SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------
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 June 30, 1998
--------------
OR
- -------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ------- SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________________________to___________________
Commission file number 0-12220
THE FIRST OF LONG ISLAND CORPORATION
-----------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
NEW YORK 11-2672906
-----------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
10 Glen Head Road, Glen Head, New York 11545
-----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 671-4900
--------------
Not Applicable
-----------------------------------------------------------------------------
(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 AUGUST 10, 1998
- ----- ------------------------------
Common stock, par value 3,105,369
$.10 per share
Total Number of Pages, Including Cover Page - 18
<PAGE>
THE FIRST OF LONG ISLAND CORPORATION
JUNE 30, 1998
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
- -------- --------------------------------------------------- ---------
ITEM 1. CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997 1
CONSOLIDATED STATEMENTS OF INCOME
SIX AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997 2
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6-14
PART II. OTHER INFORMATION 15
SIGNATURES 16
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
June 30, December 31,
1998 1997
------------- -------------
Assets:
Cash and due from banks ........................................... $ 20,106,000 $ 13,343,000
Federal funds sold ................................................ 57,500,000 60,500,000
------------- -------------
Cash and cash equivalents ....................................... 77,606,000 73,843,000
------------- -------------
Investment securities:
Held-to-maturity, at amortized cost (approximate fair
value of $191,549,000 and $192,357,000) ................. 189,529,000 190,577,000
Available-for-sale, at fair value (amortized cost
of $70,750,000 and $56,052,000) ......................... 71,560,000 56,844,000
------------- -------------
261,089,000 247,421,000
------------- -------------
Loans:
Commercial and industrial .................................. 28,871,000 25,686,000
Secured by real estate ..................................... 130,100,000 121,620,000
Consumer ................................................... 5,680,000 7,152,000
Other ...................................................... 1,148,000 1,101,000
------------- -------------
165,799,000 155,559,000
Unearned income ............................................ (889,000) (829,000)
------------- -------------
164,910,000 154,730,000
Allowance for loan losses .................................. (3,652,000) (3,579,000)
------------- -------------
161,258,000 151,151,000
------------- -------------
Bank premises and equipment ....................................... 5,211,000 5,037,000
Deferred income tax benefits ...................................... 739,000 785,000
Other assets ...................................................... 7,010,000 6,437,000
------------- -------------
$ 512,913,000 $ 484,674,000
============= =============
Liabilities:
Deposits:
Checking ................................................... $ 156,501,000 $ 142,848,000
Savings and money market ................................... 250,193,000 242,579,000
Time, other ................................................ 26,709,000 26,726,000
Time, $100,000 and over .................................... 15,061,000 10,606,000
------------- -------------
448,464,000 422,759,000
Accrued expenses and other liabilities ............................ 2,913,000 2,764,000
Income taxes payable .............................................. 66,000 185,000
------------- -------------
451,443,000 425,708,000
------------- -------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 3,105,369 and 3,113,061 shares ........ 310,000 311,000
Surplus ........................................................... 4,755,000 5,471,000
Retained earnings ................................................. 55,927,000 52,717,000
------------- -------------
60,992,000 58,499,000
Accumulated other comprehensive income, net of tax ................ 478,000 467,000
------------- -------------
61,470,000 58,966,000
------------- -------------
$ 512,913,000 $ 484,674,000
============= =============
See notes to consolidated financial statements
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<S> <C> <C> <C> <C>
Six Months Ended June 30, Three Months Ended June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
Interest income:
Loans .................................... $ 7,164,000 $ 6,755,000 $ 3,648,000 $ 3,385,000
Investment securities:
Taxable .............................. 5,994,000 5,829,000 3,030,000 2,933,000
Nontaxable ........................... 1,416,000 993,000 740,000 500,000
Federal funds sold ....................... 1,310,000 1,047,000 677,000 598,000
------------ ------------ ------------ ------------
15,884,000 14,624,000 8,095,000 7,416,000
------------ ------------ ------------ ------------
Interest expense:
Savings and money market deposits ........ 3,860,000 3,484,000 1,953,000 1,792,000
Time deposits ............................ 951,000 911,000 484,000 457,000
------------ ------------ ------------ ------------
4,811,000 4,395,000 2,437,000 2,249,000
------------ ------------ ------------ ------------
Net interest income .................. 11,073,000 10,229,000 5,658,000 5,167,000
Provision for loan losses (credit) ........... (100,000) (100,000) (100,000) (100,000)
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses (credit) ......... 11,173,000 10,329,000 5,758,000 5,267,000
------------ ------------ ------------ ------------
Noninterest income:
Trust Department income .................. 635,000 582,000 341,000 269,000
Service charges on deposit accounts ...... 1,504,000 1,260,000 768,000 633,000
Other .................................... 234,000 191,000 129,000 91,000
------------ ------------ ------------ ------------
2,373,000 2,033,000 1,238,000 993,000
------------ ------------ ------------ ------------
Noninterest expense:
Salaries ................................. 3,557,000 3,277,000 1,794,000 1,643,000
Employee benefits ........................ 1,362,000 1,293,000 695,000 619,000
Occupancy and equipment expense .......... 1,004,000 926,000 523,000 456,000
Other operating expenses ................. 1,632,000 1,577,000 828,000 786,000
------------ ------------ ------------ ------------
7,555,000 7,073,000 3,840,000 3,504,000
------------ ------------ ------------ ------------
Income before income taxes ........... 5,991,000 5,289,000 3,156,000 2,756,000
Income tax expense ........................... 1,929,000 1,741,000 1,021,000 887,000
------------ ------------ ------------ ------------
Net income ........................... $ 4,062,000 $ 3,548,000 $ 2,135,000 $ 1,869,000
============ ============ ============ ============
Weighted average:
Common shares ............................ 3,112,037 3,126,921 3,111,754 3,127,040
Dilutive stock options ................... 68,371 64,893 69,754 64,337
------------ ------------ ------------ ------------
3,180,408 3,191,814 3,181,508 3,191,376
============ ============ ============ ============
Earnings per share:
Basic .................................... $ 1.31 $ 1.13 $ .69 $ .60
============ ============ ============ ============
Diluted .................................. $ 1.28 $ 1.11 $ .67 $ .59
============ ============ ============ ============
See notes to consolidated financial statements
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1998
-------------------------------------------------------------------------------------------------
Accumulated
Other
Common Stock Compre- Compre-
------------------------- hensive Retained hensive
Shares Amount Surplus Income Earnings Income Total
-------------------------------------------------------------------------------------------------
Balance, January 1, 1998 3,113,061 $ 311,000 $ 5,471,000 $ 52,717,000 $ 467,000 $ 58,966,000
Net Income $ 4,062,000 4,062,000 4,062,000
Repurchase and retirement
of common stock (19,660) (2,000) (966,000) (968,000)
Exercise of stock options 11,968 1,000 159,000 160,000
Unrealized gains on available-
for-sale-securities, net of
tax of $7,000 11,000 11,000 11,000
-------------
Comprehensive income $ 4,073,000
=============
Cash dividends declared -
$.27 per share (838,000) (838,000)
Cash in lieu of fractional
shares on 3-for-2 stock split (14,000) (14,000)
Tax benefit of stock options 91,000 91,000
-------------------------------------------------------------------------------------------------
Balance, June 30, 1998 3,105,369 $ 310,000 $ 4,755,000 $ 55,927,000 $ 478,000 $ 61,470,000
======================================= =============================================
-------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1997
-------------------------------------------------------------------------------------------------
Accumulated
Other
Common Stock Compre- Compre-
------------------------- hensive Retained hensive
Shares Amount Surplus Income Earnings Income Total
-------------------------------------------------------------------------------------------------
Balance, January 1, 1997 2,088,784 $ 209,000 $ 6,924,000 $ 46,733,000 $ 303,000 $ 54,169,000
Net Income $ 3,548,000 3,548,000 3,548,000
Repurchase and retirement
of common stock (24,351) (3,000) (992,000) (995,000)
Exercise of stock options 19,933 2,000 328,000 330,000
Unrealized losses on available-
for-sale-securities, net of
tax of $107,000 (216,000) (216,000) (216,000)
-------------
Comprehensive income $ 3,332,000
=============
Cash dividends declared -
$.23 per share (709,000) (709,000)
Tax benefit of stock options 174,000 174,000
-------------------------------------------------------------------------------------------------
Balance, June 30, 1997 2,084,366 $ 208,000 $ 6,434,000 $ 49,572,000 $ 87,000 $ 56,301,000
======================================= =============================================
See notes to consolidated financial statements
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C>
Six Months Ended June 30,
----------------------------
Increase (Decrease) in Cash and Cash Equivalents 1998 1997
------------ ------------
Cash Flows From Operating Activities:
Net income ........................................................... $ 4,062,000 $ 3,548,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses (credit) ................................ (100,000) (100,000)
Deferred income tax provision ........................................ 39,000 61,000
Depreciation and amortization ........................................ 344,000 295,000
Premium amortization (discount accretion) on investment securities, net (144,000) (498,000)
Increase in prepaid income taxes ..................................... -- (51,000)
Decrease (increase) in other assets .................................. (573,000) 39,000
Increase (decrease) in accrued expenses and other liabilities ........ 141,000 (173,000)
Decrease in income taxes payable ..................................... (28,000) --
------------ ------------
Net cash provided by operating activities ............................ 3,741,000 3,121,000
------------ ------------
Cash Flows From Investing Activities:
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity ..................................................... 32,465,000 26,481,000
Available-for-sale ................................................... 2,909,000 1,590,000
Purchase of investment securities:
Held-to-maturity ..................................................... (31,161,000) (28,578,000)
Available-for-sale ................................................... (17,719,000) (3,715,000)
Net increase in loans to customers ................................... (10,007,000) (1,616,000)
Purchases of bank premises and equipment ............................. (518,000) (153,000)
------------ ------------
Net cash used in investing activities ................................ (24,031,000) (5,991,000)
------------ ------------
Cash Flows From Financing Activities:
Net increase in total deposits ....................................... 25,705,000 14,289,000
Proceeds from exercise of stock options .............................. 160,000 330,000
Repurchase and retirement of common stock ............................ (968,000) (995,000)
Cash dividends paid .................................................. (830,000) (710,000)
Cash in lieu of fractional shares on 3-for-2 stock split ............. (14,000) --
------------ ------------
Net cash provided by financing activities ............................ 24,053,000 12,914,000
------------ ------------
Net increase in cash and cash equivalents ............................ 3,763,000 10,044,000
Cash and cash equivalents, beginning of year ......................... 73,843,000 57,430,000
------------ ------------
Cash and cash equivalents, end of period ............................. $ 77,606,000 $ 67,474,000
============ ============
Supplemental Schedule of Noncash:
Investing Activities
Unrealized gains (losses) on available-for-sale securities ........... $ 18,000 $ (323,000)
Transfer of available-for-sale securities to held-to-maturity category -- 28,886,000
Financing Activities
Cash dividends payable ............................................... 838,000 $ 709,000
Tax benefit from exercise of employee stock options .................. 91,000 174,000
The Corporation made interest payments of $4,756,000 and $4,382,000 and income
tax payments of $1,919,000 and $1,731,000 during the six months ended June 30,
1998 and 1997, respectively.
See notes to consolidated financial statements
</TABLE>
<PAGE>
THE FIRST OF LONG ISLAND CORPORATION AND SUBSIDIARY
JUNE 30, 1998
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 June 30, 1998 and 1997 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, 1997 consolidated balance
sheet was derived from the Company's December 31, 1997 audited consolidated
financial statements.
2. EARNINGS PER SHARE
Earnings per share data for the six and three months ended June 30, 1997
have been adjusted to reflect the 3-for-2 stock split paid February 2, 1998 and
restated to conform to the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings per Share."
<PAGE>
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
The Corporation earned $1.28 per share for the first six months of 1998 as
compared to $1.11 for the same period last year, an increase of approximately
15%. Based on year-to-date 1998 net income of $4,062,000, the Corporation
returned 1.67% on average total assets and 13.57% on average total equity. This
compares to returns on assets and equity of 1.60% and 13.06%, respectively, for
the same period last year. Total assets, deposits, and capital grew by 12.2%,
12.5%, and 9.2%, respectively, when comparing balances at June 30, 1998 to those
at June 30, 1997. The Corporation's capital ratios continue to substantially
exceed the current regulatory criteria for a well-capitalized bank.
The most significant factor favorably affecting earnings for the first six
months of 1998 when compared to the same period last year was growth in average
checking balances. Average checking balances were approximately $147.1 million
for the first six months of 1998 as compared to $125.9 million for the same
period last year, an increase of 16.8%. Earnings were also favorably impacted by
a 19.4% increase in service charge income and a 10.2% increase in average
stockholders' equity.
Net Interest Income
Average Balance Sheet; Interest Rates and Interest Differential. 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.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Six Months Ended June 30,
----------------------------------------------------------------------
1998 1997
---------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------- ---------- ----------- ----------- ---------- -----------
(dollars in thousands)
Assets
Federal funds sold $ 48,570 $ 1,310 5.44% $ 39,307 $ 1,047 5.37%
Investment Securities
Taxable 193,917 5,994 6.23 185,632 5,829 6.33
Nontaxable (1) 62,602 2,145 6.85 43,092 1,505 6.99
Loans (1)(2) 159,953 7,205 9.08 153,058 6,788 8.94
----------- ---------- ----------- ----------- ---------- -----------
Total interest-earning assets 465,042 16,654 7.21 421,089 15,169 7.26
---------- ----------- ---------- -----------
Allowance for loan losses (3,636) (3,603)
----------- -----------
Net interest-earning assets 461,406 417,486
Cash and due from banks 16,587 17,327
Premises and equipment, net 5,162 4,987
Other assets 7,130 6,345
----------- -----------
$ 490,285 $ 446,145
=========== ===========
Liabilities and
Stockholders' Equity
Savings and money market deposits $ 239,599 3,860 3.25 $ 224,034 3,484 3.14
Time deposits 40,649 951 4.72 39,058 911 4.70
----------- ---------- ----------- ----------- ---------- -----------
Total interest-bearing deposits 280,248 4,811 3.46 263,092 4,395 3.37
----------- ---------- ----------- ----------- ---------- -----------
Checking deposits (3) 147,052 125,869
Other liabilities 2,605 2,403
----------- -----------
429,905 391,364
Stockholders' equity 60,380 54,781
----------- -----------
$ 490,285 $ 446,145
=========== ===========
Net interest income (1) $ 11,843 $ 10,774
========== ==========
Net interest spread (1) 3.75% 3.89%
=========== ============
Net interest yield (1) 5.14% 5.16%
=========== ============
(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 for the first six months of 1998 and
1997 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.
</TABLE>
<PAGE>
Rate/Volume Analysis. The following table sets forth the effect of changes
in volume, changes in rates, and changes in rate/volume on tax-equivalent
interest income, interest expense and net interest income.
Six Months Ended June 30,
---------------------------------------
1998 Versus 1997
Increase (decrease) due to changes in:
---------------------------------------
Rate/ Net
Volume Rate Volume (2) Change
--------- --------- -------------------
(in thousands)
Interest Income:
Federal funds sold $ 247 $ 13 $ 3 $ 263
Investment securities:
Taxable 260 (91) (4) 165
Nontaxable (1) 681 (28) (13) 640
Loans (1) 306 106 5 417
------- ------- ------- -------
Total interest income 1,494 -- (9) 1,485
------- ------- ------- -------
Interest Expense:
Savings and money
market deposits 242 125 9 376
Time deposits 37 3 -- 40
------- ------- ------- -------
Total interest expense 279 128 9 416
------- ------- ------- -------
Increase (decrease) in net
interest income $ 1,215 $ (128) $ (18) $ 1,069
======= ======= ======= =======
(1) Tax-equivalent basis.
(2) Represents the change not solely attributable to change in rate or change
in volume but a combination of these two factors.
Net interest income on a tax-equivalent basis increased by $1,069,000, or
9.9%, from $10,774,000 for the six months ended June 30, 1997 to $11,843,000 for
the comparable period in 1998. As can be seen from the above rate/volume
analysis, the increase is comprised of a positive volume variance of $1,215,000
and negative rate and rate/volume variances of $128,000 and $18,000,
respectively.
The positive volume variance was primarily caused by growth in average
checking deposits and stockholders' equity and the use of such funds to purchase
investment securities and originate loans. When comparing the first six months
of 1998 to the like period in 1997, average checking deposits increased by
$21,183,000, or 16.8%, and average stockholders' equity increased by $5,599,000,
or 10.2%.
Also contributing to the positive volume variance, but to a lesser extent,
was growth in savings and money market deposits. The resulting funds were
primarily used to increase the Bank's overnight position in federal funds sold.
When comparing the first six months of 1998 to the same period in 1997, average
savings and money market deposits increased by $15,565,000, or 6.9%.
Funding interest-earning asset growth with growth in checking deposits and
capital has a greater impact on net interest income than funding such growth
with interest-bearing deposits because checking deposits and capital, unlike
interest-bearing deposits,
<PAGE>
have no associated interest cost. The growth of checking balances has
historically been one of the Corporation's key strategies for increasing
earnings per share.
The Bank's calling programs are a significant factor that favorably
impacted the growth in average checking balances noted when comparing the first
six months of 1998 to the same period last year, and competitive pricing is a
significant contributing factor with respect to the growth in average
interest-bearing deposits noted during the same period. In addition, the growth
in both checking and interest-bearing deposits is also attributable to the
Bank's attention to customer service and local economic conditions.
Net interest spread and yield were 3.75% and 5.14%, respectively, for the
first six months of 1998 as compared to 3.89% and 5.16%, respectively, for the
same period in 1997. It would appear that the principal causes for the decreases
in spread and yield are pressure on loan rates brought about by competitive
pricing and reduced yield on the Bank's investment securities portfolio.
Allowance and Provision For Loan Losses
The allowance for loan losses was $3,652,000 at June 30, 1998 as compared
to $3,579,000 at December 31, 1997, representing 2.2% and 2.3% of total loans,
respectively, and 45.7 times and 8.3 times the total of nonaccruing loans and
loans past due 90 days or more as to principal and interest and still accruing,
respectively. The change in the allowance during the first six months of 1998 is
due to recoveries of $250,000, chargeoffs of $77,000, 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 the second quarter of 1998, the Bank sold a nonaccruing loan for
$261,000 more than its carrying value. The excess proceeds were more than
sufficient to fully recover prior chargeoffs on the loan of $241,000. The
recovery increased the level of the allowance for loan losses beyond what
management currently deems 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. Loans secured by real estate
<PAGE>
represent 78.9% of total loans outstanding at June 30, 1998. Since 1987,
environmental audits have been instituted on commercial properties, and the
incidence and scope of these audits has been increased over the succeeding
years. Under the Bank's current policy, an environmental audit is required on
practically all commercial-type properties that are considered for a mortgage
loan. At the present time, the Bank is not aware of any existing loans in the
portfolio where there is environmental pollution originating on the mortgaged
properties that would materially affect the value of the portfolio.
Asset Quality
The Corporation 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 decreased from $437,000 at December 31, 1997 to $80,000 at June 30,
1998. The reduction is primarily due to the resolution of several nonaccruing
loans.
<TABLE>
<S> <C> <C>
June 30, December 31,
1998 1997
-------- --------
(dollars in thousands)
Nonaccruing loans $ 76 $ 382
Foreclosed real estate -- --
-------- --------
Total nonperforming assets 76 382
Troubled debt restructurings -- 6
Loans past due 90 days or more as to
principal or interest payments and still accruing 4 49
-------- --------
Total risk elements $ 80 $ 437
======== ========
Nonaccruing loans as a percentage of total loans .05% .25%
======== ========
Nonperforming assets as a percentage of total loans
and foreclosed real estate .05% .25%
======== ========
Risk elements as a percentage of total loans and
foreclosed real estate .05% .28%
======== ========
</TABLE>
Noninterest Income, Noninterest Expense, and Income Taxes
Noninterest income consists primarily of service charges on deposit
accounts and Trust Department income. Service charge income increased by
$244,000, or 19.4%, from $1,260,000 for the first half of 1997 to $1,504,000 for
the same period in 1998. The increase is largely comprised of increases in
insufficient funds charges, unavailable funds charges, and maintenance/activity
charges.
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
$482,000, or 6.8%, from $7,073,000 for the first half of 1997 to $7,555,000 for
the same period in 1998. A significant portion of the increase resulted from an
increase in salaries of $280,000, or 8.5%. Salaries increased largely because of
normal annual salary increases and an increase in the number of
full-time-equivalent employees. The opening of a full-
<PAGE>
service branch in Rockville Centre, Nassau County, Long Island in February of
1998 (the Bank simultaneously closed its Rockville Centre commercial banking
office) contributed to the increase in staff.
In addition to opening a full-service branch in Rockville Centre, the Bank
has received approvals from the Office of the Comptroller of the Currency to
open three new commercial banking offices. Leases have been signed for two of
these locations. Although the establishment of a full-service branch in
Rockville Centre and the opening of three new commercial banking offices is
expected to positively impact results of operations on a longer-term basis, the
near-term impact will be negative as a result of start-up expenses, increased
marketing efforts, and operating expenses incurred while a customer base is
being built. Based on available information, management does not expect the
magnitude of the near-term impact to be material to the Corporation's results of
operations, financial position, or liquidity.
The Bank plans to upgrade various equipment, particularly in its branch
system, to better serve its customers and improve the efficiency of its
operations. Such upgrades are expected to be made in 1998 and 1999, and will
have a negative effect on results of operations as the new items replace ones
that are fully-depreciated. The magnitude of the impact is not expected to be
material to the Corporation's results of operations, financial position, or
liquidity.
Income tax expense as a percentage of book income was 32.2% and 32.9% for
the first six months of 1998 and 1997, 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. The decrease in the
percentage for 1998 is primarily attributable to an increase in the amount of
tax-exempt income on municipal securities.
Results of Operations - Three Months Ended June 30, 1998 Versus Three Months
Ended June 30, 1997
Net income for the second quarter of 1998 was $2,135,000, or $.67 per
share, as compared to $1,869,000, or $.59 per share, for the same quarter in
1997. When comparing the second quarter of 1998 to the same quarter in 1997, net
interest income increased by $491,000 and noninterest income increased by
$245,000. The positive effect of these changes was partially offset by increases
in noninterest expense and income tax expense of $336,000 and $134,000,
respectively.
The significant reasons for the changes in net interest income, noninterest
income, and noninterest expense are substantially the same as those discussed
above with regard to the six month periods.
Capital
Under current regulatory capital standards, banks are classified as well
capitalized, adequately capitalized or undercapitalized. The Corporation's
capital management policy is designed to build and maintain capital levels that
exceed the minimum requirements for a well-capitalized bank. The following table
sets forth the Corporation's capital ratios at June 30, 1998 and the minimum
ratios necessary to be classified as well capitalized and adequately
capitalized. The Corporation's capital ratios at June 30, 1998 substantially
exceed the requirements for a well-capitalized bank.
<PAGE>
<TABLE>
<S> <C> <C> <C>
Regulatory Standards
Corporation's --------------------------
Capital Ratios at Well Adequately
June 30, 1998 Capitalized Capitalized
----------------- ------------ ------------
Total Risk-Based Capital Ratio 32.54% 10.00% 8.00%
Tier 1 Risk-Based Capital Ratio 31.28 6.00 4.00
Tier 1 Leverage Capital Ratio 12.24 5.00 4.00
</TABLE>
Total stockholders' equity increased by $2,504,000, or from $58,966,000 at
December 31, 1997 to $61,470,000 at June 30, 1998. The increase in stockholders'
equity is primarily attributable to the combined effect of net income of
$4,062,000, repurchases of common stock amounting to $968,000, and cash
dividends declared of $838,000.
Cash Flows and Liquidity
Cash Flows. During the six months ended June 30, 1998, cash and cash
equivalents increased by $3,763,000. This increase, along with growth in the
investment securities portfolio of $13,506,000, growth in the loan portfolio of
$10,007,000, cash dividends paid of $830,000, repurchases of common stock under
the Corporation's stock repurchase program of $968,000, and capital expenditures
of $518,000 were primarily funded by $3,741,000 in cash provided by operations
and $25,705,000 in cash provided by deposit growth.
During the first six months of 1998, commercial and industrial loans
increased by $3,185,000, loans secured by residential real estate increased by
$4,562,000, and commercial mortgages increased by $2,742,000. These increases,
when taken together with a decrease in consumer loans of $1,472,000, are the
primary reason for the growth in the loan portfolio during the first half of
1998.
As reflected in the accompanying consolidated balance sheet, the
$25,705,000 growth in deposits is comprised of increases in checking deposits
and total interest-bearing deposits of $13,653,000 and $12,052,000,
respectively. The increase in interest-bearing deposits is primarily
attributable to growth in money market balances.
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 June
30, 1998, the Corporation had $57,500,000 in federal funds sales, a short-term
securities portfolio of $9,379,000, and available-for-sale securities of
$71,560,000. The Corporation's liquidity is enhanced by its stable deposit base
which primarily consists of checking, savings and money market accounts. Such
accounts comprised 90.6% of total deposits at June 30, 1998, while time deposits
of $100,000 and over and other time deposits comprised only 3.4% and 6.0%,
respectively.
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.
Market Risk
The Bank originates and invests in interest-earning assets and solicits
interest-bearing deposit accounts. The operations of the Bank are subject to
market risk resulting from interest rate fluctuations to the extent that there
is a difference between the amount of the
<PAGE>
Bank's interest-earning assets and the amount of interest-bearing liabilities
that are prepaid/withdrawn, mature or reprice in specified time periods. The
Bank defines interest rate risk as the risk that the Bank's earnings and/or net
portfolio value (present value of expected future cash flows from assets less
the present value of expected cash flows from liabilities) will change when
interest rates change. The principal objective of the Bank's asset/liability
management activities is to provide maximum levels of net interest income while
maintaining acceptable levels of interest rate and liquidity risk and
facilitating the funding needs of the Bank.
The Corporation's exposure to interest rate risk has not changed
substantially since December 31, 1997.
New Accounting Pronouncements
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 "Employers' Disclosures about Pensions
and Other Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 supersedes the
disclosure requirements for pension and other postretirement plans as set forth
in SFAS No. 87 "Employers' Accounting For Pensions", SFAS No. 88 "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
For Termination Benefits, and SFAS No. 106 "Employers' Accounting For
Postretirement Benefits Other Than Pensions." SFAS No. 132 does not address
measurement or recognition for pension and other postretirement benefit plans.
SFAS No. 132 is effective for fiscal years beginning after December 15,
1997. Restatement of disclosures for earlier periods provided for comparative
purposes is required unless the information is not readily available, in which
case the notes to the financial statements shall include all available
information and a description of the information not available.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting For Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). This Statement establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the intended
use of the derivative and the resulting designation. SFAS No. 133 will not
impact the Corporation's accounting or disclosures.
Other Matters
Year 2000. The Bank has established formal processes for identifying,
assessing, and managing the Year 2000 risks posed by its third party data
processing providers, software vendors, hardware vendors, and internal bank
activities. Testing of internal systems and testing with third party data
processing providers is expected to be substantially complete by December 31,
1998 and March 31, 1999, respectively.
In addition to vendors and internal bank activities, the Bank is currently
analyzing the Year 2000 risks posed by its customers. Assessment of individual
customers' Year 2000 risk and their impact on the Bank should be substantially
complete by the end of the third quarter of 1998.
<PAGE>
The Bank utilizes Fiserv, one of the largest data processing providers for
banks and savings institutions, to perform a significant portion of its data
processing activities. Although the Bank believes that Fiserv will properly
address the Year 2000 issue on a timely basis, the failure of Fiserv to do so
could have a significant adverse effect on the operations of the Bank.
Based on current information, management does not expect the cost of Year
2000 compliance to significantly impact the Corporation's future results of
operations, financial condition, or liquidity.
Pending Legislation. There are bills currently pending in Congress that
would allow customers to cover checks by sweeping funds from interest-bearing
accounts each business day and repeal the prohibition of the payment of interest
on corporate checking deposits in 2001. There is also a bill(s) that was
introduced that would repeal the prohibition of the payment of interest on
corporate checking deposits immediately. Corporate checking deposits currently
account for approximately 26% of the Bank's total deposits. Although management
currently believes that the Bank's earnings could be more severely impacted by
the payment of interest on corporate checking deposits than the daily sweeping
of funds from interest-bearing accounts to cover checks, either could have a
material adverse impact on the Bank's future results of operations.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. NONE
ITEM 2. NONE
ITEM 3. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of The First of Long Island
Corporation (the "Corporation") held April 21, 1998 was called to elect three
directors to serve for two-year terms and until their successors have been
elected and qualified.
For the election of directors, each share is entitled to as many votes
as there are directors to be elected, and such votes may be cumulated and voted
for one nominee or divided among as many different nominees as is desired. If
authority to vote for any nominee or nominees is withheld on any proxy, the
votes are spread among the remaining nominees. The following table lists the
directors elected at the annual meeting and, for each director elected, the
number of votes cast for and the number of votes withheld. No other persons were
nominated and no other persons received any votes.
- -------------------------------------------------------------------------------
Number of Votes
------------------------------------
Directors Elected At
Annual Meeting Cast For Withheld
- -------------------------------------------------------------------------------
Paul T. Canarick 2,416,368 11,310
Beverly Ann Gehlmeyer 2,420,301 8,973
J. William Johnson 2,419,446 9,258
- -------------------------------------------------------------------------------
The name of each other director whose term of office as a director
continued after the annual meeting is as follows:
Term as Director
Name Expires
- ------------------------- ----------------
Howard Thomas Hogan, Jr. 1999
J. Douglas Maxwell, Jr. 1999
John R. Miller III 1999
Walter C. Teagle III 1999
ITEM 5. NONE
ITEM 6. (a) Exhibits: Exhibit 27 - Financial Data Schedule is submitted herewith
(b) Reports on Form 8-K - NONE
<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.
THE FIRST OF LONG ISLAND CORPORATION
-------------------------------------
(Registrant)
DATE: August 10, 1998 /S/ J. WILLIAM JOHNSON
---------------- -------------------------------------
J. WILLIAM JOHNSON, PRESIDENT
(principal executive officer)
/S/ MARK D. CURTIS
------------------------------------
MARK D. CURTIS
SENIOR VICE PRESIDENT AND TREASURER
(principal financial and accounting officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
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 and
discussion.
</LEGEND>
<CIK> 0000740663
<NAME> THE FIRST OF LONG ISLAND CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 20,106,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 57,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 71,560,000
<INVESTMENTS-CARRYING> 189,529,000
<INVESTMENTS-MARKET> 191,549,000
<LOANS> 164,910,000
<ALLOWANCE> 3,652,000
<TOTAL-ASSETS> 512,913,000
<DEPOSITS> 448,464,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,979,000
<LONG-TERM> 0
0
0
<COMMON> 310,000
<OTHER-SE> 61,160,000
<TOTAL-LIABILITIES-AND-EQUITY> 512,913,000
<INTEREST-LOAN> 7,164,000
<INTEREST-INVEST> 7,410,000
<INTEREST-OTHER> 1,310,000
<INTEREST-TOTAL> 15,884,000
<INTEREST-DEPOSIT> 4,811,000
<INTEREST-EXPENSE> 4,811,000
<INTEREST-INCOME-NET> 11,073,000
<LOAN-LOSSES> (100,000)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,555,000
<INCOME-PRETAX> 5,991,000
<INCOME-PRE-EXTRAORDINARY> 5,991,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,062,000
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 5.14
<LOANS-NON> 76,000
<LOANS-PAST> 4,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,579,000
<CHARGE-OFFS> 77,000
<RECOVERIES> 250,000
<ALLOWANCE-CLOSE> 3,652,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>