SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
- -----
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934.
For the quarterly period ended SEPTEMBER 30, 1997
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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 0-12220
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THE FIRST OF LONG ISLAND CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
NEW YORK 11-2672906
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
10 GLEN HEAD ROAD, GLEN HEAD, NEW YORK 11545
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 671-4900
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Not Applicable
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.)
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), and (2) has been subject to such
filing requirements for the past 90 days Yes X No
-- --
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT NOVEMBER 4, 1997
- ------------------------ -------------------------------
Common stock, par value 2,073,160
$.10 per share
EXHIBIT INDEX FOUND ON PAGE 15
Total Number of Pages, Including Cover Page - 19
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THE FIRST OF LONG ISLAND CORPORATION
SEPTEMBER 30, 1997
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- ---------
ITEM 1. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 1
CONSOLIDATED STATEMENTS OF INCOME
NINE AND THREE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996 2
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 5-12
PART II. OTHER INFORMATION 13
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SIGNATURES 14
- ----------
EXHIBIT INDEX 15
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<TABLE>
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CONSOLIDATED THE FIRST OF LONG ISLAND CORPORATION
BALANCE SHEETS AND SUBSIDIARY
- --------------------------------------------------------------------------------------------------
SEPTEMBER 30, December 31,
1997 1996*
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ASSETS:
Cash and due from banks ....................................... $ 17,384,000 $ 18,930,000
Federal funds sold ............................................ 60,900,000 38,500,000
------------- -------------
Cash and cash equivalents ..................................... 78,284,000 57,430,000
------------- -------------
Investment securities:
Held-to-maturity, at amortized cost (approximate fair
value of $186,185,000 and $142,095,000) ....................... 185,045,000 141,850,000
Available-for-sale, at fair value (amortized cost
of $53,291,000 and $79,964,000) ............................... 53,817,000 80,417,000
------------- -------------
238,862,000 222,267,000
------------- -------------
Loans:
Commercial and industrial ..................................... 24,808,000 23,345,000
Secured by real estate ........................................ 121,817,000 120,782,000
Consumer ...................................................... 7,228,000 8,999,000
Other ......................................................... 282,000 396,000
------------- -------------
154,135,000 153,522,000
Less: Unearned income ......................................... (839,000) (840,000)
------------- -------------
153,296,000 152,682,000
Allowance for loan losses ..................................... (3,588,000) (3,600,000)
------------- -------------
149,708,000 149,082,000
------------- -------------
Bank premises and equipment ................................... 4,881,000 5,044,000
Prepaid income taxes .......................................... -- 1,000
Deferred income tax benefits .................................. 686,000 897,000
Other assets .................................................. 6,509,000 6,182,000
============= =============
$ 478,930,000 $ 440,903,000
============= =============
LIABILITIES:
Deposits:
Checking ...................................................... $ 141,872,000 $ 123,160,000
Savings and money market ...................................... 235,687,000 222,892,000
Time, other ................................................... 27,097,000 26,509,000
Time, $100,000 and over ....................................... 14,405,000 11,800,000
------------- -------------
419,061,000 384,361,000
Accrued expenses and other liabilities ........................ 1,988,000 2,373,000
Income taxes payable .......................................... 40,000 --
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421,089,000 386,734,000
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COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 2,069,974 and 2,088,784 shares ........ 207,000 209,000
Surplus ....................................................... 5,719,000 6,924,000
Retained earnings ............................................. 51,604,000 46,733,000
------------- -------------
57,530,000 53,866,000
Unrealized gains on available-for-sale securities ............. 311,000 303,000
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57,841,000 54,169,000
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$ 478,930,000 $ 440,903,000
============= =============
</TABLE>
*Reclassified to conform with the current period's presentation
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
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<TABLE>
<S> <C> <C> <C> <C>
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CONSOLIDATED THE FIRST OF LONG ISLAND CORPORATION
STATEMENTS OF INCOME AND SUBSIDIARY
- --------------------------------------------------------------------------------------------
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
----------- ---------- ---------- ----------
INTEREST INCOME:
Loans ............................... $ 10,275,000 $10,028,000 $ 3,520,000 $3,353,000
Investment securities:
Taxable ............................. 8,797,000 8,539,000 2,968,000 2,854,000
Nontaxable .......................... 1,538,000 1,435,000 545,000 475,000
Federal funds sold .................. 1,836,000 1,370,000 789,000 559,000
----------- ---------- ---------- ----------
22,446,000 21,372,000 7,822,000 7,241,000
----------- ---------- ---------- ----------
INTEREST EXPENSE:
Savings and money market deposits ... 5,365,000 5,100,000 1,881,000 1,731,000
Time deposits ....................... 1,406,000 1,264,000 495,000 434,000
----------- ---------- ---------- ----------
6,771,000 6,364,000 2,376,000 2,165,000
----------- ---------- ---------- ----------
Net interest income ................. 15,675,000 15,008,000 5,446,000 5,076,000
PROVISION FOR LOAN LOSSES (CREDIT) .. (100,000) -- -- --
----------- ---------- ---------- ----------
Net interest income after provision
for loan losses ..................... 15,775,000 15,008,000 5,446,000 5,076,000
----------- ---------- ---------- ----------
NONINTEREST INCOME:
Trust Department income ............. 865,000 866,000 283,000 297,000
Service charges on deposit accounts . 1,940,000 1,787,000 680,000 606,000
Other ............................... 331,000 290,000 140,000 107,000
----------- ---------- ---------- ----------
3,136,000 2,943,000 1,103,000 1,010,000
----------- ---------- ---------- ----------
NONINTEREST EXPENSE:
Salaries ............................ 4,957,000 4,715,000 1,680,000 1,582,000
Employee benefits ................... 1,892,000 1,718,000 599,000 547,000
Occupancy and equipment expense ..... 1,390,000 1,454,000 464,000 473,000
Other operating expenses ............ 2,354,000 2,310,000 777,000 736,000
----------- ---------- ---------- ----------
10,593,000 10,197,000 3,520,000 3,338,000
----------- ---------- ---------- ----------
Income before income taxes .......... 8,318,000 7,754,000 3,029,000 2,748,000
INCOME TAX EXPENSE .................. 2,738,000 2,620,000 997,000 942,000
=========== ========== ========== ==========
NET INCOME .......................... $ 5,580,000 $ 5,134,000 $ 2,032,000 $1,806,000
=========== ========== ========== ==========
Weighted average number of common and
common equivalent shares outstanding 2,125,835 2,133,995 2,116,176 2,132,456
=========== ========== ========== ==========
EARNINGS PER SHARE .................. $ 2.62 $ 2.41 $ .96 $ .85
=========== ========== ========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
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<TABLE>
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CONSOLIDATED STATEMENTS THE FIRST OF LONG ISLAND CORPORATION
OF CASH FLOWS AND SUBSIDIARY
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Nine Months Ended September 30,
Increase (Decrease) in Cash and Cash Equivalents 1997 1996*
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................... $ 5,580,000 $ 5,134,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses (credit) ................................... (100,000) --
Provision for deferred income taxes .................................. 146,000 --
Depreciation and amortization ........................................ 443,000 472,000
Premium amortization (discount accretion) on investment
securities, net ...................................................... (667,000) (1,025,000)
Gain on sale of equipment ............................................ -- (1,000)
Decrease in prepaid income taxes ..................................... 1,000 --
Increase in other assets ............................................. (327,000) (718,000)
Increase in accrued expenses and other liabilities ................... 325,000 159,000
Increase (decrease) in income taxes payable .......................... 214,000 (79,000)
------------ ------------
Net cash provided by operating activities ............................ 5,615,000 3,942,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and redemptions of
investment securities:
Held-to-maturity ..................................................... 39,261,000 46,173,000
Available-for-sale ................................................... 4,343,000 3,700,000
Purchase of investment securities:
Held-to-maturity ..................................................... (52,727,000) (29,796,000)
Available-for-sale ................................................... (6,732,000) (26,509,000)
Net increase in loans to customers ................................... (526,000) (5,342,000)
Purchases of bank premises and equipment ............................. (280,000) (381,000)
Proceeds from sale of equipment ...................................... -- 9,000
------------ ------------
Net cash used in investing activities ................................ (16,661,000) (12,146,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in total deposits ....................................... 34,700,000 10,367,000
Proceeds from exercise of stock options .............................. 409,000 227,000
Repurchase and retirement of common stock ............................ (1,790,000) (596,000)
Cash dividends paid .................................................. (1,419,000) (1,243,000)
------------ ------------
Net cash provided by financing activities ............................ 31,900,000 8,755,000
------------ ------------
Net increase in cash and cash equivalents ............................ 20,854,000 551,000
Cash and cash equivalents, beginning of period ....................... 57,430,000 54,284,000
------------ ------------
Cash and cash equivalents, end of period ............................. $ 78,284,000 $ 54,835,000
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH:
INVESTING ACTIVITIES
Unrealized gains (losses) on available-for-sale securities ........... $ 73,000 ($ 1,275,000)
Transfer of available-for-sale securities to held-to maturity category 28,886,000 --
FINANCING ACTIVITIES
Tax benefit from exercise of employee stock options .................. 174,000 --
</TABLE>
The Corporation made interest payments of $6,731,000 and $6,328,000 and
income tax payments of $2,379,000 and $2,699,000 during the nine months ended
September 30, 1997 and 1996, respectively.
*Reclassified to conform with the current period's presentation
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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THE FIRST OF LONG ISLAND CORPORATION AND SUBSIDIARY
SEPTEMBER 30, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The First of
Long Island Corporation and its wholly-owned subsidiary, The First National Bank
of Long Island (collectively referred to as the "Corporation").
The consolidated financial information included herein as of and for the
periods ended September 30, 1997 and 1996 is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods. The December 31, 1996 consolidated
balance sheet was derived from the Company's December 31, 1996 audited
consolidated financial statements.
2. DEPOSIT ACCOUNTS
Beginning in the first quarter of 1997, the Bank established a
noninterest-bearing sweep account for each commercial checking account. Although
the sweep accounts are savings accounts, they are included in checking deposits
in the accompanying consolidated balance sheet.
The sweep accounts were established to reduce the noninterest-bearing
reserve balances that the Bank is required to maintain with the Federal Reserve
Bank and thereby increase funds available for investment. While the Federal
Reserve Bank currently permits banks to reduce required reserves through the
maintenance of sweep accounts, there is no assurance that such activities will
be permitted in the future. In addition, there is currently a bill before
Congress known as the Small Business Banking Act of 1997 which would, among
other things, allow the Federal Reserve Bank to pay interest on reserve balances
(see "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a further discussion of the Bill and its potential impact on the
Bank).
4
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors that have affected the Corporation's financial condition and
operating results during the periods included in the accompanying consolidated
financial statements, and should be read in conjunction with such financial
statements. The Corporation's financial condition and operating results
principally reflect those of its wholly-owned subsidiary, The First National
Bank of Long Island (the "Bank"). The Corporation's primary service area is
Nassau and Suffolk Counties, Long Island.
OVERVIEW
Net income for the first nine months of 1997 was $5,580,000, or $2.62 per
share, as compared to $5,134,000, or $2.41 per share, for the like period in
1996. Return on average total assets (ROA) and average stockholders' equity
(ROE) were 1.64% and 13.45%, respectively, for the first nine months of 1997 as
compared to 1.58% and 13.59%, respectively, for the like period in 1996. When
comparing the first nine months of 1997 to the same period in 1996, net interest
income increased by $667,000(1), the Bank recorded a $100,000 credit provision
for loan losses in 1997 versus no provision in 1996, noninterest income
increased by $193,000 and occupancy, equipment and other operating expenses
decreased by $20,000. The positive effect of these changes was partially offset
by increases in personnel costs and income tax expense of $416,000 and $118,000,
respectively.
The increase in net interest income is largely attributable to growth in
checking balances and stockholders' equity as well as the implementation of
commercial checking and Advantage Checking (formerly NOW) sweep accounts. The
credit provision for loan losses resulted from a recovery on a charged off loan.
Total assets and deposits increased moderately during the first nine months
of 1997 amounting to $478,930,000 and $419,061,000, respectively, at September
30, 1997 as compared to $440,903,000 and $384,361,000, respectively, at December
31, 1996. During the same time period, capital before unrealized gains on
available-for-sale securities grew by $3,664,000, or 9.1% on an annualized
basis. The Corporation's capital ratios continue to be substantially in excess
of current regulatory requirements and liquidity continues to be strong.
NET INTEREST INCOME
The following table sets forth the average daily balances for each major
category of assets, liabilities and stockholders' equity as well as the amounts
and average rates earned or paid on each major category of interest-earning
assets and interest-bearing liabilities.
- --------
(1) $709,000 on a tax-equivalent basis
5
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<TABLE>
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Nine Months Ended September 30,
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1997 1996
------------------------------------ -----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------- ---------- ------------- ----------- ---------- ------------
(DOLLARS IN THOUSANDS)
ASSETS
Federal funds sold and commercial paper $ 45,377 $1,836 5.41% $ 34,940 $1,370 5.24%
Investment Securities
Taxable 186,807 8,797 6.30 180,314 8,539 6.33
Nontaxable (1) 44,504 2,330 6.98 41,525 2,174 6.98
Loans (1)(2) 153,450 10,324 9.00 149,509 10,088 9.01
----------- ---------- ------------- ----------- ---------- ------------
Total interest-earning assets 430,138 23,287 7.24 406,288 22,171 7.29
---------- ------------- ---------- ------------
Allowance for loan losses (3,600) (3,606)
----------- -----------
Net interest-earning assets 426,538 402,682
Cash and due from banks 16,726 20,176
Premises and equipment, net 4,955 5,069
Other assets 6,395 6,334
----------- -----------
$454,614 $434,261
=========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Savings and money market deposits $226,754 5,365 3.16 $223,043 5,100 3.05
Time deposits 39,824 1,406 4.72 36,830 1,264 4.58
----------- ---------- ------------- ----------- ---------- ------------
Total interest-bearing deposits 266,578 6,771 3.40 259,873 6,364 3.27
----------- ---------- ------------- ----------- ---------- ------------
Checking deposits (3) 130,226 121,660
Other liabilities 2,331 2,254
----------- -----------
399,135 383,787
Stockholders' equity 55,479 50,474
----------- -----------
$454,614 $434,261
=========== ===========
Net interest income (1) $16,516 $15,807
========== ==========
Net interest spread (1) 3.84% 4.02%
============= ============
Net yield on interest-earning assets (1) 5.13% 5.20%
============= ============
</TABLE>
(1) Tax-equivalent basis. Interest income on a tax-equivalent basis includes
the additional amount of interest income that would have been earned if the
Corporation's investment in tax-exempt loans and investment securities had
been made in loans and investment securities subject to Federal income
taxes yielding the same after-tax income. The tax-equivalent amount of
$1.00 of nontaxable income was $1.52 in the first nine months of 1997 and
1996 based on a Federal income tax rate of 34%.
(2) For the purpose of these computations, nonaccruing loans are included in
the daily average loan amounts outstanding.
(3) Includes official check and treasury tax and loan balances.
Net interest income on a tax-equivalent basis increased by $709,000, or
4.5%, from $15,807,000 for the nine months ended September 30, 1996 to
$16,516,000 for the comparable period in 1997. The increase is primarily
attributable to an increase in the average volume of interest-earning assets.
The positive effect of this factor was partially offset by an increase in the
average volume of interest-bearing deposit accounts and an 11 basis point
increase in the average rate paid on savings and money market deposits.
Net interest spread and yield decreased from 4.02% and 5.20%, respectively,
for the first nine months of 1996 to 3.84% and 5.13%, respectively, for the same
period in 1997 principally because as general interest rates increased somewhat
the Bank was unable to increase the yield on its interest-earning assets but
paid higher rates on its savings and money market accounts in order to remain
competitive.
INCREASE IN AVERAGE VOLUME OF INTEREST-EARNING ASSETS AND INTEREST-BEARING
DEPOSITS. Total average interest-earning assets increased by $23,850,000, or
5.9%, from $406,288,000 for the nine months ended September 30, 1996 to
$430,138,000 for the comparable period in 1997. During the same time period,
total average interest-bearing deposits increased by $6,705,000, or 2.6%, from
$259,873,000 to $266,578,000. The increase in interest-earning assets caused
interest earned to increase by approximately $1,120,000 while the increase in
interest-bearing liabilities caused interest paid to
6
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increase by approximately $182,000, the combined effect of which resulted
in an increase in net interest income of $938,000.
While the increase in interest-earning assets was partially funded by the
increase in interest-bearing deposits, the remainder was primarily funded by
increases in average checking deposits and capital of $8,566,000 and $5,005,000,
respectively, and a reduction in average cash and due from banks of $3,450,000.
The increase in both interest-bearing deposits and checking deposits is
believed to be largely attributable to the Bank's attention to customer service
as well as calling programs and competitive pricing. The increase in capital is
primarily attributable to the retention of net income, as partially offset by
the purchase and retirement of common stock under the Corporation's stock
repurchase program and the payment of semi-annual cash dividends. As more fully
described in Note 2 to the consolidated financial statements, the decrease in
average cash and due from banks is attributable to a reduction in reserve
balances maintained with the Federal Reserve Bank caused by the implementation
of commercial checking and Advantage Checking (formerly NOW) sweep accounts.
At September 30, 1997, checking deposits account for 33.9% of the Bank's
total deposits. Maintenance and growth of checking deposits has historically
been the Corporation's most important strategy for maintaining and increasing
profitability. It should be noted that the Bank's future results of operations
could be adversely affected by competitive pressure in the marketplace for
businesses to earn interest on excess checking balances and/or the passage of a
bill recently introduced in Congress known as the Small Business Banking Act of
1997. Among other things, the Small Business Banking Act contains a provision
which would repeal Federal Reserve Board Regulation Q "Interest on Deposits" and
thereby allow banks and thrifts to pay interest on checking accounts and NOW
accounts held by businesses. The House Banking Committee is expected to hold
hearings on the Bill in early 1998.
When comparing the first nine months of 1997 to the like period in 1996,
there was no significant change in the mix of interest-earning assets or
interest-bearing liabilities.
INCREASE IN AVERAGE RATE PAID ON SAVINGS AND MONEY MARKET DEPOSITS. The
average rate paid on savings and money market accounts increased by 11 basis
points when comparing the first nine months of 1997 to the same period in 1996.
This increase, which is primarily attributable to increases in the rates paid by
the Bank on its money market products in response to market conditions, caused
interest paid to increase by approximately $182,000.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
The allowance for loan losses was $3,588,000 at September 30, 1997 as
compared to $3,600,000 at December 31, 1996, representing 2.3% and 2.4% of total
loans, respectively, and 566.8% and 546.3% of nonaccruing loans, respectively.
The change in
7
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the allowance during the first nine months of 1997 is due to recoveries of
$130,000, chargeoffs of $42,000 and a $100,000 credit in the provision for loan
losses.
The allowance for loan losses is an amount that management currently
believes will be adequate to absorb possible future losses on existing loans.
The provision charged to operations, if any, and the related balance in the
allowance for loan losses is based upon periodic evaluations of the loan
portfolio by management. These evaluations consider a variety of factors
including, but not limited to, historical losses; a borrower's ability to repay;
the value of any related collateral; levels of and trends in delinquencies and
nonaccruing loans; trends in volume and terms of loans; changes in lending
policies and procedures; experience, ability and depth of lending staff;
national and local economic conditions; concentrations of credit; and
environmental risks.
In 1997 the Bank sold a nonaccruing loan for $104,000 more than its
carrying value. This excess was credited to the allowance for loan losses as a
partial recovery of prior chargeoffs. The recovery increased the level of the
allowance for loan losses beyond what management currently deemed necessary to
absorb possible future losses on existing loans. As a result, management reduced
the level of the allowance by $100,000 with an offsetting credit to the
provision for loan losses.
The amount of future chargeoffs and provisions for loans losses will be
affected by, among other things, economic conditions on Long Island. Such
conditions affect the financial strength of the Bank's borrowers and the value
of real estate collateral securing the Bank's mortgage loans. In addition,
future provisions and chargeoffs could be affected by environmental impairment
of properties securing the Bank's mortgage loans. Although the Bank considers
environmental impairment in processing requests for mortgage loans, impairment
may go undetected or occur in the future. Impairment of collateral properties
could affect the Bank's ability to fully realize its investment in the related
loans. Loans secured by real estate represent 79.5% of total loans outstanding
at September 30, 1997.
ASSET QUALITY
The Company has identified certain assets as risk elements. These assets
include nonaccruing loans, foreclosed real estate, loans that are contractually
past due 90 days or more as to principal or interest payments and still accruing
and troubled debt restructurings. These assets present more than the normal risk
that the Company will be unable to eventually collect or realize their full
carrying value. As shown in the table that follows, the total level of risk
elements has not changed materially since December 31, 1996.
8
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<TABLE>
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September 30, December 31,
1997 1996*
---------------- ---------------
(DOLLARS IN THOUSANDS)
Nonaccruing loans $ 633 $ 659
Foreclosed real estate - -
---------------- ---------------
Total nonperforming assets 633 659
Troubled debt restructurings 9 19
Loans past due 90 days or more as to
principal or interest payments and still accruing 18 31
---------------- ---------------
Total risk elements $ 660 $ 709
================ ===============
Nonaccruing loans as a percentage of total loans 0.41% 0.43%
================ ===============
Nonperforming assets as a percentage of total loans
and foreclosed real estate 0.41% 0.43%
================ ===============
Risk elements as a percentage of total loans and
foreclosed real estate 0.43% 0.46%
================ ===============
*Reclassified to conform with the current period's presentation
</TABLE>
NONINTEREST INCOME, NONINTEREST EXPENSE, AND INCOME TAXES
Noninterest income consists primarily of service charges on deposit
accounts and Trust Department income. Noninterest income increased by $193,000,
or 6.6%, from $2,943,000 for the first nine months of 1996 to $3,136,000 for the
same period in 1997. The increase is largely attributable to an increase in the
volume of overdraft checks and a revision of the Bank's service charge schedule
effective July 1, 1997.
Noninterest expense is comprised of salaries, employee benefits, occupancy
and equipment expense and other operating expenses incurred in supporting the
various business activities of the Corporation. Noninterest expense increased by
$396,000, or 3.9%, from $10,197,000 for the first nine months of 1996 to
$10,593,000 for the same period in 1997. The increase is primarily attributable
to increases in salaries and employee benefits expense of $242,000 and $174,000,
respectively. The increase in salaries is primarily attributable to normal
annual salary increases.
The Bank has established formal processes for identifying and assessing the
impact of the Year 2000 on its software vendors, hardware providers and bank
activities. Management does not currently expect the cost of Year 2000
compliance to have a significant impact on its future results of operations,
financial condition or liquidity.
Income tax expense as a percentage of book income was 32.9% and 33.8% for
the nine months ended September 30, 1997 and 1996, respectively. These
percentages vary from the statutory Federal income tax rate of 34% primarily
because of state income taxes and tax-exempt interest on municipal securities.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1997 VERSUS THREE
MONTHS ENDED SEPTEMBER 30, 1996
Net income for the third quarter of 1997 was $2,032,000, or $.96 per share,
as compared to $1,806,000, or $.85 per share, for the same quarter in 1996. When
comparing the third quarter of 1997 to the same quarter in 1996, net interest
income increased by $370,000 and noninterest income increased by $93,000. The
positive effect
9
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of these changes was partially offset by increases in noninterest expense
and income tax expense of $182,000 and $55,000, respectively.
The reasons for the increases in net interest income, noninterest income
and noninterest expense are substantially the same as those discussed above with
respect to the nine month periods.
CAPITAL
The Corporation's capital management policy is designed to build and
maintain capital levels that exceed regulatory standards. Under current
regulatory capital standards, banks are classified as well capitalized,
adequately capitalized or undercapitalized. Under such standards, a well
capitalized bank is one that has a total risk-based capital ratio equal to or
greater than 10%, a Tier 1 risk-based capital ratio equal to or greater than 6%,
and a Tier 1 leverage capital ratio equal to or greater than 5%. The
Corporation's total risk-based capital, Tier 1 risk-based capital and Tier 1
leverage capital ratios of 33.73%, 32.48% and 12.20%, respectively, at September
30, 1997 substantially exceed the requirements for a well capitalized bank
Total stockholders' equity increased by $3,672,000, or 6.8%, from
$54,169,000 at December 31, 1996 to $57,841,000 at September 30, 1997. The
increase in stockholders' equity is attributable to the combined effect of net
income of $5,580,000, proceeds from the exercise of employee stock options of
$409,000, income tax benefits resulting from the exercise of certain employee
stock options of $174,000, repurchases of common stock amounting to $1,790,000,
cash dividends declared of $709,000, and unrealized gains on available-for-sale
securities of $8,000.
CASH FLOWS AND LIQUIDITY
CASH FLOWS. During the nine months ended September 30, 1997, total deposits
increased by $34,700,000. This increase, along with $5,615,000 in cash provided
by operations and $409,000 in proceeds from the exercise of stock options were
used to fund increases in investment securities and loans of $15,855,000 and
$526,000, respectively, repurchases of common stock amounting to $1,790,000,
cash dividends paid of $1,419,000, capital expenditures of $280,000, and an
increase in cash and cash equivalents of $20,854,000.
As reflected in the accompanying consolidated balance sheet, the
$34,700,000 growth in deposits is comprised of increases in checking deposits
and total interest-bearing deposits of $18,712,000 and $15,988,000,
respectively.
The $526,000 increase in total loans during the first nine months of 1997
is primarily attributable to increases in commercial and industrial loans and
loans secured by real estate of $1,463,000 and $1,035,000, respectively, as
offset by a decrease in
10
<PAGE>
consumer loans of $1,771,000. The increase in loans secured by real estate
is primarily attributable to an increase in loans secured by residential
properties of $3,238,000, as offset by a decrease in commercial mortgage loans
of $1,691,000. Loans secured by real estate have historically accounted for a
major portion of the loan portfolio and represent 79.5% of the total portfolio
at September 30, 1997. The decrease in consumer loans is primarily attributable
to the bulk sale of student loans. Management currently expects to make similar
sales in the future as student loans enter repayment status.
Management is actively searching for favorable locations at which to
establish new branches, particularly of the commercial banking unit
configuration. As of September 30, 1997, the Office of the Comptroller of the
Currency has approved the establishment of a full-service branch in Rockville
Centre, Nassau County, Long Island. Management currently expects to open the
Branch in early 1998 and simultaneously close the Bank's existing commercial
banking unit in Rockville Centre. Management does not expect the establishment
of the Branch or the closing of the Commercial Banking Unit to materially impact
the Corporation's 1997 or 1998 results of operations or financial position.
LIQUIDITY. The Corporation's primary sources of liquidity are its overnight
position in federal funds sold, its short-term investment securities portfolio
which consists of securities purchased to mature within approximately one year,
maturities and monthly payments on the balance of the investment securities
portfolio, and investment securities designated as available-for-sale. At
September 30, 1997, the Corporation had $60,900,000 in federal funds sales, a
short-term securities portfolio of $16,679,000, and available-for-sale
securities of $53,817,000.
The Corporation's liquidity is enhanced by its stable deposit base, which
primarily consists of checking, savings and money market accounts. The total of
such accounts comprised 90.1% of total deposits at September 30, 1997, with
checking accounting for 33.9% and savings and money market accounting for 56.2%.
The remaining 9.9% of the Bank's deposit base at September 30, 1997 was
comprised of time deposits of $100,000 and over and other time deposits, with
the $100,000 and over component accounting for 3.4% and the other time deposit
component accounting for 6.5%.
The Bank attracts all of its deposits through its banking offices primarily
from the communities in which those banking offices are located and does not
rely on brokered deposits. In addition, the Bank has not historically relied on
purchased or borrowed funds as sources of liquidity.
INTEREST RATE SENSITIVITY
The Corporation's net interest income is affected by changes in market
interest rates. The Corporation's sensitivity to interest rate fluctuations has
not changed materially since December 31, 1996.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS
No. 128"). SFAS No. 128 specifies the computation, presentation, and disclosure
requirements for Earnings per Share ("EPS") by all entities with publicly held
common
11
<PAGE>
stock or potential stock. SFAS 128 supersedes Accounting Principles Board
Opinion No. 15 "Earnings per Share", and supersedes or amends related
pronouncements.
SFAS No. 128 is effective for financial statements for interim and annual
periods ending after December 15, 1997. Early application is not permitted and
SFAS No. 128 requires restatement of all prior-period EPS data presented. The
adoption of SFAS No. 128 will not have a material impact on the Corporation.
In March 1997, the FASB also issued Statement of Financial Accounting
Standards No. 129 "Disclosure of Information about Capital Structure" ("SFAS No.
129"). SFAS No. 129 is effective for financial statements for periods ending
after December 15, 1997. SFAS No. 129 does not change disclosure requirements
for the Corporation.
In June 1997, the FASB issued Statements of Financial Accounting Standards
No's. 130 "Reporting Comprehensive Income" and 131 "Disclosures about Segments
of an Enterprise and Related Information". These Statements are effective for
fiscal years beginning after December 15, 1997 and restatement of financial
statements or information for earlier periods provided for comparative purposes
is required. The provisions of these statements will not affect the
Corporation's results of operations or financial condition.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. NONE
ITEM 2. NONE
ITEM 3. NONE
ITEM 4. NONE
ITEM 5. NONE
ITEM 6. (a) EXHIBITS - The following exhibits are submitted herewith:
Exhibit 27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K - NONE
13
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
DATE: NOVEMBER 12, 1997 THE FIRST OF LONG ISLAND CORPORATION
-------------------- -----------------------------------------
(Registrant)
/S/ J. WILLIAM JOHNSON
-----------------------------------------
J. WILLIAM JOHNSON, PRESIDENT
(principal executive officer)
/S/ MARK D. CURTIS
-----------------------------------------
MARK D. CURTIS
VICE PRESIDENT AND TREASURER
(principal financial and accounting officer)
14
<PAGE>
EXHIBIT INDEX
EHIBIT
BEGINS ON
SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- --------- ----------------------- ----------
27 Financial Data Schedule 18
15
<TABLE> <S> <C>
<ARTICLE> 9
<PAGE>
<LEGEND>
EXHIBIT 27 FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from the
consolidated financial statements and management's discussion and analysis of
financial condition and results of operations contained in the FORM 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000740663
<NAME> THE FIRST OF LONG ISLAND CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 17,384,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 60,900,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 53,817,000
<INVESTMENTS-CARRYING> 185,045,000
<INVESTMENTS-MARKET> 186,185,000
<LOANS> 153,296,000
<ALLOWANCE> 3,588,000
<TOTAL-ASSETS> 478,930,000
<DEPOSITS> 419,061,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,028,000
<LONG-TERM> 0
0
0
<COMMON> 207,000
<OTHER-SE> 57,634,000
<TOTAL-LIABILITIES-AND-EQUITY> 478,930,000
<INTEREST-LOAN> 10,275,000
<INTEREST-INVEST> 10,335,000
<INTEREST-OTHER> 1,836,000
<INTEREST-TOTAL> 22,446,000
<INTEREST-DEPOSIT> 6,771,000
<INTEREST-EXPENSE> 6,771,000
<INTEREST-INCOME-NET> 15,675,000
<LOAN-LOSSES> (100,000)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,593,000
<INCOME-PRETAX> 8,318,000
<INCOME-PRE-EXTRAORDINARY> 8,318,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,580,000
<EPS-PRIMARY> 2.62
<EPS-DILUTED> 2.62
<YIELD-ACTUAL> 5.13
<LOANS-NON> 633,000
<LOANS-PAST> 18,000
<LOANS-TROUBLED> 9,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,600,000
<CHARGE-OFFS> 42,000
<RECOVERIES> 130,000
<ALLOWANCE-CLOSE> 3,588,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
