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, 1999
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________________to_________________
Commission file number 0-12220
-------
THE FIRST OF LONG ISLAND CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
NEW YORK 11-2672906
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
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 9, 1999
- ----- -----------------------------
Common stock, par value 3,024,001
$.10 per share
<PAGE>
THE FIRST OF LONG ISLAND CORPORATION
JUNE 30, 1999
INDEX
PAGE
PART I. FINANCIAL INFORMATION NO.
- ------------------------------- ----
ITEM 1. CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998 1
CONSOLIDATED STATEMENTS OF INCOME
SIX AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998 2
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 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
EXHIBITS
- --------
EXHIBIT 27 - FINANCIAL DATA SCHEDULE 17
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Assets:
Cash and due from banks .......................................... $ 17,051,000 $ 16,336,000
Federal funds sold ............................................... 75,000,000 76,000,000
------------- -------------
Cash and cash equivalents ...................................... 92,051,000 92,336,000
------------- -------------
Investment securities:
Held-to-maturity, at amortized cost (approximate fair
value of $173,166,000 and $191,252,000) ................ 174,175,000 187,633,000
Available-for-sale, at fair value (amortized cost
of $90,037,000 and $84,878,000) ........................ 88,884,000 87,021,000
------------- -------------
263,059,000 274,654,000
------------- -------------
Loans:
Commercial and industrial ................................. 30,401,000 28,748,000
Secured by real estate .................................... 139,754,000 132,357,000
Consumer .................................................. 4,801,000 6,366,000
Other ..................................................... 1,967,000 4,119,000
------------- -------------
176,923,000 171,590,000
Unearned income ........................................... (888,000) (872,000)
------------- -------------
176,035,000 170,718,000
Allowance for loan losses ................................. (2,040,000) (3,651,000)
------------- -------------
173,995,000 167,067,000
------------- -------------
Bank premises and equipment ...................................... 6,260,000 6,312,000
Deferred income tax benefits ..................................... 818,000 116,000
Other assets ..................................................... 7,200,000 7,137,000
------------- -------------
$ 543,383,000 $ 547,622,000
============= =============
Liabilities:
Deposits:
Checking .................................................. $ 163,893,000 $ 175,046,000
Savings and money market .................................. 276,978,000 265,684,000
Time, other ............................................... 24,804,000 25,446,000
Time, $100,000 and over ................................... 10,368,000 13,055,000
------------- -------------
476,043,000 479,231,000
Accrued expenses and other liabilities ........................... 2,692,000 3,102,000
Income taxes payable ............................................. 36,000 190,000
------------- -------------
478,771,000 482,523,000
------------- -------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 3,024,001 and 3,095,971 shares ....... 302,000 310,000
Surplus .......................................................... 1,295,000 4,219,000
Retained earnings ................................................ 63,696,000 59,304,000
------------- -------------
65,293,000 63,833,000
Accumulated other comprehensive income, net of tax ............... (681,000) 1,266,000
------------- -------------
64,612,000 65,099,000
------------- -------------
$ 543,383,000 $ 547,622,000
============= =============
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans ....................................... $ 7,467,000 $ 7,164,000 $ 3,811,000 $ 3,648,000
Investment securities:
Taxable .................................. 5,569,000 5,994,000 2,693,000 3,030,000
Nontaxable ............................... 1,807,000 1,416,000 890,000 740,000
Federal funds sold and commercial paper ..... 1,586,000 1,310,000 857,000 677,000
------------ ------------ ------------ ------------
16,429,000 15,884,000 8,251,000 8,095,000
------------ ------------ ------------ ------------
Interest expense:
Savings and money market deposits ........... 3,654,000 3,860,000 1,818,000 1,953,000
Time deposits ............................... 765,000 951,000 358,000 484,000
------------ ------------ ------------ ------------
4,419,000 4,811,000 2,176,000 2,437,000
------------ ------------ ------------ ------------
Net interest income ...................... 12,010,000 11,073,000 6,075,000 5,658,000
Provision for loan losses (credit) ............. -- (100,000) -- (100,000)
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses (credit) ............... 12,010,000 11,173,000 6,075,000 5,758,000
------------ ------------ ------------ ------------
Noninterest income:
Trust Department income ..................... 603,000 635,000 264,000 341,000
Service charges on deposit accounts ......... 1,704,000 1,504,000 817,000 768,000
Other ....................................... 254,000 234,000 147,000 129,000
------------ ------------ ------------ ------------
2,561,000 2,373,000 1,228,000 1,238,000
------------ ------------ ------------ ------------
Noninterest expense:
Salaries .................................... 3,825,000 3,557,000 1,898,000 1,794,000
Employee benefits ........................... 1,407,000 1,362,000 684,000 695,000
Occupancy and equipment expense ............. 1,150,000 1,004,000 562,000 523,000
Other operating expenses .................... 1,878,000 1,632,000 951,000 828,000
------------ ------------ ------------ ------------
8,260,000 7,555,000 4,095,000 3,840,000
------------ ------------ ------------ ------------
Income before income taxes and transition
adjustment to allowance for loan
losses ................................. 6,311,000 5,991,000 3,208,000 3,156,000
Income tax expense ............................. 1,957,000 1,929,000 1,005,000 1,021,000
------------ ------------ ------------ ------------
Net income before transition adjustment to
allowance for loan losses .............. 4,354,000 4,062,000 2,203,000 2,135,000
Transition adjustment to allowance for loan
losses, net of income taxes of $655,000 ...... 945,000 -- 945,000 --
------------ ------------ ------------ ------------
Net Income ............................... $ 5,299,000 $ 4,062,000 $ 3,148,000 $ 2,135,000
============ ============ ============ ============
Weighted average:
Common shares ............................... 3,083,170 3,112,037 3,071,147 3,111,754
Dilutive stock options ...................... 55,616 68,371 54,041 69,754
------------ ------------ ------------ ------------
3,138,786 3,180,408 3,125,188 3,181,508
============ ============ ============ ============
Earnings per share before transition
adjustment to allowance for loan losses:
Basic ....................................... $ 1.41 $ 1.31 $ .72 $ .69
============ ============ ============ ============
Diluted ..................................... $ 1.39 $ 1.28 $ .70 $ .67
============ ============ ============ ============
Earnings per share:
Basic ....................................... $ 1.72 $ 1.31 $ 1.03 $ .69
============ ============ ============ ============
Diluted ..................................... $ 1.69 $ 1.28 $ 1.01 $ .67
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1999
------------------------------------------------------------------------------------------------
Accumulated
Other
Compre- Compre-
Common Stock hensive Retained hensive
Shares Amount Surplus Income Earnings Income Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 ......... 3,095,971 $ 310,000 $ 4,219,000 $59,304,000 $ 1,266,000 $65,099,000
Net Income .................... $ 5,299,000 5,299,000 5,299,000
Repurchase and retirement
of common stock ............. (78,144) (8,000) (3,007,000) (3,015,000)
Exercise of stock options ..... 6,174 83,000 83,000
Unrealized losses on available-
for-sale-securities, net of
tax benefit of $1,349,000 (1,947,000) (1,947,000) (1,947,000)
-----------
Comprehensive income .......... $ 3,352,000
===========
Cash dividends declared -
$.30 per share (907,000) (907,000)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1999 ........... 3,024,001 $ 302,000 $ 1,295,000 $63,696,000 $ (681,000) $64,612,000
=========== =========== =========== =========== =========== ===========
<CAPTION>
------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1998
------------------------------------------------------------------------------------------------
Accumulated
Other
Compre- Compre-
Common Stock hensive Retained hensive
Shares Amount Surplus Income Earnings Income Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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 losses 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
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
Increase (Decrease) in Cash and Cash Equivalents 1999 1998
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income ............................................................... $ 5,299,000 $ 4,062,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses (credit) .................................... -- (100,000)
Transition adjustment to allowance for loan losses .................... (1,600,000) --
Deferred income tax provision ......................................... 648,000 39,000
Depreciation and amortization ......................................... 445,000 344,000
Premium amortization (discount accretion) on investment securities, net 383,000 (144,000)
Increase in other assets .............................................. (63,000) (573,000)
Increase (decrease) in accrued expenses and other liabilities ......... (388,000) 141,000
Decrease in income taxes payable ...................................... (154,000) (28,000)
------------ ------------
Net cash provided by operating activities ........................... 4,570,000 3,741,000
------------ ------------
Cash Flows From Investing Activities:
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity ....................................................... 37,101,000 32,465,000
Available-for-sale ..................................................... 6,237,000 2,909,000
Purchase of investment securities:
Held-to-maturity ....................................................... (23,847,000) (31,161,000)
Available-for-sale ..................................................... (11,576,000) (17,719,000)
Net increase in loans to customers ....................................... (5,328,000) (10,007,000)
Purchases of bank premises and equipment ................................. (393,000) (518,000)
------------ ------------
Net cash provided by (used in) investing activities .................... 2,194,000 (24,031,000)
------------ ------------
Cash Flows From Financing Activities:
Net increase (decrease) in total deposits ................................ (3,188,000) 25,705,000
Proceeds from exercise of stock options .................................. 83,000 160,000
Repurchase and retirement of common stock ................................ (3,015,000) (968,000)
Cash dividends paid ...................................................... (929,000) (830,000)
Cash in lieu of fractional shares on 3-for-2 stock split ................. -- (14,000)
------------ ------------
Net cash provided by (used in) financing activities ................... (7,049,000) 24,053,000
------------ ------------
Net increase (decrease) in cash and cash equivalents ........................ (285,000) 3,763,000
Cash and cash equivalents, beginning of year ................................ 92,336,000 73,843,000
------------ ------------
Cash and cash equivalents, end of period .................................... $ 92,051,000 $ 77,606,000
============ ============
Supplemental Schedule of Noncash:
Investing Activities
Unrealized gains (losses) on available-for-sale securities ............... $ (3,296,000) $ 18,000
Financing Activities
Cash dividends payable ................................................... 907,000 838,000
Tax benefit from exercise of employee stock options ...................... -- 91,000
</TABLE>
The Corporation made interest payments of $4,445,000 and $4,756,000 and income
tax payments of $2,118,000 and $1,919,000 during the six months ended June 30,
1999 and 1998, respectively.
See notes to consolidated financial statements
4
<PAGE>
THE FIRST OF LONG ISLAND CORPORATION AND SUBSIDIARY
JUNE 30, 1999
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, 1999 and 1998 is unaudited; however, such information
reflects all adjustments which are, in the opinion of management, necessary for
a fair statement of results for the interim periods. The December 31, 1998
consolidated balance sheet was derived from the Company's December 31, 1998
audited consolidated financial statements.
2. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is an amount that management currently
believes will be adequate to absorb estimated inherent losses in the Bank's loan
portfolio. In estimating a range for such losses the Bank selectively reviews
individual credits in its portfolio and, for those loans deemed to be impaired,
measures impairment losses based on either the fair value of collateral or the
discounted value of expected future cash flows. Impairment losses for loans that
are not specifically reviewed are determined on a pooled basis taking into
account a variety of factors including historical losses; 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 addition to reviewing its own portfolio, management also considers
relevant loan loss statistics for the Bank's peer group. Because the process for
estimating credit losses and determining the allowance for loan losses as of any
balance sheet date is subjective in nature and requires material estimates,
there is not an exact amount but rather a range for what constitutes an
appropriate allowance.
In the second quarter of 1999 the Bank made a transition adjustment to
reduce its allowance for loan losses by $1,600,000 from $3,640,000 to
$2,040,000. This transition adjustment resulted in an allowance for loan losses
that management believes to be within an acceptable range and was made in
response to an article issued by staff members of the Financial Accounting
Standards Board in April 1999 and subsequent statements issued by staff members
of the Securities and Exchange Commission (the "SEC"). In applying the guidance
contained in the article and statements, which narrowly defines what constitutes
an inherent loan loss for purposes of inclusion in the allowance for loan
losses, management considered factors such as ability to repay and collateral
values as well as the factors discussed above.
The SEC also addressed the accounting that may result from the application
of its guidance and when such accounting should be applied. Pursuant to this,
the reduction in the Bank's allowance was recorded in the second quarter of 1999
and has been accounted for like a change in the application of an accounting
principle.
5
<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
Before the transition adjustment to the allowance for loan losses, the
Corporation earned $1.39 per share in the first half of 1999 as compared to
$1.28 in the same period last year, an increase of almost 9%. Based on net
income before the transition adjustment of $4,354,000, the Corporation returned
1.63% on average total assets and 13.34% on average total equity. This compares
to returns on assets and equity of 1.67% and 13.57%, respectively, for the same
period last year. The second quarter 1999 transition adjustment resulted in a
special nonrecurring credit of $.30 per share, increasing final earnings per
share for the six month period to $1.69. Total assets and deposits each grew by
approximately 6% and total capital grew by approximately 5% when comparing
balances at June 30, 1999 to those at June 30, 1998. The Corporation's capital
ratios continue to substantially exceed the current regulatory criteria for a
well capitalized bank.
The most important factor in the increase in earnings before the transition
adjustment was again an increase in checking account balances. Also important to
the earnings growth were gains in service charge income, money market savings
type balances, and 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.
6
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Six Months Ended June 30,
-----------------------------------------------------------------------
1999 1998
--------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------- --------- ----- --------- --------- -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold and commercial
paper .............................. $ 68,272 $ 1,586 4.86% $ 48,570 $ 1,310 5.44%
Investment Securities
Taxable ............................ 185,205 5,569 6.06 193,917 5,994 6.23
Nontaxable (1)...................... 83,282 2,738 6.58 62,602 2,145 6.85
Loans (1)(2) .......................... 173,201 7,490 8.72 159,953 7,205 9.08
--------- --------- ----- --------- --------- -----
Total interest-earning assets ......... 509,960 17,383 6.86 465,042 16,654 7.21
Allowance for loan losses ............. (3,640) --------- ----- (3,636) --------- -----
--------- ---------
Net interest-earning assets ........... 506,320 461,406
Cash and due from banks ............... 18,510 16,587
Premises and equipment, net ........... 6,338 5,162
Other assets .......................... 7,435 7,130
--------- ---------
$ 538,603 $ 490,285
========= =========
Liabilities and
Stockholders' Equity
Savings and money market deposits ..... $ 268,629 3,654 2.74 $ 239,599 3,860 3.25
Time deposits ......................... 37,862 765 4.07 40,649 951 4.72
--------- --------- ----- --------- --------- -----
Total interest-bearing deposits ....... 306,491 4,419 2.91 280,248 4,811 3.46
--------- --------- ----- --------- --------- -----
Checking deposits(3) .................. 163,832 147,052
Other liabilities ..................... 2,482 2,605
--------- ---------
472,805 429,905
Stockholders' equity .................. 65,798 60,380
--------- ---------
$ 538,603 $ 490,285
========= =========
Net interest income(1) ................ $ 12,964 $ 11,843
========= =========
Net interest spread(1) ................ 3.95% 3.75%
===== =====
Net interest yield(1) ................. 5.13% 5.14%
===== =====
</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 six months of 1999 and
1998 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.
7
<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.
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------
1999 Versus 1998
Increase (decrease) due to changes in:
----------------------------------------
Rate/ Net
Volume Rate Volume(2) Change
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Interest Income:
Federal funds sold and commercial paper $ 531 $ (182) $ (73) $ 276
Investment securities:
Taxable ............................ (269) (163) 7 (425)
Nontaxable(1) ...................... 709 (87) (29) 593
Loans(1) .............................. 597 (288) (24) 285
------- ------- ------- -------
Total interest income ................. 1,568 (720) (119) 729
------- ------- ------- -------
Interest Expense:
Savings and money
market deposits .................... 468 (601) (73) (206)
Time deposits ......................... (65) (130) 9 (186)
------- ------- ------- -------
Total interest expense ................ 403 (731) (64) (392)
------- ------- ------- -------
Increase(decrease) in net
interest income .................... $ 1,165 $ 11 $ (55) $ 1,121
======= ======= ======= =======
</TABLE>
(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 $1,121,000, or
9.5%, from $11,843,000 for the six months ended June 30, 1998 to $12,964,000 for
the comparable period in 1999. As can be seen from the above rate/volume
analysis, the increase is comprised of positive volume and rate variances of
$1,165,000 and $11,000, respectively, and a negative rate/volume variance of
$55,000.
The positive volume variance was largely 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 half of 1999
to the like period in 1998, average checking deposits increased by $16,780,000,
or 11.4%, and average stockholders' equity increased by $5,413,000, or 9.0%.
Also contributing to the positive volume variance was growth in money
market type deposits and the use of such funds to increase the Bank's overnight
position in federal funds sold and to purchase securities and originate loans.
When comparing the first half of 1999 to the same period in 1998, average
savings and money market deposits increased by $29,030,000, or 12.1%.
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, have no associated interest cost. This is the primary
reason that the growth of checking balances has historically been one of the
Corporation's key strategies for increasing earnings per share.
8
<PAGE>
The Bank's calling program is a significant factor that favorably impacted
the growth in average checking balances noted when comparing the first half of
1999 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 believed to be attributable to the Bank's
attention to customer service and excellent conditions in the local economy. The
increase in average capital is attributable to the retention of net income and,
to a much lesser extent, the exercise of employee stock options. The effect of
these items on capital was partially offset by the payment of semi-annual cash
dividends and repurchase and retirement of common stock under the Corporation's
stock repurchase program.
Net interest spread and yield were 3.95% and 5.13%, respectively, for the
first half of 1999 as compared to 3.75% and 5.14%, respectively, for the same
period last year. It would appear that the principal cause for the increase in
spread was that in January 1999 the Bank lowered the rates paid on its
traditional savings and interest-bearing checking products to more align them
with local market conditions.
Allowance and Provision For Loan Losses
The allowance for loan losses was $2,040,000 at June 30, 1999 as compared
to $3,651,000 at December 31, 1998, representing 1.16% and 2.14%, respectively,
of total loans. The reduction in the allowance during the first half of 1999 is
primarily due to the $1,600,000 transition adjustment made in the second
quarter. As further discussed below, the transition adjustment was made in
response to recent guidance issued by staff members of the Financial Accounting
Standards Board and further guidance issued by staff members of the Securities
and Exchange Commission (the "SEC").
The allowance for loan losses is an amount that management currently
believes will be adequate to absorb estimated inherent losses in the Bank's loan
portfolio. In estimating a range for such losses the Bank selectively reviews
individual credits in its portfolio and, for those loans deemed to be impaired,
measures impairment losses based on either the fair value of collateral or the
discounted value of expected future cash flows. Impairment losses for loans that
are not specifically reviewed are determined on a pooled basis taking into
account a variety of factors including historical losses; 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 addition to reviewing its own portfolio, management also considers
relevant loan loss statistics for the Bank's peer group. Because the process for
estimating credit losses and determining the allowance for loan losses as of any
balance sheet date is subjective in nature and requires material estimates,
there is not an exact amount but rather a range for what constitutes an
appropriate allowance.
In the second quarter of 1999 the Bank made a transition adjustment to
reduce its allowance for loan losses by $1,600,000 from $3,640,000 to
$2,040,000. This transition adjustment resulted in an allowance for loan losses
that management believes to be within an acceptable range and was made in
response to an article issued by staff members of the Financial Accounting
Standards Board in April 1999 and subsequent statements issued by staff members
of the Securities and Exchange Commission (the "SEC"). In applying the guidance
contained in the article and statements, which narrowly defines what constitutes
an inherent loan loss for purposes of inclusion in the allowance for loan
9
<PAGE>
losses, management considered factors such as ability to repay and collateral
values as well as the factors discussed above.
The SEC also addressed the accounting that may result from the application
of its guidance and when such accounting should be applied. Pursuant to this,
the reduction in the Bank's allowance was recorded in the second quarter of 1999
and has been accounted for like a change in the application of an accounting
principle.
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
represent approximately 79% of total loans outstanding at June 30, 1999. Since
1987, environmental audits have been instituted, and the 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 Corporation 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, 1998.
June 30, December 31,
1999 1998
---------- ------------
(dollars in thousands)
Nonaccruing loans .................................... $ -- $ 22
Foreclosed real estate ............................... -- --
------ ------
Total nonperforming assets ........................ -- 22
Troubled debt restructings ........................... -- --
Loans past due 90 days or more as to
principal or interest payments and still accruing . -- --
------ ------
Total risk elements ............................... $ -- $ 22
====== ======
Nonaccruing loans as a percentage of total loans ..... .00% .01%
====== ======
Nonperforming assets as a percentage of total loans
and foreclosed real estate ........................ .00% .01%
====== ======
Risk elements as a percentage of total loans and
foreclosed real estate ............................ .00% .01%
====== ======
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 $188,000,
or 7.9%, from $2,373,000 for the first half of 1998 to $2,561,000 for the same
period in 1999. The
10
<PAGE>
increase, which is primarily comprised of increases in maintenance/activity
charges and overdraft check charges, is partially attributable to a revision of
the Bank's service charge schedule during the first half of 1999.
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
$705,000, or 9.3%, from $7,555,000 for the first half of 1998 to $8,260,000 for
the same period in 1999. The increase is largely comprised of an increase in
salaries of $268,000, or 7.5%, an increase in occupancy and equipment expense of
$146,000, or 14.5%, and an increase in other operating expenses of $246,000, or
15.1%. The increase in salaries is primarily attributable to normal annual
salary increases and new branch openings. The Bank opened two commercial banking
offices in Suffolk County, Long Island in the third quarter of 1998, and an
additional commercial banking office in Nassau County, Long Island in January
1999.
The increase in occupancy and equipment expense is primarily attributable
to the new branch openings and significant equipment upgrades made principally
in the Bank's branch system. The increase in other operating expenses, which
includes computer service expense, is partially attributable to the new branch
openings and equipment upgrades.
In addition to the three new branch locations referred to above, the Bank
opened a full-service branch in Rockville Centre, Nassau County, Long Island in
February 1998 and simultaneously closed its Rockville Centre commercial banking
office. Although the new branch locations are expected to positively impact
results of operations on a longer-term basis, the near-term impact is expected
to 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 expects that the negative impact on 1999 net
income before income taxes should not exceed $350,000. The equipment upgrades
have and will continue to negatively impact results of operations because the
new items replaced ones that were fully-depreciated. Management presently
expects the negative impact on 1999 net income before income taxes to be
approximately $375,000.
Income tax expense as a percentage of book income before the transition
adjustment was 31.0% and 32.2% for the first six months of 1999 and 1998,
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 1999 is primarily
attributable to an increase in the amount of tax-exempt income on municipal
securities.
Results of Operations - Three Months Ended June 30, 1999 Versus Three Months
Ended June 30, 1998
Net income for the second quarter of 1999 before the transition adjustment
was $2,203,000, or $.70 per share, as compared to $2,135,000, or $.67 per share,
for the same quarter in 1998. The increase in earnings for the quarter was
primarily due to the net effect of increases in net interest income and
noninterest expense of $417,000 and $255,000, respectively. The significant
reasons for the increases in net interest income and noninterest expense are
substantially the same as those discussed above with regard to the six month
periods.
11
<PAGE>
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, 1999 and the minimum
ratios necessary to be classified as well capitalized and adequately
capitalized. The Corporation's capital ratios at June 30, 1999 substantially
exceed the requirements for a well-capitalized bank.
Regulatory Standards
Corporation's ---------------------------
Capital Ratios at Well Adequately
June 30, 1999 Capitalized Capitalized
------------- ----------- -----------
Total Risk-Based Capital Ratio ... 31.43% 10.00% 8.00%
Tier 1 Risk-Based Capital Ratio ... 30.47 6.00 4.00
Tier 1 Leverage Capital Ratio ..... 12.01 5.00 4.00
Total stockholders' equity decreased by $487,000, or from $65,099,000 at
December 31, 1998 to $64,612,000 at June 30, 1999. The decrease in stockholders'
equity is attributable to common stock repurchases amounting to $3,015,000,
unrealized losses on available-for-sale securities of $1,947,000 and cash
dividends declared of $907,000. The impact of these items was partially offset
by net income of $5,299,000 and proceeds from the exercise of stock options.
Cash Flows and Liquidity
Cash Flows. During the six months ended June 30, 1999, cash and cash
equivalents decreased by $285,000. This decrease, along with $4,570,000 in cash
provided by operations and $2,194,000 in cash provided by investing activities
were used to meet deposit outflow of $3,188,000 and were the primary sources of
funding cash dividends paid of $929,000 and stock repurchases of $3,015,000.
As reflected in the accompanying consolidated balance sheet, the decrease
in deposits is comprised of decreases in checking deposits and time deposits of
$11,153,000 and $3,329,000, respectively, as substantially offset by an increase
in savings and money market deposits of $11,294,000. The decrease in checking
deposits is believed to be cyclical in nature.
Liquidity. The Corporation's primary sources of liquidity are its overnight
position in federal funds sold; its short-term investment securities portfolio
which generally consists of securities purchased to mature within one year and
securities with average lives of one year or less; maturities and monthly
payments on the balance of the investment securities portfolio and the loan
portfolio; and investment securities designated as available-for-sale. At June
30, 1999, the Corporation had $75,000,000 in federal funds sales, a short-term
securities portfolio of $3,166,000, and available-for-sale securities of
$88,884,000. The Corporation's liquidity is enhanced by its stable deposit base
which primarily consists of checking, savings, and money market accounts. Such
accounts comprised 92.6% of total deposits at June 30, 1999, while time deposits
of $100,000 and over and other time deposits comprised only 2.2% and 5.2%,
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.
12
<PAGE>
Market Risk
The Bank invests in interest-earning assets which are funded by
interest-bearing deposits, noninterest-bearing deposits, and capital. The Bank's
results of operations are subject to risk resulting from interest rate
fluctuations generally and from having assets and liabilities that have
different maturity, repricing, prepayment/withdrawal characteristics or do not
have a direct interest cost. 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.
Because the Bank's interest-bearing deposit accounts generally reprice
faster than its loans and investment securities, a decrease in interest rates
should initially have a positive impact on net interest income. However, since
approximately 45% of the Bank's average interest-earning assets are funded by
noninterest-bearing checking deposits and capital, a sustained decrease in
interest rates should have a negative impact on net interest income as such
assets reprice at lower rates without an offsetting reduction in interest
expense. The opposite should be true of an increase in interest rates.
The Corporation's exposure to interest rate risk has not changed
substantially since December 31, 1998.
Year 2000
The Bank began its Year 2000 compliance efforts in 1996 and has established
formal processes for identifying, assessing, and managing the Year 2000 risks
posed by internal bank activities, vendors, and customers. All core data
processing systems have been modified to meet the Year 2000 date change.
The Bank utilizes Fiserv, Inc. ("Fiserv"), one of the largest data
processing providers for banks, savings institutions, and credit unions, to
process the transactions originating from its core banking activities, which
principally include deposits, loans, and the Bank's investment portfolio. Fiserv
has informed the Bank that the software used to process its applications has
been upgraded to be Year 2000 compliant and tested both internally and with
clients. The client testing was performed in accordance with guidelines issued
by various bank regulatory agencies. In the second quarter of 1999 the Bank
completed its conversion to the Year 2000-compliant versions of Fiserv's
software. A Year 2000 failure by Fiserv, of course, could have a significant
adverse impact on the operations of the Bank. Business transactions originated
by the Bank's Trust Department are processed by SEI Investments Company ("SEI").
SEI has modified its processing software to be Year 2000 compliant.
Testing of internal information and embedded technology systems, none of
which are deemed to be mission critical, is complete. In the third quarter of
1998, the Bank completed an initial assessment of the risks posed by its
significant customers and counterparties and is continuing to assess these risks
on an ongoing basis. During the remainder of this year the Bank will continue to
monitor its own internal activities and the plans of its vendors and customers
to address the Year 2000 issue.
13
<PAGE>
For a substantial portion of its internal information and embedded
technology systems, none of which are deemed to be mission critical, the Bank
has contingency/disaster recovery plans in place and is in the process of
developing others where it is reasonably feasible. With respect to significant
outside vendors, the Bank is developing contingency procedures to process
information offline in the event of a Year 2000 failure. The Bank has a plan to
address short-term liquidity needs that may result from Year 2000 issues.
The Bank has upgraded its communication systems and the equipment used in
its branch system. The timing of the upgrades was accelerated as a result of the
Year 2000 issue. The total cost of the upgrades was approximately $1,500,000.
Approximately half of the upgrades were placed in service in the latter part of
1998, and the balance was placed in service in the first quarter of 1999. Other
than the cost of the equipment upgrades, the Bank expects to meet its Year 2000
commitment using internal resources and without incurring significant
incremental expenses. Total incremental expenses are currently expected to be
less than $200,000. Based on current information, management does not expect the
total cost of Year 2000 compliance to materially impact the Corporation's future
results of operations, financial condition, or liquidity.
Legislation
Commercial checking deposits currently account for approximately 25% of the
Bank's total deposits. Congress is currently considering legislation that would
allow commercial customers to cover checks by sweeping funds from
interest-bearing deposit accounts each business day and repeal the prohibition
of the payment of interest on corporate checking deposits in the future.
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.
Forward Looking Statements
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains various forward-looking statements with respect to
financial performance and business matters. Such statements are contained in
sentences including the words "expect" or "could" or "should". The Corporation
cautions that these forward-looking statements are subject to numerous
assumptions, risks and uncertainties, and therefore actual results could differ
materially from those contemplated by the forward-looking statements. In
addition, the Corporation assumes no duty to update forward-looking statements.
14
<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 20, 1999 was called to elect four 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
- --------------------------------------------------------------------------------
Howard Thomas Hogan, Jr. 2,212,076 10,041
J. Douglas Maxwell, Jr. 2,212,526 9,591
John R. Miller III 2,181,721 32,695
Walter C. Teagle III 2,215,083 7,034
- --------------------------------------------------------------------------------
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
- ---- ----------------
Paul T. Canarick 2000
Beverly Ann Gehlmeyer 2000
J. William Johnson 2000
ITEM 5. NONE
ITEM 6. (a) Exhibits: Exhibit 27 - Financial Data Schedule is submitted
herewith
(b) Reports on Form 8-K - NONE
15
<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, 1999 By /s/ J. WILLIAM JOHNSON
--------------------------------------------
J. WILLIAM JOHNSON,
(principal executive officer)
By /s/ MARK D. CURTIS
--------------------------------------------
MARK D. CURTIS
SENIOR VICE PRESIDENT AND TREASURER
(principal financial and accounting officer)
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
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>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 17,051,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 75,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,884,000
<INVESTMENTS-CARRYING> 174,175,000
<INVESTMENTS-MARKET> 173,166,000
<LOANS> 176,035,000
<ALLOWANCE> 2,040,000
<TOTAL-ASSETS> 543,383,000
<DEPOSITS> 476,043,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,728,000
<LONG-TERM> 0
0
0
<COMMON> 302,000
<OTHER-SE> 64,310,000
<TOTAL-LIABILITIES-AND-EQUITY> 543,383,000
<INTEREST-LOAN> 7,467,000
<INTEREST-INVEST> 7,376,000
<INTEREST-OTHER> 1,586,000
<INTEREST-TOTAL> 16,429,000
<INTEREST-DEPOSIT> 4,419,000
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 12,010,000
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,260,000
<INCOME-PRETAX> 6,311,000
<INCOME-PRE-EXTRAORDINARY> 4,354,000
<EXTRAORDINARY> 0
<CHANGES> 945,000
<NET-INCOME> 5,299,000
<EPS-BASIC> 1.72
<EPS-DILUTED> 1.69
<YIELD-ACTUAL> 5.13
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,651,000
<CHARGE-OFFS> 43,000
<RECOVERIES> 32,000
<ALLOWANCE-CLOSE> 2,040,000
<ALLOWANCE-DOMESTIC> 2,040,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
