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 September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _____________to _____________
Commission file number 0-12220
THE FIRST OF LONG ISLAND CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
NEW YORK 11-2672906
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
10 Glen Head Road, Glen Head, New York 11545
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 671-4900
Not Applicable
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT OCTOBER 27, 2000
Common stock, par value 2,889,821
$.10 per share
<PAGE>
THE FIRST OF LONG ISLAND CORPORATION
SEPTEMBER 30, 2000
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 1
CONSOLIDATED STATEMENTS OF INCOME
NINE AND THREE MONTHS ENDED SEPTEMBER 30,
2000 AND 1999 2
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6-13
PART II. OTHER INFORMATION 14
SIGNATURES 15
EXHIBITS
EXHIBIT 27 - FINANCIAL DATA SCHEDULE 16
<PAGE>
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C O N S O L I D A T E D B A L A N C E S H E E T S
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<TABLE>
<CAPTION>
September 30, December 31,
2000 1999*
------------- -------------
<S> <C> <C>
Assets:
Cash and due from banks ......................................................... $ 25,587,000 $ 21,174,000
Federal funds sold .............................................................. 92,500,000 64,000,000
------------- -------------
Cash and cash equivalents ..................................................... 118,087,000 85,174,000
------------- -------------
Investment securities:
Held-to-maturity, at amortized cost (approximate fair
value of $217,105,000 and $187,258,000) ............................... 218,462,000 189,998,000
Available-for-sale, at fair value (amortized cost
of $84,378,000 and $103,125,000) ...................................... 83,547,000 100,865,000
------------- -------------
302,009,000 290,863,000
------------- -------------
Loans:
Commercial and industrial ................................................ 29,841,000 30,296,000
Secured by real estate ................................................... 154,104,000 147,598,000
Consumer ................................................................. 5,951,000 5,284,000
Other .................................................................... 929,000 549,000
------------- -------------
190,825,000 183,727,000
Unearned income .......................................................... (998,000) (953,000)
------------- -------------
189,827,000 182,774,000
Allowance for loan losses ................................................ (1,939,000) (2,033,000)
------------- -------------
187,888,000 180,741,000
------------- -------------
Bank premises and equipment ..................................................... 6,566,000 6,746,000
Prepaid income taxes ............................................................ -- 194,000
Deferred income tax benefits .................................................... 408,000 1,197,000
Other assets .................................................................... 6,097,000 5,636,000
------------- -------------
$ 621,055,000 $ 570,551,000
============= =============
Liabilities:
Deposits:
Checking ................................................................. $ 193,108,000 $ 176,869,000
Savings and money market ................................................. 314,979,000 287,799,000
Time, other .............................................................. 26,541,000 23,853,000
Time, $100,000 and over .................................................. 15,414,000 14,668,000
------------- -------------
550,042,000 503,189,000
Accrued expenses and other liabilities .......................................... 2,336,000 3,129,000
Income taxes payable ............................................................ 224,000 --
------------- -------------
552,602,000 506,318,000
------------- -------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 2,889,821 and 2,962,803 shares ...................... 289,000 296,000
Surplus ......................................................................... 1,222,000 2,258,000
Retained earnings ............................................................... 67,437,000 63,013,000
------------- -------------
68,948,000 65,567,000
Accumulated other comprehensive loss, net of tax ................................ (495,000) (1,334,000)
------------- -------------
68,453,000 64,233,000
------------- -------------
$ 621,055,000 $ 570,551,000
============= =============
</TABLE>
*Reclassified to conform to the current period's presentation
See notes to consolidated financial statements
1
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<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------ -----------------------------
2000 1999* 2000 1999*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans .................................................. $ 12,214,000 $ 11,237,000 $ 4,244,000 $ 3,770,000
Investment securities:
Taxable ............................................ 9,320,000 8,569,000 3,171,000 2,994,000
Nontaxable ......................................... 3,311,000 2,748,000 1,160,000 941,000
Federal funds sold ..................................... 3,668,000 2,521,000 1,490,000 941,000
------------ ------------ ------------ ------------
28,513,000 25,075,000 10,065,000 8,646,000
------------ ------------ ------------ ------------
Interest expense:
Savings and money market deposits ...................... 8,059,000 5,725,000 2,997,000 2,060,000
Time deposits .......................................... 1,438,000 1,134,000 513,000 380,000
------------ ------------ ------------ ------------
9,497,000 6,859,000 3,510,000 2,440,000
------------ ------------ ------------ ------------
Net interest income ................................ 19,016,000 18,216,000 6,555,000 6,206,000
Provision for loan losses (credit) ......................... (75,000) -- -- --
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses (credit) ....................... 19,091,000 18,216,000 6,555,000 6,206,000
------------ ------------ ------------ ------------
Noninterest income:
Trust Department income ................................ 859,000 924,000 284,000 289,000
Service charges on deposit accounts .................... 2,167,000 2,491,000 779,000 787,000
Other .................................................. 435,000 417,000 184,000 163,000
------------ ------------ ------------ ------------
3,461,000 3,832,000 1,247,000 1,239,000
------------ ------------ ------------ ------------
Noninterest expense:
Salaries ............................................... 6,096,000 5,789,000 2,084,000 1,964,000
Employee benefits ...................................... 2,278,000 2,062,000 723,000 655,000
Occupancy and equipment expense ........................ 1,903,000 1,719,000 638,000 569,000
Other operating expenses ............................... 2,800,000 2,776,000 912,000 898,000
------------ ------------ ------------ ------------
13,077,000 12,346,000 4,357,000 4,086,000
------------ ------------ ------------ ------------
Income before income taxes and transition
adjustment to allowance for loan losses ....... 9,475,000 9,702,000 3,445,000 3,359,000
Income tax expense ......................................... 2,557,000 3,018,000 908,000 1,048,000
------------ ------------ ------------ ------------
Net income before transition adjustment to
allowance for loan losses ...................... 6,918,000 6,684,000 2,537,000 2,311,000
Transition adjustment to allowance for loan
losses, net of income taxes of $655,000 .................. -- 945,000 -- --
------------ ------------ ------------ ------------
Net Income ......................................... $ 6,918,000 $ 7,629,000 $ 2,537,000 $ 2,311,000
============ ============ ============ ============
Weighted average:
Common shares .......................................... 2,932,961 3,062,559 2,911,380 3,021,336
Dilutive stock options ................................. 37,968 53,013 40,228 47,808
------------ ------------ ------------ ------------
2,970,929 3,115,572 2,951,608 3,069,144
============ ============ ============ ============
Earnings per share before transition
adjustment to allowance for loan losses:
Basic .................................................. $ 2.36 $ 2.18 $ .87 $ .76
============ ============ ============ ============
Diluted ................................................ $ 2.33 $ 2.15 $ .86 $ .75
============ ============ ============ ============
Earnings per share:
Basic .................................................. $ 2.36 $ 2.49 $ .87 $ .76
============ ============ ============ ============
Diluted ................................................ $ 2.33 $ 2.45 $ .86 $ .75
============ ============ ============ ============
</TABLE>
*Reclassified to conform to the current period's presentation
See notes to consolidated financial statements
2
<PAGE>
<TABLE>
<CAPTION>
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C O N S O L I D A T E D S T A T E M E N T S O F C H A N G E S I N S T O C K H O L D E R S ' E Q U I T Y
------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2000
--------------------------------------------------------------------------------------------------
Accumulated
Other
Common Stock Compre- Compre-
--------------------- hensive Retained hensive
Shares Amount Surplus Income Earnings Income (Loss) Total
--------- --------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 ...... 2,962,803 $ 296,000 $ 2,258,000 $ 63,013,000 $ (1,334,000) $ 64,233,000
Net Income .................. $ 6,918,000 6,918,000 6,918,000
Repurchase and retirement
of common stock ........... (81,157) (8,000) (2,683,000) (2,691,000)
Exercise of stock options ... 8,175 1,000 140,000 141,000
Unrealized gains on available-
for-sale-securities, net of
income taxes .............. 839,000 839,000 839,000
------------
Comprehensive income ........ $ 7,757,000
============
Cash dividends declared -
$.34 per share ............ (994,000) (994,000)
Tax benefit of stock options 7,000 7,000
Transfer from retained
earnings to surplus ....... 1,500,000 (1,500,000) --
--------- --------- ----------- ------------ ------------ ------------
Balance, September 30, 2000 ... 2,889,821 $ 289,000 $ 1,222,000 $ 67,437,000 $ (495,000) $ 68,453,000
========= ========= =========== ============ ============ ============
<CAPTION>
--------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 1999
--------------------------------------------------------------------------------------------------
Accumulated
Other
Common Stock Compre- Compre-
--------------------- hensive Retained hensive
Shares Amount Surplus Income Earnings Income (Loss) Total
--------- --------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 ...... 3,095,971 $ 310,000 $ 4,219,000 $ 57,949,000 $ 1,266,000 $ 63,744,000
Net Income .................. $ 7,629,000 7,629,000 7,629,000
Repurchase and retirement
of common stock ........... (90,558) (9,000) (3,463,000) (3,472,000)
Exercise of stock options ... 6,474 86,000 86,000
Unrealized losses on available-
for-sale-securities, net of
income taxes .............. (2,073,000) (2,073,000) (2,073,000)
------------
Comprehensive income ........ $ 5,556,000
============
Cash dividends declared -
$.30 per share ............ (907,000) (907,000)
Transfer from retained
earnings to surplus ....... 1,000,000 (1,000,000) --
--------- --------- ----------- ------------ ------------ ------------
Balance, September 30, 1999 ... 3,011,887 $ 301,000 $ 1,842,000 $ 63,671,000 $ (807,000) $ 65,007,000
========= ========= =========== ============ ============ ============
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
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C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
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<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 2000 1999
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income ........................................................................... $ 6,918,000 $ 7,629,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses (credit) ................................................. (75,000) --
Transition adjustment to allowance for loan losses ................................. -- (1,600,000)
Deferred income tax provision ...................................................... 201,000 642,000
Depreciation and amortization ...................................................... 819,000 669,000
Premium amortization on investment securities, net ................................. 808,000 609,000
Decrease in prepaid income taxes ................................................... 194,000 101,000
Increase in other assets ........................................................... (461,000) (182,000)
Increase (decrease) in accrued expenses and other liabilities ...................... 214,000 (126,000)
Increase in income taxes payable ................................................... 231,000 --
------------- -------------
Net cash provided by operating activities ........................................ 8,849,000 7,742,000
------------- -------------
Cash Flows From Investing Activities:
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity ................................................................... 159,610,000 66,316,000
Available-for-sale ................................................................. 11,016,000 16,367,000
Purchase of investment securities:
Held-to-maturity ................................................................... (173,788,000) (69,999,000)
Available-for-sale ................................................................. (7,365,000) (28,241,000)
Net increase in loans to customers ................................................... (7,072,000) (10,104,000)
Purchases of bank premises and equipment ............................................. (639,000) (1,088,000)
------------- -------------
Net cash used in investing activities ............................................ (18,238,000) (26,749,000)
------------- -------------
Cash Flows From Financing Activities:
Net increase in total deposits ....................................................... 46,853,000 18,197,000
Proceeds from exercise of stock options .............................................. 141,000 86,000
Repurchase and retirement of common stock ............................................ (2,691,000) (3,472,000)
Cash dividends paid .................................................................. (2,001,000) (1,836,000)
------------- -------------
Net cash provided by financing activities ........................................ 42,302,000 12,975,000
------------- -------------
Net increase (decrease) in cash and cash equivalents ................................... 32,913,000 (6,032,000)
Cash and cash equivalents, beginning of year ........................................... 85,174,000 92,336,000
------------- -------------
Cash and cash equivalents, end of period ............................................... $ 118,087,000 $ 86,304,000
============= =============
Supplemental Schedule of Noncash:
Investing Activities
Unrealized gains (losses) on available-for-sale securities ........................... $ 1,427,000 $ (3,510,000)
Transfer of available-for-sale securities to held-to-maturity category ............... 14,836,000 --
Financing Activities
Tax benefit from exercise of employee stock options .................................. $ 7,000 $ --
</TABLE>
The Corporation made interest payments of $9,417,000 and $6,836,000 and income
tax payments of $1,931,000 and $2,931,000 during the nine months ended September
30, 2000 and 1999, respectively.
See notes to consolidated financial statements
4
<PAGE>
THE FIRST OF LONG ISLAND CORPORATION AND SUBSIDIARY
SEPTEMBER 30, 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The First of
Long Island Corporation and its wholly-owned subsidiary, The First National Bank
of Long Island (collectively referred to as the "Corporation").
The consolidated financial information included herein as of and for the
periods ended September 30, 2000 and 1999 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, 1999 consolidated balance sheet was derived from the Company's December 31,
1999 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 $2.33 per share for the first nine months of 2000 as
compared to $2.15 for the same period last year, an increase of approximately
8%. The 1999 earnings are before a $945,000 credit ($.30 per share) resulting
from a transition adjustment to the allowance for loan losses. Based on net
income of $6,918,000, the Corporation returned 1.56% on average total assets and
14.02% on average total equity. This compares to returns on assets and equity of
1.64% and 13.89%, respectively, for the same period last year. Total assets,
deposits, and capital grew by approximately 10%, 11%, and 5%, respectively, when
comparing balances at September 30, 2000 to those at September 30, 1999. Despite
earnings, the growth in capital was suppressed as a result of a significant
level of activity under the Corporation's stock repurchase program. Management
has used the stock repurchase program to enhance earnings per share. 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 per share was an
increase in checking account balances. Negatively affecting earnings were a
lower net interest margin and higher personnel expenses.
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>
Nine Months Ended September 30,
---------------------------------------------------------------------
2000 1999
---------------------------------- -------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------- --------- ---- --------- --------- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold .............. $ 79,237 $ 3,668 6.18% $ 70,236 $ 2,521 4.80%
Investment Securities:
Taxable ....................... 200,989 9,320 6.19 189,446 8,569 6.05
Nontaxable (1) ................ 94,034 5,017 7.11 82,918 4,164 6.70
Loans (1)(2) .................... 184,943 12,254 8.85 174,711 11,262 8.62
--------- --------- ---- --------- --------- ----
Total interest-earning assets ... 559,203 30,259 7.22 517,311 26,516 6.85
--------- ---- --------- ----
Allowance for loan losses ....... (1,968) (3,101)
--------- ---------
Net interest-earning assets ..... 557,235 514,210
Cash and due from banks ......... 21,669 19,675
Premises and equipment, net ..... 6,702 6,361
Other assets .................... 6,460 5,812
--------- ---------
$ 592,066 $ 546,058
========= =========
Liabilities and
Stockholders' Equity
Savings and money market deposits $ 299,636 8,059 3.59 $ 275,643 5,725 2.78
Time deposits ................... 40,895 1,438 4.70 37,970 1,134 3.99
--------- --------- ---- --------- --------- ----
Total interest-bearing deposits . 340,531 9,497 3.73 313,613 6,859 2.92
--------- --------- ---- --------- --------- ----
Checking deposits (3) ........... 183,179 165,815
Other liabilities ............... 2,463 2,273
--------- ---------
526,173 481,701
Stockholders' equity ............ 65,893 64,357
--------- ---------
$ 592,066 $ 546,058
========= =========
Net interest income (1) ......... $ 20,762 $ 19,657
========= =========
Net interest spread (1).......... 3.49% 3.93%
==== ====
Net interest yield (1)........... 4.96% 5.08%
==== ====
</TABLE>
(1) Tax-equivalent basis. Interest income on a tax-equivalent basis includes
the additional amount of interest income that would have been earned if the
Corporation's investment in tax-exempt loans and investment securities had
been made in loans and investment securities subject to Federal income
taxes yielding the same after-tax income. The tax-equivalent amount of
$1.00 of nontaxable income was $1.52 in the first nine months of 2000 and
1999 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 volumes, changes in rates, and changes in rate/volume on tax-equivalent
interest income, interest expense and net interest income.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------------
2000 Versus 1999
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 ................................ $ 323 $ 728 $ 96 $ 1,147
Investment securities:
Taxable ......................................... 523 208 20 751
Nontaxable (1) .................................. 558 260 35 853
Loans (1) ......................................... 660 304 28 992
------- ------- ------- -------
Total interest income ............................. 2,064 1,500 179 3,743
------- ------- ------- -------
Interest Expense:
Savings and money
market deposits ................................. 499 1,683 152 2,334
Time deposits ..................................... 87 199 18 304
------- ------- ------- -------
Total interest expense ............................ 586 1,882 170 2,638
------- ------- ------- -------
Increase (decrease) in net
interest income ................................. $ 1,478 $ (382) $ 9 $ 1,105
======= ======= ======= =======
</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 1,105,000, or
5.6%, from $19,657,000 for the first nine months of 1999 to $20,762,000 for the
comparable period in 2000. As can be seen from the above rate/volume analysis,
the increase is primarily comprised of a positive volume variance of $1,478,000
and a negative rate variance of $382,000.
The positive volume variance was largely caused by growth in average
checking deposits and the use of such funds to purchase investment securities
and originate loans. When comparing the first nine months of 2000 to the like
period in 1999, average checking deposits increased by $17,364,000, or
approximately 10.5%.
Also making a significant contribution 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 nine months of 2000 to the same period
in 1999, average savings and money market deposits increased by $23,993,000, or
8.7%.
Funding interest-earning asset growth with growth in checking deposits has
a greater impact on net interest income than funding such growth with
interest-bearing deposits because checking deposits, 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.
The Bank's calling program is a significant factor that favorably impacted
the growth in average checking balances noted when comparing the first nine
months of 2000 to the
8
<PAGE>
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 favorable conditions in the local economy.
During the latter half of 1999 and the first half of 2000 there was an
escalation in short-term interest rates as evidenced by a 175 basis point
increase in the federal funds target rate. During this same time period, yields
on intermediate-term securities and loans also increased but by lesser amounts.
These factors contributed to the reduction in the Bank's net interest spread and
yield from 3.93% and 5.08%, respectively, for the first nine months of 1999 to
3.49% and 4.96%, respectively, for the same period in 2000. Also contributing to
the reduction were differences between the yields on loans and securities that
matured during the period versus those that were originated.
As more fully discussed in the Market Risk section of this Discussion and
Analysis of Financial Condition and Results of Operations, an increase in
interest rates that equally impacts short and intermediate-term interest-earning
assets and interest-bearing liabilities (the Bank has few long-term assets and
liabilities) should initially have a negative impact on the Bank's net interest
income. However, if short and intermediate-term interest rates are sustained at
the higher levels and the Bank can originate securities and loans at yields
higher than those maturing, the eventual impact on net interest income should be
positive.
Allowance and Provision For Loan Losses
The allowance for loan losses was $1,939,000 at September 30, 2000 as
compared to $2,033,000 at December 31, 1999, representing approximately 1% of
total loans at each date. The change in the allowance during the first nine
months of 2000 is due to a $75,000 credit provision for loan losses, chargeoffs
of $51,000, and recoveries of $32,000.
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. 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.
The amount of future chargeoffs and provisions for loan 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 81% of total loans outstanding at
9
<PAGE>
September 30, 2000. Environmental audits for commercial mortgages were
instituted by the Bank in 1987. 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. The Corporation's risk elements at September
30, 2000 and December 31, 1999 are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(dollars in thousands)
<S> <C> <C>
Nonaccruing loans ........................................ $ -- $ 28
Foreclosed real estate ................................... -- --
---- ----
Total nonperforming assets ............................. -- 28
Troubled debt restructurings ............................. -- --
Loans past due 90 days or more as to
principal or interest payments and still accruing ...... 1 5
---- ----
Total risk elements .................................... $ 1 $ 33
==== ====
Nonaccruing loans as a percentage of total loans ......... .00% .02%
==== ====
Nonperforming assets as a percentage of total loans
and foreclosed real estate ............................. .00% .02%
==== ====
Risk elements as a percentage of total loans and
foreclosed real estate ................................. .00% .02%
==== ====
</TABLE>
Noninterest Income, Noninterest Expense, and Income Taxes
Noninterest income consists primarily of service charges on deposit
accounts and Trust Department income. Service charge income decreased by
$324,000, or 13.0%, from $2,491,000 for the first nine months of 1999 to
$2,167,000 for the same period in 2000. The decrease, which is largely comprised
of decreases in maintenance/activity charges and overdraft check charges, is
attributable to a the loss of several accounts that were large producers of such
income.
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
$731,000, or 5.9%, from $12,346,000 for the first nine months of 1999 to
$13,077,000 for the same period in 2000. The increase is primarily comprised of
an increase in salaries of $307,000, or 5.3%, an increase in employee benefits
expense of $216,000, or 10.5%, and an increase in occupancy and equipment
expense of $184,000, or 10.7%. The increase in employee benefits expense is
largely attributable to increases in retirement expense, payroll taxes, and
incentive compensation. The increase in occupancy and equipment
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<PAGE>
expense is largely attributable to an increase in depreciation expense resulting
from additions made in 1999 and 2000.
Income tax expense as a percentage of book income was 27.0% and 31.1% for
the first nine months of 2000 and 1999, 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 2000 is primarily attributable to an increase in the amount
of tax-exempt income on municipal securities, the establishment and funding by
the Bank of a subsidiary that qualifies as a real estate investment trust, and
the funding by the Bank of its investment subsidiary.
Results of Operations - Three Months Ended September 30, 2000 Versus Three
Months Ended September 30, 1999
Net income for the third quarter of 2000 was $2,537,000, or $.86 per share,
as compared to $2,311,000, or $.75 per share, for the same quarter in 1999.
While service charge income for the first nine months of 2000 was down by
$324,000, the decrease for the third quarter was only $8,000. Service charge
income for the third quarter was positively impacted by price increases that
were phased in during the last two months of the quarter. Earnings for the
quarter were also positively impacted by the receipt of amended tax return
refunds and interest which exceeded that previously accrued by $89,000 and an
increase in the discount rate used to calculated pension expense which resulted
in a $59,000 reduction in pension expense. Other than these items, the primary
reasons for the increase in earnings per share for the quarter are the same as
those discussed with respect to the nine month periods.
Capital
Under current regulatory capital standards, banks are classified as well
capitalized, adequately capitalized or undercapitalized. The Corporation's
capital management policy is designed to build and maintain capital levels that
exceed the minimum requirements for a well capitalized bank. The following table
sets forth the Corporation's capital ratios at September 30, 2000 and the
minimum ratios necessary to be classified as well capitalized and adequately
capitalized. The Corporation's capital ratios at September 30, 2000
substantially exceed the requirements for a well-capitalized bank.
<TABLE>
<CAPTION>
Regulatory Standards
Corporation's -------------------------
Capital Ratios at Well Adequately
September 30, 2000 Capitalized Capitalized
------------------ ----------- -----------
<S> <C> <C> <C>
Total Risk-Based Capital Ratio ............. 29.17% 10.00% 8.00%
Tier 1 Risk-Based Capital Ratio ............. 28.37 6.00 4.00
Tier 1 Leverage Capital Ratio ............... 11.59 5.00 4.00
</TABLE>
Total stockholders' equity increased by $4,220,000, or from $64,233,000 at
December 31, 1999 to $68,453,000 at September 30, 2000. The increase in
stockholders' equity is primarily attributable to the combined effect of net
income of $6,918,000, unrealized gains on available-for-sale securities of
$839,000, cash dividends of $994,000, and stock repurchases amounting to
$2,691,000.
Stock Repurchase Program. Since 1988, the Corporation has had a stock
repurchase program under which it can purchase, from time to time, shares of its
own common stock in market or private transactions. Thus far in 2000 the Board
of Directors has approved three stock repurchase plans, one for 35,000 shares in
February, a second plan for 35,000 shares in July, and the most recent plan for
50,000 shares in October. Total shares
11
<PAGE>
purchased to date in 2000 are 81,157, 24,476 of which were purchased under a
plan approved in 1999. Currently there are 66,268 shares that can be purchased
under the plans approved in 2000.
Cash Flows and Liquidity
Cash Flows. During the first nine months of 2000, deposit growth provided
cash of $46,853,000 and operating activities provided cash of $8,849,000. These
amounts were the principal sources of funding the increase in cash and cash
equivalents by $32,913,000, investing activities of $18,238,000, cash dividends
of $2,001,000, and stock repurchases of $2,691,000.
The deposit growth of $46,853,000 is largely comprised of growth in
checking balances of $16,239,000 and growth in money market type balances of
$27,596,000.
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
September 30, 2000, the Corporation had $92,500,000 in federal funds sales, a
short-term securities portfolio of $25,301,000, and available-for-sale
securities of $83,547,000. The Corporation's liquidity is enhanced by its stable
deposit base which primarily consists of checking, savings, and money market
accounts. Such accounts comprised 92.4% of total deposits at September 30, 2000,
while time deposits of $100,000 and over and other time deposits comprised only
2.8% and 4.8%, 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 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 maximize net interest
income while at the same time maintaining acceptable levels of interest rate and
liquidity risk and facilitating the funding needs of the Bank.
Because the Bank's loans and investment securities generally reprice slower
than its interest-bearing deposit accounts, an increase in interest rates that
equally impacts short and intermediate-term interest-earning assets and
interest-bearing liabilities (the Bank has few long-term assets and liabilities)
should initially have a negative impact on the Bank's net interest income.
However, since approximately 45% of the Bank's average interest-earning assets
are funded by noninterest-bearing checking deposits and capital, if short and
intermediate-term interest rates are sustained at the higher levels and the Bank
can
12
<PAGE>
originate securities and loans at yields higher than those maturing, the
eventual impact on net interest income should be positive.
It is believed that the Corporation's exposure to interest rate risk has
not changed materially since December 31, 1999.
Legislation
Commercial checking deposits currently account for approximately 27% of the
Bank's total deposits. Congress is considering legislation that would allow
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 permitting
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" or "would". 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.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. NONE
ITEM 2. NONE
ITEM 3. NONE
ITEM 4. NONE
ITEM 5. STOCK REPURCHASE PROGRAM
Since 1988, the Corporation has had a stock repurchase program under which
it can purchase, from time to time, shares of its own common stock in market or
private transactions. Thus far in 2000 the Board of Directors has approved three
stock repurchase plans, one for 35,000 shares in February, a second plan for
35,000 shares in July, and the most recent plan for 50,000 shares in October.
Total shares purchased to date in 2000 are 81,157, 24,476 of which were
purchased under a plan approved in 1999. Currently there are 66,268 shares that
can be purchased under the plans approved in 2000.
ITEM 6. (a) Exhibits: Exhibit 27 - Financial Data Schedule is submitted herewith
(b) Reports on Form 8-K - None
14
<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: November 8, 2000 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)
15
