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 March 31, 1999
--------------------------------------------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _________________ to __________________
Commission file number 0-12220
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
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 MAY 3, 1999
- ----- --------------------------
Common stock, par value 3,092,752
$.10 per share
<PAGE>
THE FIRST OF LONG ISLAND CORPORATION
MARCH 31, 1999
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
ITEM 1. CONSOLIDATED BALANCE SHEETS
- ------- MARCH 31, 1999 AND DECEMBER 31, 1998 1
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 2
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 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>
March 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Assets:
Cash and due from banks .................................... $ 18,337,000 $ 16,336,000
Federal funds sold ......................................... 73,500,000 76,000,000
------------- -------------
Cash and cash equivalents ................................ 91,837,000 92,336,000
------------- -------------
Investment securities:
Held-to-maturity, at amortized cost (approximate fair
value of $181,467,000 and $191,252,000) .......... 179,121,000 187,633,000
Available-for-sale, at fair value (amortized cost
of $85,036,000 and $84,878,000) .................. 86,103,000 87,021,000
------------- -------------
265,224,000 274,654,000
------------- -------------
Loans:
Commercial and industrial ........................... 29,643,000 28,748,000
Secured by real estate .............................. 134,501,000 132,357,000
Consumer ............................................ 5,983,000 6,366,000
Other ............................................... 994,000 4,119,000
------------- -------------
171,121,000 171,590,000
Unearned income ..................................... (847,000) (872,000)
------------- -------------
170,274,000 170,718,000
Allowance for loan losses ........................... (3,634,000) (3,651,000)
------------- -------------
166,640,000 167,067,000
------------- -------------
Bank premises and equipment ................................ 6,366,000 6,312,000
Deferred income tax benefits ............................... 553,000 116,000
Other assets ............................................... 7,600,000 7,137,000
------------- -------------
$ 538,220,000 $ 547,622,000
============= =============
Liabilities:
Deposits:
Checking ............................................ $ 160,048,000 $ 175,046,000
Savings and money market ............................ 271,495,000 265,684,000
Time, other ......................................... 25,073,000 25,446,000
Time, $100,000 and over ............................. 12,887,000 13,055,000
------------- -------------
469,503,000 479,231,000
Accrued expenses and other liabilities ..................... 1,505,000 3,102,000
Income taxes payable ....................................... 795,000 190,000
------------- -------------
471,803,000 482,523,000
------------- -------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 3,092,540 and
3,095,971 shares .................................... 309,000 310,000
Surplus .................................................... 4,023,000 4,219,000
Retained earnings .......................................... 61,455,000 59,304,000
------------- -------------
65,787,000 63,833,000
Accumulated other comprehensive income, net of tax ......... 630,000 1,266,000
------------- -------------
66,417,000 65,099,000
------------- -------------
$ 538,220,000 $ 547,622,000
============= =============
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
================================================================================
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
1999 1998
---------- ----------
<S> <C> <C>
Interest income:
Loans ............................................ $3,656,000 $3,516,000
Investment securities:
Taxable ...................................... 2,876,000 2,964,000
Nontaxable ................................... 917,000 676,000
Federal funds sold ............................... 729,000 633,000
---------- ----------
8,178,000 7,789,000
---------- ----------
Interest expense:
Savings and money market deposits ................ 1,836,000 1,907,000
Time deposits .................................... 407,000 467,000
---------- ----------
2,243,000 2,374,000
---------- ----------
Net interest income ............................ 5,935,000 5,415,000
Provision for loan losses ............................ -- --
---------- ----------
Net interest income after provision for loan losses .. 5,935,000 5,415,000
---------- ----------
Noninterest income:
Trust Department income .......................... 339,000 294,000
Service charges on deposit accounts .............. 887,000 736,000
Other ............................................ 107,000 105,000
---------- ----------
1,333,000 1,135,000
---------- ----------
Noninterest expense:
Salaries ......................................... 1,927,000 1,763,000
Employee benefits ................................ 723,000 667,000
Occupancy and equipment expense .................. 588,000 481,000
Other operating expenses ......................... 927,000 804,000
---------- ----------
4,165,000 3,715,000
---------- ----------
Income before income taxes ....................... 3,103,000 2,835,000
Income tax expense ............................... 952,000 908,000
---------- ----------
Net income ..................................... $2,151,000 $1,927,000
========== ==========
Weighted average:
Common shares .................................... 3,095,194 3,112,321
Dilutive stock options ........................... 57,191 66,987
---------- ----------
3,152,385 3,179,308
========== ==========
Earnings per share:
Basic ............................................ $ .69 $ .62
========== ==========
Diluted .......................................... $ .68 $ .61
========== ==========
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
================================================================================
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
===============================================================================================
Three Months Ended March 31, 1999
===============================================================================================
Accumulated
Other
Common Stock Compre- Compre-
--------------------- 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 .................... $2,151,000 2,151,000 2,151,000
Repurchase and retirement
of common stock ............. (5,030) (1,000) (213,000) (214,000)
Exercise of stock options ..... 1,599 -- 17,000 17,000
Unrealized losses on available-
for-sale-securities, net of
tax of $440,000 ........... (636,000) (636,000) (636,000)
----------
Comprehensive income .......... $1,515,000
--------- -------- ---------- ========== ----------- -------- -----------
Balance, March 31, 1999 ......... 3,092,540 $309,000 $4,023,000 $61,455,000 $630,000 $66,417,000
========= ======== ========== =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
===============================================================================================
Three Months Ended March 31, 1998
===============================================================================================
Accumulated
Other
Common Stock Compre- Compre-
--------------------- 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 ........................ $1,927,000 1,927,000 1,927,000
Repurchase and retirement
of common stock ................. (2,424) -- (97,000) (97,000)
Exercise of stock options ......... 1,927 -- 34,000 34,000
Unrealized losses on available-
for-sale-securities, net of
tax of $35,000 .................. (48,000) (48,000) (48,000)
----------
Comprehensive income .............. $1,879,000
==========
Cash in lieu of fractional shares .
on 3-for-2 stock split ........... (14,000) (14,000)
Tax benefit of stock options ...... 22,000 22,000
--------- -------- ---------- ----------- -------- -----------
Balance, March 31, 1998 ............. 3,112,564 $311,000 $5,430,000 $54,630,000 $419,000 $60,790,000
========= ======== ========== =========== ======== ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
Increase (Decrease) in Cash and Cash Equivalents 1999 1998
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income ............................................................ $ 2,151,000 $ 1,927,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income tax provision ....................................... 3,000 31,000
Depreciation and amortization ....................................... 307,000 163,000
Premium amortization (discount accretion) on
investment securities, net ........................................ 159,000 (108,000)
Increase in other assets ............................................ (463,000) (307,000)
Decrease in accrued expenses and other liabilities .................. (668,000) (384,000)
Increase in income taxes payable .................................... 605,000 632,000
------------ ------------
Net cash provided by operating activities ......................... 2,094,000 1,954,000
------------ ------------
Cash Flows From Investing Activities:
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity .................................................... 17,760,000 13,231,000
Available-for-sale .................................................. 3,725,000 --
Purchase of investment securities:
Held-to-maturity .................................................... (9,326,000) (10,531,000)
Available-for-sale .................................................. (3,964,000) (7,084,000)
Net decrease (increase) in loans to customers ....................... 427,000 (4,061,000)
Purchases of bank premises and equipment ............................ (361,000) (310,000)
------------ ------------
Net cash provided by (used in) investing activities ............... 8,261,000 (8,755,000)
------------ ------------
Cash Flows From Financing Activities:
Net increase (decrease) in total deposits ........................... (9,728,000) 4,067,000
Proceeds from exercise of stock options ............................. 17,000 34,000
Repurchase and retirement of common stock ........................... (214,000) (97,000)
Cash dividends paid ................................................. (929,000) (843,000)
------------ ------------
Net cash provided by (used in) financing activities ................. (10,854,000) 3,161,000
------------ ------------
Net decrease in cash and cash equivalents ............................. (499,000) (3,640,000)
Cash and cash equivalents, beginning of year .......................... 92,336,000 73,843,000
------------ ------------
Cash and cash equivalents, end of period .............................. $ 91,837,000 $ 70,203,000
============ ============
Supplemental Schedule of Noncash:
Investing Activities
Unrealized losses on available-for-sale securities .................. $ (1,076,000) $ (83,000)
Financing Activities
Tax benefit from exercise of employee stock options ................ -- 22,000
</TABLE>
The Corporation made interest payments of $2,252,000 and $2,344,000 and income
tax payaments of $344,000 and $246,000 during the three months ended March 31,
1999 and 1998, respectively.
See notes to consolidated financial statements
4
<PAGE>
THE FIRST OF LONG ISLAND CORPORATION AND SUBSIDIARY
MARCH 31, 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 March 31, 1999 and 1998 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, 1998 consolidated balance
sheet was derived from the Company's December 31, 1998 audited consolidated
financial statements.
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
The Corporation earned $.68 per share in the first quarter of 1999 as
compared to $.61 in the same quarter last year, an increase of approximately
11%. Based on first quarter 1999 net income of $2,151,000, the Corporation
returned 1.63% on average total assets and 13.29% on average total equity. This
compares to returns on assets and equity of 1.62% and 13.09%, respectively, for
the same period last year. Total assets and deposits each grew by approximately
10% and total capital grew by approximately 9% when comparing balances at March
31, 1999 to those at March 31, 1998. 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
quarter of 1999 when compared to the same period last year was growth in average
checking balances. Average checking balances were approximately $161.8 million
for the first quarter this year as compared to $141.4 million for the same
quarter last year, an increase of 14.4%. Earnings were also favorably impacted
by a 20.5% increase in service charge income.
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>
Three Months Ended March 31,
--------------------------------------------------------------------------------
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 ......................... $ 63,398 $ 729 4.66% $ 47,089 $ 633 5.45%
Investment Securities
Taxable .................................. 188,298 2,876 6.19 192,433 2,964 6.25
Nontaxable (1) ........................... 83,187 1,389 6.68 59,682 1,024 6.86
Loans (1)(2) ............................... 172,168 3,672 8.65 157,969 3,537 9.08
-------- ------ ---- -------- ------ ----
Total interest-earning assets .............. 507,051 8,666 6.91 457,173 8,158 7.23
------ ---- ------ ----
Allowance for loan losses .................. (3,660) (3,581)
-------- --------
Net interest-earning assets ................ 503,391 453,592
Cash and due from banks .................... 18,095 16,299
Premises and equipment, net ................ 6,350 5,138
Other assets ............................... 7,070 6,860
-------- --------
$534,906 $481,889
======== ========
Liabilities and
Stockholders' Equity
Savings and money market deposits .......... $265,345 1,836 2.81 $238,235 1,907 3.25
Time deposits .............................. 39,430 407 4.19 39,870 467 4.75
-------- ------ ---- -------- ------ ----
Total interest-bearing deposits ............ 304,775 2,243 2.98 278,105 2,374 3.46
-------- ------ ---- -------- ------ ----
Checking deposits (3) ...................... 161,846 141,440
Other liabilities .......................... 2,650 2,622
-------- --------
469,271 422,167
Stockholders' equity ....................... 65,635 59,722
-------- --------
$534,906 $481,889
======== ========
Net interest income (1) .................... $6,423 $5,784
====== ======
Net interest spread (1) .................... 3.93% 3.77%
==== ====
Net interest yield (1) ..................... 5.14% 5.13%
==== ====
</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 quarters 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.
Three Months Ended March 31,
---------------------------------------
1999 Versus 1998
Increase (decrease) due to changes in:
-----------------------------------------
Rate/ Net
Volume Rate Volume (2) Change
------ ---- ---------- ------
(in thousands)
Interest Income:
Federal funds sold ................. $219 $(92) $(31) $96
Investment securities
Taxable .......................... (64) (25) 1 (88)
Nontaxable (1) ................... 403 (27) (11) 365
Loans (1) .......................... 318 (168) (15) 135
----- ----- ----- -----
Total interest income .............. 876 (312) (56) 508
----- ----- ----- -----
Interest Expense:
Savings and money
market deposits .................. 217 (259) (29) (71)
Time deposits ...................... (5) (55) -- (60)
----- ----- ----- -----
Total interest expense ............. 212 (314) (29) (131)
----- ----- ----- -----
Increase (decrease) in net
interest income .................. $664 $2 $(27) $639
===== ===== ===== =====
- ----------
(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 $639,000, or
11.0%, from $5,784,000 for the three months ended March 31, 1998 to $6,423,000
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
$664,000 and $2,000, respectively, and a negative rate/volume variance of
$27,000.
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 quarter of
1999 to the like period in 1998, average checking deposits increased by
$20,406,000, or 14.4%, and average stockholders' equity increased by $5,913,000,
or 9.9%.
Also contributing to the positive volume variance was growth in savings
and money market 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 quarter of 1999 to the same period in
1998, average savings and money market deposits increased by $27,110,000, or
11.4%.
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 quarter
of 1999 to the same quarter 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 improved 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 3.93% and 5.14%, respectively, for the
first quarter of 1999 as compared to 3.77% and 5.13%, respectively, for the same
quarter in 1998. 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 align them with
local market conditions.
Allowance and Provision For Loan Losses
The allowance for loan losses was $3,634,000 at March 31, 1999 as compared
to $3,651,000 at December 31, 1998, representing 2.1% of total loans at each
date. The change in the allowance during the first quarter of 1999 is due to
recoveries of $21,000 and chargeoffs of $38,000.
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.
No provision for loan losses was deemed necessary for the first quarter of
1999. 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 79.0% of total loans outstanding at March 31, 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
9
<PAGE>
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.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(dollars in thousands)
<S> <C> <C>
Nonaccruing loans ........................................ $97 $22
Foreclosed real estate ................................... -- --
---- ------
Total nonperforming assets ............................. 97 22
Troubled debt restructurings ............................. -- --
Loans past due 90 days or more as to
principal or interest payments and still accruing ...... -- --
---- ------
Total risk elements .................................... $97 $22
==== ======
Nonaccruing loans as a percentage of total loans ......... .06% .01%
==== ======
Nonperforming assets as a percentage of total loans
and foreclosed real estate ............................. .06% .01%
==== ======
Risk elements as a percentage of total loans and
foreclosed real estate ................................. .06% .01%
==== ======
</TABLE>
Noninterest Income, Noninterest Expense, and Income Taxes
Noninterest income consists primarily of service charges on deposit
accounts and Trust Department income. Noninterest income increased by $198,000,
or 17.4%, from $1,135,000 for the first quarter of 1998 to $1,333,000 for the
same quarter in 1999. The increase, which is primarily comprised of increases in
maintenance/activity charges, return check charges, and Trust Department income,
is partially attributable to a revision of the Bank's service charge schedule
during the first quarter 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
$450,000, or 12.1%, from $3,715,000 for the first quarter of 1998 to $4,165,000
for the same quarter in 1999. The increase is largely comprised of an increase
in salaries of $164,000, or 9.3%, an increase in occupancy and equipment expense
of $107,000, or 22.2%, and an increase in other operating expenses of $123,000,
or 15.3%. 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 is largely
attributable to the new branch openings.
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
10
<PAGE>
- -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 expects the negative impact on 1999 net income
before income taxes to be approximately $450,000.
Income tax expense as a percentage of book income was 30.7% and 32.0% for
the first quarters 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.
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 March 31, 1999 and the minimum
ratios necessary to be classified as well capitalized and adequately
capitalized. The Corporation's capital ratios at March 31, 1999 substantially
exceed the requirements for a well-capitalized bank.
<TABLE>
<CAPTION>
Regulatory Standards
Corporation's ---------------------------
Capital Ratios at Well Adequately
March 31, 1999 Capitalized Capitalized
-------------- ----------- -----------
<S> <C> <C> <C>
Total Risk-Based Capital Ratio .... 32.78% 10.00% 8.00%
Tier 1 Risk-Based Capital Ratio .... 31.52 6.00 4.00
Tier 1 Leverage Capital Ratio ...... 12.28 5.00 4.00
</TABLE>
Total stockholders' equity increased by $1,318,000, or from $65,099,000 at
December 31, 1998 to $66,417,000 at March 31, 1999. The increase in
stockholders' equity is primarily attributable to the combined effect of net
income of $2,151,000, repurchases of common stock amounting to $214,000, and
unrealized losses on available-for-sale securities of $636,000.
Cash Flows and Liquidity
Cash Flows. During the three months ended March 31, 1999, cash and cash
equivalents decreased by $499,000. This decrease, along with $2,094,000 in cash
provided by operations and $8,261,000 in cash provided by investing activities
were used to meet deposit outflow of $9,728,000 and were the primary sources of
funding cash dividends paid of $929,000 and capital expenditures of $361,000.
As reflected in the accompanying consolidated balance sheet, the decrease
in deposits is primarily comprised of a decrease in checking deposits of
$14,998,000 as partially offset by an increase in savings and money market
deposits of $5,811,000. The decrease in checking deposits is believed to be
cyclical in nature in that the Bank has previously experienced declines in
checking account balances during the first few months of the year. The decrease
in loans during the first quarter of 1999 is primarily attributable to a
decrease in overdrafts.
11
<PAGE>
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 March
31, 1999, the Corporation had $73,500,000 in federal funds sales, a short-term
securities portfolio of $12,033,000, and available-for-sale securities of
$86,103,000. The Corporation's liquidity is enhanced by its stable deposit base
which primarily consists of checking, savings, and money market accounts. Such
accounts comprised 91.9% of total deposits at March 31, 1999, while time
deposits of $100,000 and over and other time deposits comprised only 2.8% and
5.3%, 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
risk resulting from interest rate fluctuations to the extent that there is a
difference between the amount of the Bank's interest-earning assets and the
amount of interest-bearing liabilities that mature, reprice, or are
prepaid/withdrawn 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.
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 40% of the Bank's 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. Overall, the Bank has
made excellent progress including remediation of the data processing systems
used in its core banking activities. Installation of those systems is
substantially complete and is expected to be finalized in the next few weeks.
Testing will continue throughout 1999.
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
12
<PAGE>
investment portfolio. Fiserv has informed the Bank that the software used to
process its applications has been upgraded to be Year 2000 compliant, tested
(including client proxy testing), and made available for use. The proxy testing
conducted by Fiserv, which the Bank has reviewed and will rely on, was performed
in accordance with guidelines issued by various bank regulatory agencies. For
all but one of its applications, the Bank has already converted to the Year
2000-compliant versions of Fiserv's software. The remaining application should
be converted by the end of May of this year. Testing by Fiserv will continue
during the remainder of 1999. A Year 2000 failure by Fiserv could have a
significant adverse impact on the operations of the Bank.
Testing of internal information and embedded technology systems, none of
which are deemed to be mission critical, is ongoing but was substantially
completed in 1998. 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.
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 is also
currently developing plans 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 is 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.
13
<PAGE>
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. NONE
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: May 11, 1999 By /s/ J. WILLIAM JOHNSON
------------------------------------
J. WILLIAM JOHNSON, PRESIDENT
(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> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 18,337,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 73,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 86,103,000
<INVESTMENTS-CARRYING> 179,121,000
<INVESTMENTS-MARKET> 181,467,000
<LOANS> 170,274,000
<ALLOWANCE> 3,634,000
<TOTAL-ASSETS> 538,220,000
<DEPOSITS> 469,503,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,300,000
<LONG-TERM> 0
0
0
<COMMON> 309,000
<OTHER-SE> 66,108,000
<TOTAL-LIABILITIES-AND-EQUITY> 538,220,000
<INTEREST-LOAN> 3,656,000
<INTEREST-INVEST> 3,793,000
<INTEREST-OTHER> 729,000
<INTEREST-TOTAL> 8,178,000
<INTEREST-DEPOSIT> 2,243,000
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 5,935,000
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,165,000
<INCOME-PRETAX> 3,103,000
<INCOME-PRE-EXTRAORDINARY> 3,103,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,151,000
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 5.14
<LOANS-NON> 97,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,651,000
<CHARGE-OFFS> 38,000
<RECOVERIES> 21,000
<ALLOWANCE-CLOSE> 3,634,000
<ALLOWANCE-DOMESTIC> 3,634,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
