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, 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 (I.R.S. Employer Identification No.)
of 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 JULY 21, 2000
----- ----------------------------
Common stock, par value 2,920,973
$.10 per share
<PAGE>
THE FIRST OF LONG ISLAND CORPORATION
JUNE 30, 2000
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999 1
CONSOLIDATED STATEMENTS OF INCOME
SIX AND THREE MONTHS ENDED JUNE 30,
2000 AND 1999 2
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000 AND 1999 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 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>
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999*
------------- -------------
<S> <C> <C>
Assets:
Cash and due from banks ......................................................... $ 23,223,000 $ 21,174,000
Federal funds sold .............................................................. 95,700,000 64,000,000
------------- -------------
Cash and cash equivalents ..................................................... 118,923,000 85,174,000
------------- -------------
Investment securities:
Held-to-maturity, at amortized cost (approximate fair
value of $212,234,000 and $187,258,000) ............................... 215,241,000 189,998,000
Available-for-sale, at fair value (amortized cost
of $86,452,000 and $103,125,000) ...................................... 84,740,000 100,865,000
------------- -------------
299,981,000 290,863,000
------------- -------------
Loans:
Commercial and industrial ................................................ 31,741,000 30,296,000
Secured by real estate ................................................... 149,916,000 147,598,000
Consumer ................................................................. 5,790,000 5,284,000
Other .................................................................... 348,000 549,000
------------- -------------
187,795,000 183,727,000
Unearned income .......................................................... (977,000) (953,000)
------------- -------------
186,818,000 182,774,000
Allowance for loan losses ................................................ (1,937,000) (2,033,000)
------------- -------------
184,881,000 180,741,000
------------- -------------
Bank premises and equipment ..................................................... 6,683,000 6,746,000
Prepaid income taxes ............................................................ 243,000 194,000
Deferred income tax benefits .................................................... 919,000 1,197,000
Other assets .................................................................... 5,931,000 5,636,000
------------- -------------
$ 617,561,000 $ 570,551,000
============= =============
Liabilities:
Deposits:
Checking ................................................................. $ 198,131,000 $ 176,869,000
Savings and money market ................................................. 307,986,000 287,799,000
Time, other .............................................................. 24,854,000 23,853,000
Time, $100,000 and over .................................................. 17,019,000 14,668,000
------------- -------------
547,990,000 503,189,000
Accrued expenses and other liabilities .......................................... 3,004,000 3,129,000
------------- -------------
550,994,000 506,318,000
------------- -------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 2,920,973 and 2,962,803 shares ...................... 292,000 296,000
Surplus ......................................................................... 891,000 2,258,000
Retained earnings ............................................................... 66,401,000 63,013,000
------------- -------------
67,584,000 65,567,000
Accumulated other comprehensive income (loss), net of tax ....................... (1,017,000) (1,334,000)
------------- -------------
66,567,000 64,233,000
------------- -------------
$ 617,561,000 $ 570,551,000
============= =============
</TABLE>
*Reclassified to conform to the current period's presentation
See notes to consolidated financial statements
1
<PAGE>
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
---------------------------- ---------------------------
2000 1999* 2000 1999*
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans ..................................................... $7,970,000 $7,467,000 $4,059,000 $3,811,000
Investment securities:
Taxable ............................................... 6,149,000 5,569,000 3,062,000 2,693,000
Nontaxable ............................................ 2,151,000 1,807,000 1,095,000 890,000
Federal funds sold ........................................ 2,178,000 1,586,000 1,268,000 857,000
---------- ---------- ---------- ----------
18,448,000 16,429,000 9,484,000 8,251,000
---------- ---------- ---------- ----------
Interest expense:
Savings and money market deposits ......................... 5,062,000 3,665,000 2,679,000 1,823,000
Time deposits ............................................. 925,000 754,000 478,000 353,000
---------- ---------- ---------- ----------
5,987,000 4,419,000 3,157,000 2,176,000
---------- ---------- ---------- ----------
Net interest income ................................... 12,461,000 12,010,000 6,327,000 6,075,000
Provision for loan losses (credit) ............................ (75,000) -- -- --
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses (credit) .......................... 12,536,000 12,010,000 6,327,000 6,075,000
---------- ---------- ---------- ----------
Noninterest income:
Trust Department income ................................... 575,000 635,000 281,000 278,000
Service charges on deposit accounts ....................... 1,388,000 1,704,000 691,000 817,000
Other ..................................................... 251,000 254,000 132,000 147,000
---------- ---------- ---------- ----------
2,214,000 2,593,000 1,104,000 1,242,000
---------- ---------- ---------- ----------
Noninterest expense:
Salaries .................................................. 4,012,000 3,825,000 2,044,000 1,898,000
Employee benefits ......................................... 1,555,000 1,407,000 775,000 684,000
Occupancy and equipment expense ........................... 1,265,000 1,150,000 623,000 562,000
Other operating expenses .................................. 1,888,000 1,878,000 966,000 951,000
---------- ---------- ---------- ----------
8,720,000 8,260,000 4,408,000 4,095,000
---------- ---------- ---------- ----------
Income before income taxes and transition
adjustment to allowance for loan losses .......... 6,030,000 6,343,000 3,023,000 3,222,000
Income tax expense ............................................ 1,649,000 1,970,000 815,000 1,011,000
---------- ---------- ---------- ----------
Net income before transition adjustment to
allowance for loan losses ......................... 4,381,000 4,373,000 2,208,000 2,211,000
Transition adjustment to allowance for loan
losses, net of income taxes of $655,000 ..................... -- 945,000 -- 945,000
---------- ---------- ---------- ----------
Net Income ............................................ $4,381,000 $5,318,000 $2,208,000 $3,156,000
========== ========== ========== ==========
Weighted average:
Common shares ............................................. 2,943,752 3,083,170 2,936,064 3,071,147
Dilutive stock options .................................... 36,839 55,616 36,639 54,041
---------- ---------- ---------- ----------
2,980,591 3,138,786 2,972,703 3,125,188
========== ========== ========== ==========
Earnings per share before transition
adjustment to allowance for loan losses:
Basic ..................................................... $1.49 $1.42 $.75 $.72
========== ========== ========== ==========
Diluted ................................................... $1.47 $1.39 $.74 $.71
========== ========== ========== ==========
Earnings per share:
Basic ..................................................... $1.49 $1.72 $.75 $1.03
========== ========== ========== ==========
Diluted ................................................... $1.47 $1.69 $.74 $1.01
========== ========== ========== ==========
</TABLE>
*Reclassified to conform to the current period's presentation
See notes to consolidated financial statements
2
<PAGE>
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Six Months Ended June 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 ................... $4,381,000 4,381,000 4,381,000
Repurchase and retirement
of common stock ............ (44,868) (4,000) (1,413,000) (1,417,000)
Exercise of stock options .... 3,038 46,000 46,000
Unrealized gains on available-
for-sale-securities, net of
income taxes ............... 317,000 317,000 317,000
----------
Comprehensive income ......... $4,698,000
==========
Cash dividends declared -
$.34 per share ............... (993,000) (993,000)
--------- --------- ----------- ----------- ----------- -----------
Balance, June 30, 2000 ......... 2,920,973 $ 292,000 $ 891,000 $66,401,000 $(1,017,000) $66,567,000
========= ========= =========== =========== =========== ===========
<CAPTION>
-------------------------------------------------------------------------------------------------
Six Months Ended June 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 ................... $5,318,000 5,318,000 5,318,000
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
income taxes ............... (1,947,000) (1,947,000) (1,947,000)
----------
Comprehensive income.......... $3,371,000
==========
Cash dividends declared -
$.30 per share ............... (907,000) (907,000)
---------- --------- ------------ ------------ ----------- -----------
Balance, June 30, 1999 ....... 3,024,001 $ 302,000 $ 1,295,000 $ 62,360,000 $ (681,000) $63,276,000
========== ========= ============ ============ =========== ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows From Operating Activities:
Net income ........................................................... $ 4,381,000 $ 5,318,000
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 ................................... 47,000 648,000
Depreciation and amortization ................................... 546,000 445,000
Premium amortization on investment securities, net .............. 292,000 383,000
Increase in prepaid income taxes ................................ (49,000) (141,000)
Increase in other assets ........................................ (295,000) (95,000)
Decrease in accrued expenses and other liabilities .............. (111,000) (388,000)
------------- -------------
Net cash provided by operating activities .................. 4,736,000 4,570,000
------------- -------------
Cash Flows From Investing Activities:
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity ................................................ 96,179,000 37,101,000
Available-for-sale .............................................. 9,045,000 6,237,000
Purchase of investment securities:
Held-to-maturity ................................................ (106,721,000) (23,847,000)
Available-for-sale .............................................. (7,365,000) (11,576,000)
Net increase in loans to customers ................................... (4,065,000) (5,328,000)
Purchases of bank premises and equipment ............................. (483,000) (393,000)
------------- -------------
Net cash provided by (used in) investing activities ........ (13,410,000) 2,194,000
------------- -------------
Cash Flows From Financing Activities:
Net increase (decrease) in total deposits ............................ 44,801,000 (3,188,000)
Proceeds from exercise of stock options .............................. 46,000 83,000
Repurchase and retirement of common stock ............................ (1,417,000) (3,015,000)
Cash dividends paid .................................................. (1,007,000) (929,000)
------------- -------------
Net cash provided by (used in) financing activities ........ 42,423,000 (7,049,000)
------------- -------------
Net increase (decrease) in cash and cash equivalents ...................... 33,749,000 (285,000)
Cash and cash equivalents, beginning of year .............................. 85,174,000 92,336,000
------------- -------------
Cash and cash equivalents, end of period .................................. $ 118,923,000 $ 92,051,000
============= =============
Supplemental Schedule of Noncash:
Investing Activities
Unrealized gains (losses) on available-for-sale securities ........... $ 548,000 $ (3,296,000)
Transfer of available-for-sale securities to held-to-maturity category 14,836,000 --
Financing Activities
Cash dividends payable ............................................... $ 993,000 $ 907,000
</TABLE>
The Corporation made interest payments of $5,940,000 and $4,445,000 and income
tax payments of $1,650,000 and $2,118,000 during the six months ended June 30,
2000 and 1999, respectively.
See notes to consolidated financial statements
4
<PAGE>
THE FIRST OF LONG ISLAND CORPORATION AND SUBSIDIARY
JUNE 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 June 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 $1.47 per share for the first half of 2000 as
compared to $1.39 for the same period last year, an increase of approximately
6%. 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 $4,381,000, the Corporation returned 1.51% on average total assets and
13.52% on average total equity. This compares to returns on assets and equity of
1.64% and 13.68%, respectively, for the same period last year. Total assets,
deposits, and capital grew by approximately 14%, 15%, and 5%, respectively, when
comparing balances at June 30, 2000 to those at June 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 and unrealized losses
on available-for-sale securities. 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. Also important were the Corporation's
share repurchase program and a lower tax rate. Negatively affecting earnings
were higher personnel expenses and declines in net interest margin and 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>
Six Months Ended June 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 ......................... $ 73,594 $ 2,178 5.95% $ 68,272 $ 1,586 4.68%
Investment Securities:
Taxable .................................. 200,734 6,149 6.16 185,205 5,569 6.06
Nontaxable (1) ........................... 91,467 3,259 7.13 83,282 2,738 6.58
Loans (1)(2) ............................... 183,494 7,997 8.76 173,201 7,490 8.72
--------- ------- ---- --------- ------- ----
Total interest-earning assets .............. 549,289 19,583 7.16 509,960 17,383 6.86
------- ---- ------- ----
Allowance for loan losses .................. (1,980) (3,640)
--------- ---------
Net interest-earning assets ................ 547,309 506,320
Cash and due from banks .................... 21,158 18,510
Premises and equipment, net ................ 6,725 6,338
Other assets ............................... 6,673 6,026
--------- ---------
$ 581,865 $ 537,194
========= =========
Liabilities and
Stockholders' Equity
Savings and money market deposits .......... $ 294,516 5,062 3.46 $ 270,471 3,665 2.73
Time deposits .............................. 40,808 925 4.56 37,828 754 4.02
--------- ------- ---- --------- ------- ----
Total interest-bearing deposits ............ 335,324 5,987 3.59 308,299 4,419 2.89
--------- ------- ---- --------- ------- ----
Checking deposits (3) ...................... 179,145 161,992
Other liabilities .......................... 2,224 2,419
--------- ---------
516,693 472,710
Stockholders' equity ....................... 65,172 64,484
--------- ---------
$ 581,865 $ 537,194
========= =========
Net interest income (1) .................... $13,596 $12,964
======= =======
Net interest spread (1) .................... 3.57% 3.97%
==== ====
Net interest yield (1) ..................... 4.98% 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 six 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>
Six Months Ended June 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 ......................... $ 124 $ 430 $ 38 $ 592
Investment securities:
Taxable .................................. 468 89 23 580
Nontaxable (1) ........................... 269 229 23 521
Loans (1) .................................. 446 38 23 507
---------- ---------- ---------- ----------
Total interest income ...................... 1,307 786 107 2,200
---------- ---------- ---------- ----------
Interest Expense:
Savings and money
market deposits .......................... 327 974 96 1,397
Time deposits .............................. 60 100 11 171
---------- ---------- ---------- ----------
Total interest expense ..................... 387 1,074 107 1,568
---------- ---------- ---------- ----------
Increase (decrease) in net
interest income .......................... $ 920 $ (288) $ -- $ 632
========== ========== ========== ==========
</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 $632,000, or
4.9%, from $12,964,000 for the first half of 1999 to $13,596,000 for the
comparable period in 2000. As can be seen from the above rate/volume analysis,
the increase is comprised of a positive volume variance of $920,000 and a
negative rate variance of $288,000.
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 half of 2000 to the like period in
1999, average checking deposits increased by $17,153,000, or approximately
10.5%.
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 2000 to the same period in 1999, average
savings and money market deposits increased by $24,045,000, or 8.9%.
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 half of
2000 to the same period last year, and competitive pricing is a significant
contributing factor with respect
8
<PAGE>
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.
Net interest spread and yield were 3.57% and 4.98%, respectively, for the
first half of 2000 as compared to 3.97% and 5.13%, respectively, for the same
period last year. The principal cause for the decrease in spread and yield was
an escalation in general interest rates during the past twelve months. During
this period the federal funds target rate increased by 175 basis points from
4.75% to 6.50% and the Bank raised its prime lending rate and the rates paid on
its money market products. 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 should initially have a negative impact on net
interest income, while sustained higher rates should have the opposite effect.
Allowance and Provision For Loan Losses
The allowance for loan losses was $1,937,000 at June 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 half of 2000 is due
to a $75,000 credit provision for loan losses, chargeoffs of $42,000, and
recoveries of $21,000.
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 80% of total loans outstanding at June 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.
9
<PAGE>
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 June 30,
2000 and December 31, 1999 are as follows:
<TABLE>
<CAPTION>
June 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 ... -- 5
-------- --------
Total risk elements ................................. $ -- $ 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
$316,000, or 18.5%, from $1,704,000 for the first half of 1999 to $1,388,000 for
the same period in 2000. The decrease, which is largely comprised of decreases
in maintenance/activity charges and overdraft check charges, is partially
attributable to 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
$460,000, or 5.6%, from $8,260,000 for the first half of 1999 to $8,720,000 for
the same period in 2000. The increase is primarily comprised of an increase in
salaries of $187,000, or 4.9%, an increase in employee benefits expense of
$148,000, or 10.5%, and an increase in occupancy and equipment expense of
$115,000, or 10%. The increase in employee benefits expense is largely
attributable to increases in executive recruiting fees and retirement expense.
The increase in occupancy and equipment expense is largely attributable to an
increase in depreciation expense resulting primarily from significant equipment
upgrades made in 1999 and planned for 2000.
Income tax expense as a percentage of book income was 27.3% and 31.1% for
the first half 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,
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<PAGE>
the establishment and funding by the Bank of a subsidiary that qualifies as a
real estate investment trust, and the purchase and funding by the Bank of an
investment subsidiary.
Results of Operations - Three Months Ended June 30, 2000 Versus Three Months
Ended June 30, 1999
Net income for the second quarter of 2000 was $2,208,000, or $.74 per
share, as compared to $2,211,000, or $.71 per share, for the same quarter in
1999. The 1999 results are before a $945,000 credit ($.30 per share) resulting
from a transition adjustment to the allowance for loan losses. The primary
reasons for the increase in earnings per share for the quarter are the same as
those discussed with respect to the six month periods.
Capital
Under current regulatory capital standards, banks are classified as well
capitalized, adequately capitalized or undercapitalized. The Corporation's
capital management policy is designed to build and maintain capital levels that
exceed the minimum requirements for a well capitalized bank. The following table
sets forth the Corporation's capital ratios at June 30, 2000 and the minimum
ratios necessary to be classified as well capitalized and adequately
capitalized. The Corporation's capital ratios at June 30, 2000 substantially
exceed the requirements for a well-capitalized bank.
<TABLE>
<CAPTION>
Regulatory Standards
Corporation's ---------------------------------
Capital Ratios at Well Adequately
June 30, 2000 Capitalized Capitalized
----------------- ----------- -----------
<S> <C> <C> <C>
Total Risk-Based Capital Ratio ............. 28.66% 10.00% 8.00%
Tier 1 Risk-Based Capital Ratio ............. 27.86 6.00 4.00
Tier 1 Leverage Capital Ratio ............... 11.36 5.00 4.00
</TABLE>
Total stockholders' equity increased by $2,334,000, or from $64,233,000 at
December 31, 1999 to $66,567,000 at June 30, 2000. The increase in stockholders'
equity is primarily attributable to the combined effect of net income of
$4,381,000, cash dividends of $993,000, and stock repurchases amounting to
$1,417,000.
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 two stock repurchase plans, each for 35,000 shares.
Total shares purchased to date in 2000 are 44,868, 24,476 of which were
purchased under a plan approved in 1999. Currently there are 50,902 shares that
can be purchased under the plans approved in 2000.
Cash Flows and Liquidity
Cash Flows. During the first half of 2000, deposit growth provided cash of
$44,801,000 and operating activities provided cash of $4,736,000. These amounts
were used to increase the balance of cash and cash equivalents by $33,749,000,
fund $13,410,000 in investing activities, pay cash dividends of $1,007,000, and
fund stock repurchases amounting to $1,417,000.
The deposit growth of $44,801,000 is largely comprised of growth in
checking balances of $21,262,000 and growth in money market type balances of
$14,780,000.
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
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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, 2000, the Corporation had
$95,700,000 in federal funds sales, a short-term securities portfolio of
$29,080,000, and available-for-sale securities of $84,740,000. 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 June 30, 2000, while time deposits of $100,000 and over and
other time deposits comprised only 3.1% and 4.5%, 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
should initially have a negative impact on net interest income. However, since
approximately 44% of the Bank's average interest-earning assets are funded by
noninterest-bearing checking deposits and capital, a sustained increase in
interest rates should have a positive impact on net interest income as such
assets reprice at higher rates without an offsetting increase in interest
expense. The opposite should be true of a decrease in interest rates.
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 actively 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
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<PAGE>
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.
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<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 18, 2000 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
----------------------------------------------------------------------
Allen E. Busching 2,088,418 10,421
Paul T. Canarick 2,093,012 5,827
Beverly Ann Gehlmeyer 2,094,304 4,535
J. William Johnson 2,088,616 10,223
----------------------------------------------------------------------
The name of each other director whose term of office as a director
continued after the annual meeting is as follows:
Term as Director
Name Expires
------------------------ ----------------
Howard Thomas Hogan, Jr. 2001
J. Douglas Maxwell, Jr. 2001
John R. Miller III 2001
Walter C. Teagle III 2001
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 two
stock repurchase plans, each for 35,000 shares. Total shares purchased to date
in 2000 are 44,868, 24,476 of which were purchased under a plan approved in
1999. Currently there are 50,902 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
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<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: July 28, 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
