, 2000, there were approximately 336 shareholders of record of the
common stock.
19
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the last five years.
At or for the year ended December 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------
(Dollars in thousands)
Selected Operating Data:
Interest income $ 20,996 $ 18,410 $ 15,285 $ 12,726 $ 8,998
Interest expense 11,143 9,482 8,229 7,303 4,786
Net interest income 9,853 8,928 7,056 5,423 4,212
Provision for loan losses 150 600 420 240 302
Other operating income 1,566 1,706 918 378 364
Other operating expenses 8,635 7,581 5,799 3,737 2,709
Income before income taxes 2,634 2,453 1,755 1,824 1,565
Income taxes 880 847 630 760 530
Net income $ 1,754 $ 1,606 $ 1,125 $ 1,064 $ 1,035
---------- ---------- ---------- ---------- --------
Basic and diluted earnings per share $ 1.10 $ .92 $ .64 $ 1.04 $ 1.18
---------- ---------- ---------- ---------- --------
---------------------------------------------------------------------
Selected Financial Condition Data:
Total assets $ 332,934 $ 331,054 $ 266,543 $ 211,956 $190,898
Loans, net 134,853 119,836 94,144 78,759 62,660
Allowance for loan losses 1,872 1,475 1,071 1,026 780
Securities 169,422 170,149 145,819 99,231 92,053
Deposits 273,189 269,740 217,867 187,626 178,314
Borrowed funds 29,000 39,500 24,000 -- --
Stockholders' equity 19,261 18,343 21,868 21,408 9,890
Book value per share $ 13.02 $ 11.14 $ 12.35 $ 12.18 $ 10.60
Stockholders' equity (1) 20,428 21,327 21,803 21,029 9,638
Book value per share (1) $ 13.81 $ 12.95 $ 12.31 $ 11.96 $ 10.33
Shares outstanding 1,479,426 1,646,326 1,771,306 1,757,709 933,181
---------------------------------------------------------------------
Average Balance Sheet Data:
Loans, net $ 129,393 $ 104,512 $ 86,647 $ 66,961 $ 49,233
Securities 145,291 145,881 109,552 94,509 60,470
Assets 293,884 273,736 216,941 172,583 122,970
Demand deposits 40,842 33,791 25,811 18,657 15,003
Savings deposits 31,507 22,747 9,030 2,784 2,361
NOW and money market deposits 43,865 49,413 35,852 24,960 24,965
Certificates of deposit 106,079 103,596 105,741 99,282 69,292
Stockholders' equity $ 18,138 $ 20,470 $ 21,717 $ 11,368 $ 8,618
---------------------------------------------------------------------
Performance Ratios:
Return on average assets 0.60% 0.59% 0.52% 0.62% 0.84%
Return on average equity 9.67 7.85 5.18 9.36 12.00
Average equity to average assets 6.17 7.48 10.01 6.59 7.01
Equity to total assets at end of year 5.79 5.54 8.20 10.10 5.18
Interest rate spread (2) 2.74 2.81 2.51 2.51 2.79
Net interest margin (3) 3.58 3.50 3.48 3.29 3.60
Ratio of interest-earning assets to
average interest-bearing liabilities 1.21 1.19 1.25 1.18 1.20
Non-interest expense to average assets 2.94 2.77 2.67 2.17 2.20
Efficiency ratio (4) 75.62 71.29 72.72 64.42 59.20
Dividend payout ratio 29.09 34.78 50.00 29.81 25.42
20
SELECTED FINANCIAL DATA (cont'd)
At or for the year ended December 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------
(Dollars in thousands, except share data)
Asset Quality Ratios and Other Data:
Total non-performing loans $ 416 $ 179 $ 511 $ 403 $ 448
Allowance for loan losses 1,872 1,475 1,071 1,026 780
Non-performing loans as a percent of
total loans (5) (6) 0.30% 0.15% 0.54% 0.51% 0.71%
Non-performing loans as a percent of
total assets (5) 0.12 0.05 0.19 0.19 0.23
Allowance for loan losses as a percent of:
Non-performing loans (5) 450.00 824.02 209.59 254.59 174.11
Total loans (6) 1.37% 1.22% 1.12% 1.29% 1.23%
Full service offices 6 6 6 4 2
---------------------------------------------------------------------
(1) Excludes the unrealized appreciation (depreciation) in available-for-sale
securities.
(2) Interest rate spread represents the difference between the yield on
interest-earning assets and the cost of 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 of 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, net, before allowance for loan losses.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Long Island Financial Corp. ("the Company") is a registered Delaware
financial 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 financial 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, 2000, 82.0% of the Company's gross loans had adjustable
interest rates and its loan portfolio had an average weighted maturity of 9.4
years. At such date, $10.4 million, or 6.2%, of the Company's securities had
adjustable interest rates, and its securities portfolio had a weighted average
maturity of 9.5 years. At December 31, 2000, the Company had $60.7 million of
certificates of deposit with maturities of one year or less and $35.2 million of
deposits over $100,000, which tend to be less stable
22
sources of funding as compared to core deposits and represented 37.4% 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 from a static position to plus or minus 200 basis
points, in 100 basis point increments.
At December 31, 2000, the effects of instantaneous and sustained interest
rate changes on the Company's net interest income and Net Economic Value of
Equity would be as follows:
Potential Change in Potential Change in
Change in Net Interest Income Net Economic Value of Equity
Interest Rates ----------------------- ----------------------------
in Basis Points $ Change % Change $ Change % Change
- --------------- --------- --------- ----------- ----------
(Dollars in thousands)
200 $ 57 .51% $(3,326) (15.81)%
100 (28) (.25) (928) (4.41)
Static -- -- -- --
(100) (115) (1.03) 2,848 13.54
(200) (324) (2.89) 4,417 21.00
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, 2000, 1999 and 1998, 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, by the average balance of interest-earning assets or interest-bearing
liabilities, respectively. Average balances are derived from average daily
balances.
23
Years Ended December 31,
---------------------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------------------
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 $ 1,366 $ 87 6.37% $ 6,695 $ 317 4.73% $ 11,181 $ 598 5.35%
Securities, net (1) 144,124 9,118 6.33 141,481 8,769 6.20 101,795 6,571 6.46
Municipal obligations (2) 1,167 68 5.83 4,400 260 5.91 7,757 497 6.41
Loans, net (3) 129,393 11,743 9.08 104,512 9,134 8.74 86,647 7,780 8.98
-------- -------- -------- ------- -------- -------
Total interest-earning assets 276,050 21,016 7.61 257,088 18,480 7.19 207,380 15,446 7.45
Non-interest-earning assets 17,834 16,648 9,561
-------- -------- --------
Total assets $293,884 $273,736 $216,941
-------- -------- --------
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Savings deposits $ 31,507 $ 1,168 3.71% $ 22,747 $ 777 3.42% $ 9,030 $ 309 3.42%
NOW and money
market deposits 43,865 1,013 2.31 49,413 985 1.99 35,852 854 2.38
Certificates of deposit 106,079 6,478 6.11 103,596 5,715 5.52 105,741 6,216 5.88
-------- -------- -------- ------- -------- -------
Total interest-bearing deposits 181,451 8,659 4.77 175,756 7,477 4.25 150,623 7,379 4.90
Borrowed funds 47,451 2,484 5.23 40,657 2,005 4.93 15,847 850 5.36
-------- -------- -------- ------- -------- -------
Total interest-bearing liabilities 228,902 11,143 4.87 216,413 9,482 4.38 166,470 8,229 4.94
Other non-interest bearing
liabilities 46,844 36,853 28,754
-------- -------- --------
Total liabilities 275,746 253,266 195,224
Stockholders' equity 18,138 20,470 21,717
-------- -------- --------
Total liabilities and
stockholders' equity $293,884 $273,736 $216,941
-------- -------- --------
Interest income / interest
rate spread (4) $ 9,873 2.74% $ 8,998 2.81% $ 7,217 2.51%
-------- ---- ------- ---- ------- ----
Net interest margin (5) 3.58% 3.50% 3.48%
---- ---- ----
Ratio of interest-earning assets to
interest-bearing liabilities 1.21 1.19 1.25
---- ---- ----
- ----------
(1) Securities, net, excludes municipal obligations. Unrealized
appreciation/depreciation on available-for-sale securities are recorded in
non-interest-earning assets.
(2) Interest income and yields are presented on a fully taxable equivalent
basis.
(3) Amount is net of residential real estate loans held-for-sale, deferred
loan fees and allowance for loan losses but includes non-performing loans.
(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:
24
Year Ended Year Ended
December 31, 2000 December 31, 1999
Compared to Compared to
Year Ended Year Ended
December 31, 1999 December 31, 1998
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 $ (313) $ 83 $ (230) $ (219) $ (62) $ (281)
Securities, net (1) 165 184 349 2,469 (271) 2,198
Municipal obligations (188) (4) (192) (201) (36) (237)
Loans, net (2) 2,246 363 2,609 1,566 (212) 1,354
------- ----- ------- ------- ----- -------
Total interest-earning assets 1,910 626 2,536 3,615 (581) 3,034
------- ----- ------- ------- ----- -------
Interest-Bearing Liabilities:
Deposits:
Savings deposits 320 71 391 469 (1) 468
NOW and money market deposits (118) 146 28 286 (155) 131
Certificates of deposit 140 623 763 (124) (377) (501)
------- ----- ------- ------- ----- -------
Total deposits 342 840 1,182 631 (533) 98
Borrowed funds 350 129 479 1,229 (74) 1,155
------- ----- ------- ------- ----- -------
Total interest-bearing liabilities $ 692 $ 969 $ 1,661 $ 1,860 $(607) $ 1,253
------- ----- ------- ------- ----- -------
(1) Securities, net, excludes municipal obligations.
(2) Amount is net of residential real estate loans held-for-sale, deferred
loan fees and allowance for loan losses but includes non-performing loans.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2000 AND 1999
Total assets increased by $1.9 million, or 0.6%, from $331.1 million at
December 31, 1999 to $332.9 million at December 31, 2000. The increase in assets
is attributable to a $15.0 million, or 12.5%, increase in loans, net, which at
December 31, 1999 amounted to $119.8 million compared to $134.9 million at
December 31, 2000. The growth in loans resulted from increases of $5.4 million,
or 15.9%, in the commercial and industrial loan portfolio, and $9.7 million, or
11.6%, in the commercial real estate loan portfolio. Offsetting the increase in
loans was a decline in cash and cash equivalents of $11.6 million, reflecting
the timing of seasonal municipal deposits and the investment of those deposits
in short-term available-for-sale securities or federal funds sold prior to
year-end. At December 31, 2000 and 1999, seasonal municipal deposits, amounted
to $51.2 million and $75.0 million, respectively. Prepaid expenses and other
assets decreased $717,000, or 22.5%, from $3.2 million at December 31, 1999, to
$2.5 million at December 31, 2000, primarily due to the decrease in the deferred
tax asset directly related to the decrease in the unrealized loss on securities
available for sale.
Total deposits increased $3.4 million, or 1.3%, from $269.7 million at
December 31, 1999, to $273.2 million at December 31, 2000. Demand deposits
increased $9.4 million, or 26.0%, from $36.2 million at December 31, 1999 to
$45.6 million at December 31, 2000. In addition, savings deposits increased by
$4.4 million, or 15.5%, from $28.4 million at December 31, 1999, to $32.8
million at December 31, 2000. The growths in demand and savings deposits reflect
the Company's focus on the generation of core deposits. Offsetting those deposit
increases, NOW and money market deposits decreased $21.1 million, or 20.5%, from
$103.1 million at December 31, 1999, to $82.0 million at December 31, 2000,
which reflects the decrease in seasonal municipal deposits at December 31, 2000.
Time certificates issued in excess of $100,000 were $35.2 million at December
31, 2000, an increase of $17.0 million, or 93.1%, from the prior year. The
Company utilizes time deposits issued in excess of $100,000 as an available
alternative funding source. Other time deposits decreased $6.2 million, or 7.4%,
to $77.5 million at December 31, 2000. Federal Home Loan Bank advances and other
borrowings decreased $10.5 million dollars to $29.0 million at December 31,
2000.
25
On September 7, 2000, our wholly owned finance subsidiary, LIF Statutory
Trust I, issued $7.5 million of Capital Securities, which are fully and
unconditionally guaranteed by the Company. For further discussion of the Capital
Securities, see Note 8 to Notes to Consolidated Financial Statements.
Stockholders' equity increased $918,000 to $19.3 million at December 31,
2000 compared to $18.3 million at December 31, 1999. Increases to stockholders'
equity included net income amounting to $1.8 million for the year ended December
31, 2000, and a decrease in the accumulated other comprehensive loss on
securities available-for-sale of $1.8 million. These increases were partially
offset by dividends declared of $502,000, and $2.2 million employed to
repurchase 166,900 shares of common stock.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
GENERAL
The Company reported net income of $1.8 million for the year ended
December 31, 2000, or basic and diluted earnings per share of $1.10, as compared
to net income of $1.6 million, or basic and diluted earnings per share of $.92
for 1999. The results of operations for the year ended December 31, 2000
included a loss of $154,000, from the sale of investment securities
available-for-sale compared to a gain of $88,000, from the sale of such
securities in 1999.
Core earnings per share represents net income per share adjusted for gains
or losses on sales of securities and other non-recurring items. For the year
ended December 31, 2000, the Company produced a 31.8% increase in core earnings
per share to $1.16 per share compared with core earnings per share of $.88 per
share for the year ended December 31, 1999. Contingent upon market conditions,
the Company periodically evaluates repositioning the securities portfolio to
improve future core earnings per share and net income.
INTEREST INCOME
Interest income, on a fully taxable equivalent basis, increased $2.5
million, or 13.7%, to $21.0 million for the year ended December 31, 2000, from
$18.5 million for the year ended December 31, 1999. The increase was primarily
the result of an increase in the average balance of interest-earning assets of
$19.0 million, or 7.4%, to $276.1 million for the year ended December 31, 2000
from $257.1 million for 1999. The average balance of securities, net, (exclusive
of municipal obligations) increased by $2.6 million, or 1.9%, and returned a 13
basis point increase in average yield to 6.33% for the year ended December 31,
2000, compared to 6.20% for 1999. The $3.2 million decline in the average
balance of municipal obligations for the year ended December 31, 2000, from $4.4
million for the prior year resulted from the sale of approximately $11.8 million
in municipal obligations during the second quarter of 1999. The proceeds from
that sale were reinvested in higher earning assets, primarily bank owned life
insurance and available for sale securities. The average yield on loans, net,
increased 34 basis points from 8.74% for the 1999 period to 9.08% for the year
ended December 31, 2000. The average yield on interest earning assets increased
42 basis points, from 7.19% for the year ended December 31, 1999, to 7.61% for
the year ended December 31, 2000, as a result of increased interest rates
available in the market.
INTEREST EXPENSE
Total interest expense increased $1.7 million, or 17.5%, for the year
ended December 31, 2000, to $11.1 million compared to $9.5 million for the year
ended December 31, 1999. The increase reflects both an increase in the average
balance of interest bearing liabilities of $12.5 million, or 5.8%, and an
increase in the average rate paid on interest bearing liabilities of 49 basis
points. The average balance of savings deposits increased by $8.8 million, or
38.5% and the average balance of NOW and money market deposits decreased $5.5
million, or 11.2% from year to year. The average balance