-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G8jL0ROdzbgclcueVG0jc3Mg8XnoR+2xB9CNLPPgTdbpzPiRj0+38zgW55p2fQw8 wQ+i+4nPG+2BsH06Lqs6hg== 0000891554-02-001653.txt : 20020415 0000891554-02-001653.hdr.sgml : 20020415 ACCESSION NUMBER: 0000891554-02-001653 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST OF LONG ISLAND CORP CENTRAL INDEX KEY: 0000740663 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 112672906 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12220 FILM NUMBER: 02593321 BUSINESS ADDRESS: STREET 1: 10 GLEN HEAD RD CITY: GLEN HEAD STATE: NY ZIP: 11545 BUSINESS PHONE: 5166714900 MAIL ADDRESS: STREET 1: 10 GLEN HEAD ROAD CITY: GLEN HEAD STATE: NY ZIP: 11545 10-K 1 d50058_10k.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ----------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2001 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, NY 11545 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (516) 671-4900 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered None N/A Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value per share (Title of class) 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 requirement for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] [Cover page 1 of 2 pages] The aggregate market value of the Corporation's voting stock (based on the price at which the stock was last sold on March 12, 2002) held by non-affiliates was $90,595,686 (excludes $15,369,746 representing the market value of common stock beneficially owned by directors and executive officers of the Registrant). Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding March 12, 2002 Common Stock, $.10 par value 2,788,564 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Corporation's Annual Report to shareholders for the fiscal year ended December 31, 2001 are incorporated by reference into Parts II and IV. Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held April 16, 2002 are incorporated by reference into Part III. [Cover page 2 of 2 pages] PART I ITEM 1. BUSINESS General The First of Long Island Corporation (the "Registrant" or the "Corporation"), a one-bank holding Company, was incorporated on February 7, 1984 for the purpose of providing financial services through its wholly-owned subsidiary, The First National Bank of Long Island (the "Bank"). The Bank was organized in 1927 as a national banking association under the laws of the United States of America and was known as the First National Bank of Glen Head through June 30, 1978. The Bank has an Investment Division and has conducted a limited amount of insurance business through The First of Long Island Agency, Inc. (the "Agency"), a wholly-owned subsidiary. The Bank serves the financial needs of privately owned businesses, professionals, consumers, public bodies, and other organizations primarily in Nassau and Suffolk Counties, Long Island. The principal business of the Bank has historically consisted of attracting business and consumer checking, money market and savings deposits and investing those funds in investment securities, commercial and residential mortgage loans, commercial loans, and home equity loans and lines. The Corporation's loan portfolio is primarily comprised of loans to borrowers in Nassau and Suffolk Counties and real estate loans are principally secured by properties located in these Counties. The Bank's investment securities portfolio is comprised of U.S. Treasury securities, U.S. government agency securities (principally modified pass-through, mortgage-backed securities of Federal agencies), collateralized mortgage obligations, state and municipal securities, corporate bonds and commercial paper. The Bank also regularly sells federal funds on an overnight basis to a number of banking institutions. The Bank offers a variety of deposit products having a wide range of interest rates and terms. The principal products include checking accounts, money market type accounts, savings accounts, escrow service and IOLA (interest on lawyer) accounts, and time deposit accounts. In addition to its loan and deposit products, the Bank offers other services to its customers including the following: o ATM Banking o Payroll Services o Bank by Mail o Safe Deposit Boxes o Bill Payment Using PC or Telephone Banking o Securities Transactions o Collection Services o Signature Guarantee Services o Counter Checks and Certified Checks o Telephone Banking o Drive-Through Banking o Travelers Checks o Gift Checks and Personal Money Orders o Trust and Investment Management Services o Internet PC Banking For Personal and Commercial Customers o U.S. Savings Bonds o Merchant Credit Card Depository Services o Wire Transfers and Foreign Cables o Night Depository Services o Withholding Tax Depository Services
The Investment Division provides investment management, pension trust, personal trust, estate, and custody services. The Agency is a licensed insurance agency which was organized in 1994 under the laws of the State of New York and has primarily engaged in the sale of fixed rate annuity products. In 2001, the Bank opened one new commercial banking office which is located in Deer Park, Long Island. In January 2002, the Bank closed its Cross Island Plaza office after fifteen months of operation because the available business opportunities were less than anticipated. In the coming years, the Bank will continue to search for favorable locations at which to establish new branches, with continued emphasis on the commercial banking unit type. In addition to the new branch office discussed above, the Bank has a main office located in Huntington, New York, eight other full service offices (Glen Head, Greenvale, Locust Valley, Northport, Old Brookville, Rockville Centre, Roslyn Heights, Woodbury) and eleven commercial banking offices (Allen Boulevard, Bohemia, Garden City, Great Neck, Hauppauge, Hicksville, Lake Success, Mineola, New Highway, New Hyde Park, Valley Stream), all of which are in Nassau and Suffolk Counties. The Bank's revenues are derived principally from interest on loans, interest on investment securities, service charges and fees on deposit accounts, and income from trust and investment management services. The Bank did not commence, abandon, or significantly change any of its lines of business during 2001. 1 The Bank encounters substantial competition in its banking business from numerous other banking corporations which have offices located in the communities served by the Bank. Principal competitors are branches of large banks, such as Citibank, J.P. Morgan Chase & Co., Bank of New York, and Fleet NA, and various Long Island based banks. Lending Activities General. The Bank's loan portfolio is primarily comprised of loans to small and medium-sized privately owned businesses, professionals, and consumers in Nassau and Suffolk Counties. The Bank offers a full range of lending services including construction loans, commercial and residential mortgage loans, home equity loans and lines, commercial loans, consumer loans, and commercial and standby letters of credit. Commercial loans include, among other things, short-term business loans; term and installment loans; revolving credit term loans; and loans secured by marketable securities, the cash surrender value of life insurance policies, or deposit accounts. Consumer loans include, among other things, auto loans, unsecured home improvement loans, secured and unsecured personal loans, overdraft checking lines, and VISA(R) credit cards. The Bank makes both fixed and variable rate loans. Variable rate loans are tied to and reprice with changes in the Bank's prime interest rate, The Wall Street Journal prime interest rate, U.S. Treasury rates, or the Federal Home Loan Bank of New York regular fixed advance rate. Commercial mortgage loans are made with terms usually not in excess of fifteen years, while the maximum term on residential mortgage loans is thirty years. Commercial and consumer loans generally mature within five years. The Bank's current practice is to usually lend no more than 75% of appraised value on residential mortgage loans, 65% on home equity lines and 70% on commercial mortgage loans. The risks inherent in the Bank's loan portfolio primarily stem from the following factors relating to borrower size, geographic concentration, and environmental contamination: first, loans to small and medium-sized businesses sometimes involve a higher degree of risk than those to larger companies because such businesses may have shorter operating histories and higher debt-to-equity ratios than larger companies and may lack sophistication in internal record keeping and financial and operational controls; second, the ability of many of the Bank's borrowers to repay their loans can be dependent on the strength of the local economy; and finally, if it becomes necessary to foreclose a loan secured by real estate, the ability of the Bank to fully realize its investment is dependent on, among other things, the strength of the Long Island real estate market and the condition of the property including the absence of environmental contamination. The Bank does not have any significant industry concentrations or any foreign loans. Except home equity products, loans from $300,000 to $750,000 require the approval of the Management Loan Committee (home equity loans and lines have more stringent approval requirements). All loans in excess of $750,000 require the approval of the Management Loan Committee and two members of the Board Loan Committee, one of whom must be a non-management director. The Bank's lending is subject to written underwriting standards and loan origination procedures, as approved by the Bank's Board of Directors and contained in the Bank's loan policies. The Bank's loan policies allow for exceptions and set forth the specific approvals required. Decisions on loan applications are based on, among other things, the borrower's credit history, the financial strength of the borrower, estimates of the borrower's ability to repay the loan, and the value of the collateral, if any. All real estate appraisals must meet the requirements of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. Portfolio Composition and Selected Loan Maturity Information. The composition of the Bank's loan portfolio and maturity and rate information for the Bank's commercial and industrial loans can be found in "Note C - Loans" to the Corporation's consolidated financial statements which have been incorporated by reference into "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. Commercial Loans. The Bank makes commercial loans on a demand basis, short-term basis, or installment basis. Short-term business loans are generally due and payable within one year and should be self liquidating during the normal course of the borrower's business cycle. Term and installment loans are usually due and payable within five years. Generally, it is the policy of the Bank to obtain personal guarantees of principal owners on loans made to privately-owned businesses. Real Estate Mortgage and Home Equity Loans and Lines. The Bank makes residential and commercial mortgage loans and home equity loans and establishes home equity lines of credit. Applicants for residential mortgage loans and home equity loans and lines will be considered for approval provided they have satisfactory credit history and the Bank believes that there is sufficient monthly income to service both the loan or line applied for and existing debt. Applicants for commercial mortgage loans will be considered for approval provided they, as well as any guarantors, generally have satisfactory credit history and can demonstrate, through financial statements and otherwise, the ability to repay. If the source of repayment is rental income, such income must be more than sufficient to amortize the debt. In processing requests for commercial mortgage loans, the Bank almost always requires an environmental assessment to identify the possibility of environmental contamination. The extent of the assessment procedures varies from property to property and is based on factors such as whether or not the subject property is an industrial 2 building or has a suspected environmental risk based on current or past use. Construction Loans. The Bank makes loans to finance the construction of both residential and commercial properties. The maturity of such loans is generally one year or less and advances are made as the construction progresses. The advances can require the submission of bills by the contractor, verification by a Bank-approved inspector that the work has been performed, and obtaining title insurance updates to insure that no intervening liens have been placed. Consumer Loans and Lines. The Bank makes auto loans, home improvement loans, and other consumer loans, establishes revolving overdraft lines of credit, and issues VISA(R) credit cards. Consumer loans and lines may be secured or unsecured. Consumer loans are generally made on an installment basis over terms not exceeding five years. In reviewing loans and lines for approval, the Bank considers, among other things, ability to repay, stability of employment and residence, and past credit history. Past Due, Nonaccrual, and Restructured Loans. Selected information about the Bank's past due, nonaccrual, and restructured loans can be found in "Note C - - Loans" to the Corporation's consolidated financial statements which have been incorporated by reference into "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. The accrual of interest on loans is generally discontinued when principal or interest payments become past due 90 days or more. As of December 31, 2001, the Bank did not have any impaired loans or material potential problem loans except for the loans disclosed in "Note C" to its consolidated financial statements. Economic conditions in the Bank's market area were favorable during the 2001 year. Future levels of past due, nonperforming, and restructured loans will be affected by the strength of the local economy. Allowance for Loan Losses. The allowance for loan losses is an amount that management currently believes will be adequate to absorb estimated inherent losses in the Bank's loan portfolio. Changes in the Bank's allowance for loan losses for each of the five years in the period ended December 31, 2001 and the allocation of the Bank's allowance for loan losses by loan type at the end of each of these years can be found in "Note C - Loans" to the Corporation's consolidated financial statements which have been incorporated by reference into "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. The allowance for loan losses is established through provisions for loan losses charged against income and reductions in the allowance are credited to income. Amounts deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. The allocated component of the allowance for loan losses represents impairment losses identified as a result of selectively reviewing individual credits plus losses on loans that have not been specifically reviewed but rather 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. The unallocated or general component of the allowance is designed to cover losses in the portfolio that have not otherwise been identified through the review of specific loans or pools of loans. The amount of future chargeoffs and provisions for loan losses will be affected by, among other things, local economic conditions. Such conditions affect the financial strength of the Bank's borrowers and the value of real estate collateral securing the Bank's mortgage loans. In addition, future provisions and chargeoffs could be affected by environmental impairment of properties securing the Bank's mortgage loans. Loans secured by real estate represent approximately 79% of total loans outstanding at December 31, 2001. 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. Investment Activities General. The investment policy of the Bank, as approved by the Board of Directors and supervised by both the Board and the Management Investment Committee, is intended to promote investment practices which are both safe and sound and in full compliance with the Federal Financial Institutions Examination Council (FFIEC) Supervisory Policy Statement on Investment Securities and End-User Derivative Activities and all other applicable regulations. Investment authority will be granted and amended as is necessary by the Board of Directors. The Bank's investment decisions seek to maximize income while keeping both credit and market risk at acceptable levels, provide for the Bank's liquidity needs, assist in managing interest rate sensitivity, and provide securities that can be pledged, as needed, to secure deposits or borrowing lines. 3 The Bank's investment policy limits individual maturities to fifteen years and average lives, in the case of collateralized mortgage obligations (CMOs) and other mortgage-backed securities, to 10 years. At the time of purchase, bonds of states and political subdivisions must generally be rated A or better, notes of states and political subdivisions must generally be rated MIG-2 (or equivalent) or better, and commercial paper must be rated A-1 or P-1. In addition, management periodically reviews issuer credit ratings for all securities in the Bank's portfolio other than those issued by the U.S. government or its agencies. Any significant deterioration in the creditworthiness of an issuer will be analyzed and action will be taken if deemed appropriate. The Bank has not engaged in the purchase and sale of securities for the primary purpose of producing trading profits and its current investment policy does not allow such activity. At December 31, 2001, the Bank had net unrealized gains of $5,455,000 in its held-to-maturity portfolio, consisting of gross unrealized gains of $5,856,000 and gross unrealized losses of $401,000. The unrealized gains and losses were principally caused by decreases and increases, respectively, in interest rates since the securities were purchased. The Bank intends and expects to be able to hold these securities to maturity and therefore expects that neither the unrealized gains nor the unrealized losses will ever be realized. Portfolio Composition. The composition of the Bank's investment portfolio can be found in "Note B - Investment Securities" to the Corporation's consolidated financial statements which have been incorporated by reference into "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. Maturity Information. The maturities and weighted average yields of the Bank's investment securities at December 31, 2001 can be found in "Note B - Investment Securities" to the Corporation's consolidated financial statements which have been incorporated by reference into "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. The Bank received dividends on its Federal Reserve Bank stock of $6,924 in 2002 representing a yield of 6.00%. Sources of Funds General. The Bank's primary sources of funds are deposits, maturity and redemption of investment securities, interest earned on investment securities and federal funds sold, collection of principal and interest on loans, retained earnings, and other funds provided from operations. The Bank offers checking and interest-bearing deposit products. In addition to business checking, the Bank has a variety of personal checking products including "First Class", "Prime", regular, budget, senior citizen and special checking. Among other things, the personal products differ in minimum balance requirements, monthly maintenance fees, and per check charges. The interest-bearing deposit products, which have a wide range of interest rates and terms, consist of checking, including interest on lawyer accounts (IOLA); escrow service accounts; rent security accounts; three money-market-type products, including a traditional money market savings account, "Select Savings" - a statement savings account that earns a money market rate, and "Diamond Savings" - - a passbook savings account that earns a money market rate; traditional statement savings; traditional passbook savings; savings certificates (3 month, 6 month and 1 to 6 year terms); large and jumbo certificates; holiday club accounts; and individual retirement accounts (savings certificates with terms of 1 to 6 years). Total certificates of deposits, the majority of which mature within one year, were $34,618,000, or 5.7% of total deposits, at December 31, 2001. Certificates of deposit in amounts of $100,000 or more were $13,596,000 at December 31, 2001, or 2.2% of total deposits. The Bank relies primarily on customer service, calling programs, competitive pricing, and advertising to attract and retain deposits. Currently, the Bank solicits deposits only from its local market area and does not have any deposits which qualify as brokered deposits under applicable Federal regulations. The flow of deposits is influenced by general economic conditions, changes in interest rates and competition. Classification of Average Deposits. The Bank's average deposit balances by major classification can be found in "Note E - Deposits" to the Corporation's consolidated financial statements which have been incorporated by reference into "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. Remaining Maturities of Time Deposits. The remaining maturities of the Bank's time deposits in amounts of $100,000 or more at December 31, 2001 can be found in "Note E - Deposits" to the Corporation's consolidated financial statements which have been incorporated by reference into "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. Competition The heavy concentration of financial institutions in Nassau and Suffolk Counties has led to keen competition for both loans and deposits. Competition in originating commercial loans comes primarily from commercial institutions located in the Bank's market area. The Bank competes for commercial loans on the basis of the quality of service it provides to borrowers, the interest rates and loan fees it charges, and the types of loans it offers. 4 The Bank attracts all of its deposits through its banking offices primarily from the communities in which those banking offices are located. Competition for deposits is principally from other commercial banks, savings banks, brokerage firms and credit unions located in these communities. The Bank competes for these deposits by offering a variety of account alternatives at competitive rates, a competitive service charge schedule, a high level of customer service and convenient branch locations. Employees As of December 31, 2001, the Bank had 187 full-time equivalent employees and considers employee relations to be satisfactory. Employees of the Bank are not represented by a collective bargaining unit. Regulation The Corporation is subject to the regulation and supervision of the Federal Reserve Board and the Securities and Exchange Commission. The primary banking agency responsible for regulating the Bank is the Comptroller of the Currency. The Bank is also subject to regulation and supervision by the Federal Reserve Board and the Federal Deposit Insurance Corporation. ITEM 2. PROPERTIES The Corporation neither owns nor leases any real estate. Office facilities of the Corporation are located at 10 Glen Head Road, Glen Head, NY in a building owned by the Bank. The Bank's designated main office is located at 253 New York Avenue, Huntington, New York. Including the main office, the Bank owns a total of ten buildings in fee and occupies thirteen other facilities under lease arrangements. All of the facilities owned or leased by the Bank are in Nassau, Suffolk Counties New York. The Corporation believes that the physical facilities of the Bank are suitable and adequate at present and are being fully utilized. ITEM 3. LEGAL PROCEEDINGS Other than ordinary routine litigation incidental to the business, it is believed that there are no material legal proceedings, either individually or in the aggregate, to which the Corporation or the Bank is a party or to which any of their property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS None were submitted to a vote of security holders during the fourth quarter of 2001. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Corporation's common stock trades on the Nasdaq SmallCap Market tier of the Nasdaq Stock Market ("Nasdaq") under the symbol "FLIC". The table appearing on page 1 of the Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 2001 showing the high and low sales prices, by quarter, for the years ended December 31, 2001 and 2000 is incorporated herein by reference. On March 12, 2002, there were 2,788,564 shares of the Corporation's common stock outstanding with 705 holders of record. The holders of record include banks and brokers who act as nominees, each of whom may represent more than one stockholder. During 2001 and 2000, the Corporation declared semi-annual cash dividends aggregating $.81 and $.72 per share, respectively. Trading in the Corporation's common stock is limited. The total trading volume for 2001 as reported by Nasdaq was 356,272 shares, with an average daily volume of 1,437 shares. During 2001, the Corporation purchased 118,951 shares under its share repurchase program, 84,000 of which were purchased in market transactions. These market purchases represent approximately 24% of the total trading volume reported by Nasdaq. Although the Corporation has had a stock repurchase program since 1988, if the Company discontinues the program it could adversely affect market liquidity for the Corporation's common stock, the price of the Corporation's common stock, or both. For a further discussion of the Corporation's share repurchase program, including its impact on earnings per share, please see the "Overview" and "Capital" sections of Management's Discussion and Analysis of Financial Condition and Results of Operations and "Note A" to the Corporation's consolidated financial statements, both of which are included in the Corporations Annual Report to Shareholders for the fiscal year ended December 31, 2001. ITEM 6. SELECTED FINANCIAL DATA "Selected Financial Data" appearing on page 1 of the Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 2001 is incorporated herein by reference. The Corporation's dividend payout ratio was 23.14%, 22.86% and 19.81% for 2001, 2000 and 1999, respectively. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 9 through 18 of the Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 2001 is incorporated herein by reference. 5 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk information included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and appearing on pages 16 through 18 of the Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 2001 is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and report of independent public accountants appearing on pages 20 through 42 of Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 2001 are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT "ELECTION OF DIRECTORS" appearing on pages 3 through 5 and "MANAGEMENT" appearing on page 8 of Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held April 16, 2002 are incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION "COMPENSATION OF DIRECTORS", "BOARD COMPENSATION COMMITTEE REPORT", "COMPENSATION OF EXECUTIVE OFFICERS", "SUMMARY COMPENSATION TABLE", "COMPENSATION PURSUANT TO PLANS", and "PERFORMANCE GRAPH" appearing on pages 5 and 6 and 9 through 18 of the Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held April 16, 2002 are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT "VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS" appearing on Pages 1 through 3 of Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held April 16, 2002 is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS "TRANSACTIONS WITH MANAGEMENT AND OTHERS" appearing on pages 18 and 19 of Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held April 16, 2002 is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements The following consolidated financial statements of the Corporation and its subsidiary, and Report of Independent Public Accountants thereon, as required by Item 8 of this report are incorporated herein by reference. o Consolidated Balance Sheets - December 31, 2001 and 2000 o Consolidated Statements of Income - Years ended December 31, 2001, 2000 and 1999 o Consolidated Statement of Changes in Stockholders' Equity - Years ended December 31, 2001, 2000 and 1999 o Consolidated Statements of Cash Flows - Years ended December 31, 2001, 2000 and 1999 o Notes to Consolidated Financial Statements (a) 2. Financial Statement Schedules None Applicable. (a) 3. Listing of Exhibits The following exhibits are submitted herewith. Exhibit No. Name Exhibits - ----------- ---- -------- 3(i) Certificate of Incorporation, as amended * 3(ii) By-laws, as amended ** 10.1 Incentive Compensation Plan *** 10.2 1986 Stock Option and Appreciation Rights Plan **** 10.3 1996 Stock Option and Appreciation Rights Plan ***** 6 Exhibit No. Name Exhibits - ----------- ---- -------- 10.4 Amendment to 1996 Stock Option and Appreciation Rights Plan dated February 20, 2001 ****** 10.5 Employment Agreement between Registrant and J. William Johnson, dated January 31, 1996, as amended December 18, 1996, January 2, 1998, and January 6, 1999 ******* 10.6 Employment Agreement between Registrant and Arthur J. Lupinacci, Jr. dated July 1, 1999 ******** 10.7 Employment Agreement between Registrant and Donald L. Manfredonia dated January 1, 2002 Included herein 10.8 Employment Agreement between Registrant and Joseph G. Perri, dated January 1, 2002 Included herein 10.9 Special Severance Agreement between Registrant and Richard Kick, dated January 1, 2002 Included herein 10.10 Special Severance Agreement between Registrant and Mark D. Curtis, dated January 1, 2002 Included herein 10.11 Special Severance Agreement between Registrant and Brian J. Keeney, dated January 1, 2002 Included herein 13 Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 2001 Included herein 21 Subsidiary of Registrant Included herein 23 Consent of Independent Public Accountants Included herein 99.1 Notice of 2002 Annual Meeting and Proxy Statement ********* 99.2 Letter to Commission Pursuant to Temporary Note 3T Included herein *Previously filed as part of Report on Form 10-K for 1998, filed on March 29, 1999, as exhibit 3(i), which exhibit is incorporated herein by reference. **Previously filed as part of Report on Form 10-K for 1999, filed on March 29, 2000, as exhibit 3(ii), which exhibit is incorporated herein by reference. ***"Incentive Compensation Plan" and "Board Compensation Committee Report" appearing on pages 13 and 9, respectively, of the Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held April 16, 2002 are incorporated herein by reference. ****Previously filed as an exhibit to Form 10-K which exhibit is incorporated herein by reference. *****Previously filed as part of Report on Form 10-K for 1995, filed on March 22, 1996, as exhibit 10(b), which exhibit is incorporated herein by reference. ******Previously filed as part of Report on Form 10-K for 2000, filed on March 27, 2001, as Exhibit 10.4, which exhibit is incorporated herein by reference. *******Employment agreement previously filed as part of Report on Form 10-K for 1995, filed on March 22, 1996, as exhibit 10(c), which exhibit is incorporated herein by reference. The December 18, 1996, January 2, 1998, and January 6, 1999 amendments to Mr. Johnson's employment agreement each involved an increase in Mr. Johnson's base annual salary, the dollar amounts of which were previously disclosed in Form 10-K. Mr. Johnson's current base annual salary is disclosed in Exhibit 99 to this Form 10-K filing. ********Previously filed as part of Report on Form 10-K for 1999, filed on March 29, 2000, as exhibit 10.5, which exhibit is incorporated herein by reference. Mr. Lupinacci's current base annual salary is disclosed in Exhibit 99 to this Form 10-K filing. *********The Corporation's Proxy Statement for its Annual Meeting of Stockholders to be held April 16, 2002 was submitted in electronic format on March 6, 2002 and is incorporated herein by reference. (b) Reports on Form 8-K None (c) Exhibits Exhibits as listed under 14(a) 3. above are submitted as a separate section of this report. (d) Financial Statement Schedules - None 7 Signatures Pursuant to the requirements of Section l3 or l5(d) 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) Dated: March 28, 2002 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 officer and principal accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signatures Titles Date - ---------- ------ ---- /s/ J. WILLIAM JOHNSON President, Chairman MARCH 28, 2002 - --------------------------- of the Board, Chief J. William Johnson Executive Officer /s/ ALLEN E. BUSCHING Director MARCH 28, 2002 - --------------------------- Allen E. Busching /s/ PAUL T. CANARICK Director MARCH 28, 2002 - --------------------------- Paul T. Canarick /s/ BEVERLY ANN GEHLMEYER Director MARCH 28, 2002 - --------------------------- Beverly Ann Gehlmeyer /s/ HOWARD THOMAS HOGAN, JR. Director MARCH 28, 2002 - --------------------------- Howard Thomas Hogan, Jr. /s/ J. DOUGLAS MAXWELL, JR. Director MARCH 28, 2002 - --------------------------- J. Douglas Maxwell, Jr. /s/ JOHN R. MILLER III Director MARCH 28, 2002 - --------------------------- John R. Miller III /s/ WALTER C. TEAGLE III Director MARCH 28, 2002 - --------------------------- Walter C. Teagle III 8 EXHIBIT INDEX EXHIBIT BEGINS ON SEQUENTIAL EXHIBIT DESCRIPTION PAGE NO. - ------- ----------- -------------- 3(i) Certificate of Incorporation, as amended * 3(ii) By-laws, as amended ** 10.1 Incentive Compensation Plan *** 10.2 1986 Stock Option and Appreciation Rights Plan **** 10.3 1996 Stock Option and Appreciation Rights Plan ***** 10.4 Amendment to 1996 Stock Option and Appreciation Rights Plan dated February 20, 2001 ****** 10.5 Employment Agreement Between Registrant and J. William Johnson, dated January 31, 1996, as amended December 18, 1996, January 2, 1998, and January 6, 1999 ******* 10.6 Employment Agreement between Registrant and Arthur J. Lupinacci, Jr., dated July 1, 1999 ******** 10.7 Employment Agreement between Registrant and Donald L. Manfredonia, dated January 1, 2002 10 10.8 Employment Agreement between Registrant and Joseph G. Perri, dated January 1, 2002 15 10.9 Special Severance Agreement between Registrant and Richard Kick, dated January 1, 2002 20 10.10 Special Severance Agreement between Registrant and Mark D. Curtis, dated January 1, 2002 25 10.11 Special Severance Agreement between Registrant and Brian J. Keeney, dated January 1, 2002 30 13 Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 2001 35 21 Subsidiary of Registrant 92 23 Consent of Independent Public Accountants 94 99.1 Notice of 2002 Annual Meeting and Proxy Statement ********* 99.2 Letter to Commission Pursuant to Temporary Note 3T 96 *Previously filed as part of Report on Form 10-K for 1998, filed on March 29, 1999, as exhibit 3(i), which exhibit is incorporated herein by reference. **Previously filed as part of Report on Form 10-K for 1999, filed on March 29, 2000, as exhibit 3(ii), which exhibit is incorporated herein by reference. *** "Incentive Compensation Plan" and "Board Compensation Committee Report" appearing on pages 13 and 9, respectively, of the Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held April 16, 2002 are incorporated herein by reference. ****Previously filed as an exhibit to Form 10-K which exhibit is incorporated herein by reference. ***** Previously filed as part of Report on Form 10-K for 1995, filed on March 22, 1996, as exhibit 10(b), which exhibit is incorporated herein by reference. ****** Previously filed as part of Report on Form 10-K for 2000, filed on March 27, 2001, as Exhibit 10.4, which exhibit is incorporated herein by reference. ******* Employment agreement previously filed as part of Report on Form 10-K for 1995, filed on March 22, 1996, as exhibit 10(c), which exhibit is incorporated herein by reference. The December 18, 1996, January 2, 1998, and January 6, 1999 amendments to Mr. Johnson's employment agreement each involved an increase in Mr. Johnson's base annual salary, the dollar amounts of which were previously disclosed in Form 10-K. Mr. Johnson's current base annual salary is disclosed in Exhibit 99 to this Form 10-K filing. ******** Previously filed as part of Report on Form 10-K for 1999, filed on March 29, 2000, as exhibit 10.5, which exhibit is incorporated herein by reference. Mr. Lupinacci's current base annual salary is disclosed in Exhibit 99 to this Form 10-K filing. *********The Corporation's Proxy Statement for its Annual Meeting of Stockholders to be held April 16, 2002 was submitted in electronic format on March 6, 2002 and is incorporated herein by reference. 9 EX-10.7 3 d50058_ex10-7.txt EMPLOYMENT AGREEMENT (MANFREDONIA) EXHIBIT 10.7 - EMPLOYMENT AGREEMENT BETWEEN REGISTRANT AND DONALD L. MANFREDONIA 10 THE FIRST OF LONG ISLAND CORPORATION 10 GLEN HEAD ROAD GLEN HEAD, NEW YORK 11545 January 1, 2002 Mr. Donald L. Manfredonia Dear Mr. Manfredonia: This letter employment agreement (the "Agreement") supersedes and replaces your Special Severance Agreement dated as of July 1, 1999. The terms and conditions of your employment by The First of Long Island Corporation ("FLIC"), and its subsidiary, The First National Bank of Long Island (the "Bank"), are as follows: 1. TERM; RENEWAL The Initial Term of the Agreement shall run from January 1, 2002 through and including June 30, 2003 and, if not terminated as described below, the Agreement shall, on January 1 of each year, automatically be extended for an additional year, resulting in a new one and one-half year term (the "Renewal Terms"), with such modifications hereto as the parties shall agree in writing; provided, however, that the Agreement shall not be so extended in the event that you or FLIC provides written notice of non-extension to the other party no later than October 31 of the preceding year. Notwithstanding the foregoing, FLIC may not provide such notice of non-extension during any period of time in which the Board of Directors of FLIC is actively negotiating a transaction the consummation of which would constitute a Change of Control Event (as hereinafter defined). 2. CAPACITY A. You shall be employed in the capacity of Executive Vice President of the Bank and such other senior executive title or titles of FLIC or the Bank as may from time to time be determined by the Board of Directors of the Bank and FLIC. You shall be the senior lending officer of the Bank, with such duties and responsibilities as shall be assigned to you by the Chief Executive Officer or by the Board of Directors of the Bank. You shall be responsible to the Chief Executive Officer of FLIC and the Bank. B. You agree to devote your full time and attention and best efforts to the faithful and diligent performance of your duties to FLIC and the Bank and shall serve and further the best interests and enhance the reputation of FLIC and the Bank to the best of your ability. Nothing herein shall be construed as preventing you from serving as a member of the board of directors of any non-profit organization. 3. COMPENSATION As full compensation for your services, you shall receive the following from FLIC or, in the discretion of FLIC, it shall cause the following to be paid or provided by the Bank: A. A Base Annual Salary of not less than One Hundred Seventy Six Thousand Dollars ($176,000.00), payable bi-weekly; provided, however, that no later than January 15 of each year that this Agreement shall remain in effect, the Chief Executive Officer and the Board of Directors of FLIC shall review your compensation, without any commitment, to determine whether to increase your Base Annual Salary hereunder. In the event that the Board of Directors of FLIC does, from time to time, increase your Base Annual Salary, the increased amount shall be your Base Annual Salary for all purposes of this Agreement, and such increased amount shall be the minimum amount payable hereunder. 11 B. Such other benefits as are consistent with the personnel benefits provided by the Bank and FLIC to its officers and employees. C. The use of an appropriate automobile furnished by the Bank. 4. TERMINATION PAYMENT. A. You will be entitled to a payment (the "Termination Payment") equal to One Hundred Fifty Per Cent (150%) of your then current Base Annual Salary (the dollar amount so calculated being hereafter referred to as the "Full Severance") and FLIC shall make such Termination Payment to you, in the event of, and within ten (10) days after, the occurrence of any of the following: (i) Your employment is terminated by the Bank, provided, however, that you shall not be entitled to receive such payment if such termination is due to gross and substantial dishonesty on your part; or (ii) You resign your employment with the Bank for Good Reason (as hereinafter defined) within twenty-four months after a Change of Control Event. B. You will be entitled to a Termination Payment equal to Sixty Six and Two-Thirds Per Cent (66 2/3%) of the Full Severance in the event that you resign your employment with the Bank for any reason during the period beginning on the thirty-first day after a Change of Control Event (as hereinafter defined) and ending on the sixtieth day after such event. C. FLIC may elect to discharge its obligation to make the Termination Payment by causing the Bank, its wholly owned subsidiary, to do so. 5. NON-WAIVER. Your failure to resign upon the occurrence of a particular event constituting Good Reason hereunder shall not bar you from resigning upon the subsequent occurrence of any other or further event constituting Good Reason, and thereby becoming eligible to receive the Termination Payment, provided that such resignation occurs within twenty-four months after a Change of Control Event. 6. INELIGIBILITY FOR TERMINATION PAYMENT. Regardless of whether a Change of Control Event shall have occurred, you shall not be entitled to any Termination Payment in the event that your employment is terminated by reason of your death, normal retirement or disability. 7. DEFINITIONS. A. "Good Reason" for resignation by you of your employment shall mean the occurrence (without your express written consent) of any one of the following acts or omissions to act by FLIC or the Bank: (i) The assignment to you of any duties materially inconsistent with the nature and status of your responsibilities immediately prior to a Change of Control Event, or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change of Control Event; provided, however, that a redesignation of your title shall not in and of itself constitute Good Reason if your overall duties and status within FLIC and the Bank are not substantially adversely affected. (ii) The failure by FLIC or the Bank to pay you any portion of your current compensation, or to pay you any portion of an installment of a deferred compensation amount under any deferred compensation program, within fourteen (14) days of the date such compensation is due. 12 B. "Change of Control Event" shall mean the occurrence of any one of the following: (i) Continuing Outside Directors (as hereinafter defined) no longer constitute at least two-thirds (2/3) of Outside Directors (as hereinafter defined) of FLIC; (ii) There shall be consummated a merger or consolidation of FLIC, unless at least two-thirds (2/3) of Continuing Outside Directors are to continue to constitute at least two-thirds (2/3) of Continuing Directors; (iii) At least two-thirds (2/3) of Continuing Outside Directors determine that action taken by stockholders constitutes a Change of Control Event; or (iv) The Bank shall cease to be a wholly-owned subsidiary of FLIC. C. "Continuing Outside Director" shall mean any individual who is not an employee of FLIC or the Bank and who (i) is a director of FLIC as of the date hereof, (ii) prior to election as a director is nominated by at least two-thirds (2/3) of the Continuing Outside Directors, or (iii) following election as a director is designated a Continuing Outside Director by at least two-thirds (2/3) of Continuing Outside Directors. D. "Outside Director" shall mean an individual who is not an employee of FLIC or the Bank who is a director of FLIC. 8. INSURANCE. 8.1 In the event that you shall cease to be employed by the Bank under circumstances entitling you to receive a Termination Payment hereunder, you shall be entitled to the following insurance coverage: (a) Health Insurance. FLIC shall, at no cost to you, continue to cover you under, or provide you with, family medical and dental coverage subsequent to the date of termination of your employment. Such coverage shall be continued for a period ending on the date which is eighteen (18) months after the termination date and shall be no less favorable than your medical and dental coverage in effect on such termination date; provided, however, that if such termination date is subsequent to the occurrence of a Change of Control Event, the coverage to be provided hereunder shall be no less favorable than the coverage in effect immediately prior to the occurrence of such Change of Control Event. (b) Additional Insurance. FLIC shall also continue to cover you under, or provide you with insurance coverage no less favorable than that provided by, your disability, group term life and any other insurance policies in effect on the date of termination of your employment for a period ending on the date which is eighteen (18) months after such termination date. 8.2 Notwithstanding the provisions of the foregoing Sections 8.1(a) and 8.1(b), the obligation of FLIC to provide the health and other insurance coverage described therein shall cease, as to each such policy and form of coverage, on the date when another employer makes available to you benefits which are substantially comparable to those described in such sections, regardless of whether the benefits made available by such employer require a contribution on your part. 9. DEATH. In the event of your death subsequent to termination of your employment, all payments and benefits due you hereunder shall be paid to your designated beneficiary or beneficiaries or, if you have not designated a beneficiary or beneficiaries, to your estate. 10. MISCELLANEOUS. 10.1 Legal Expenses. FLIC shall pay all costs and expenses incurred by you or us, including attorneys' fees and disbursements (at least monthly in the case of costs and expenses incurred by you), in connection with any legal proceedings (including, but not limited to, arbitration), whether or not instituted by you or us, relating to the interpretation or enforcement of any provision of this Agreement in connection with the termination of your 13 employment. FLIC also agrees to pay prejudgment interest on any money judgment obtained by you as a result of such proceedings, calculated at the prime interest rate of the Bank as in effect from time to time from the date that payment should have been made to you hereunder. Notwithstanding the foregoing, in the event that any legal proceedings referred to above result in a final non-appealable determination that your employment was terminated because of gross and substantial dishonesty on your part, FLIC shall have no further obligation to you under this section and you shall refund to FLIC all amounts previously paid to you pursuant to this section. 10.2 Binding Effect; Successors. This Agreement shall be binding upon, inure to the benefit of and be enforceable by you and us, your heirs and your and our respective legal representatives, successors and assigns. If FLIC shall be merged into or consolidated with another entity, the provisions hereof shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. We shall required any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of FLIC, by agreement in form and substance satisfactory to you, to expressly assume and agree to perform hereunder in the same manner and to the same extent that we would be required to perform hereunder if no such succession had taken place. The provisions hereof shall continue to apply to each subsequent merger, consolidation or transfer of assets of such subsequent employer. 10.3 Notices. Any notices required to be given under this Agreement shall, unless otherwise agreed to by you and us, be in writing and shall be sent by certified mail, return receipt requested, to FLIC at 10 Glen Head Road, Glen Head, New York 11545, Attention: Board of Directors, and to you at the home address which you have designated in writing; or at such other address as you or we may designate in writing, respectively. 10.4 Waiver; Modification. No waiver or modification in whole or in part of this Agreement, or any term or condition hereof, shall be effective against any party unless in writing and duly signed by the party sought to be bound. Any waiver of any breach of any provision hereof or any right or power by any party on one occasion shall not be construed as a waiver of, or a bar to, the exercise of such right or power on any other occasion or as a waiver of any subsequent breach. 10.5 Separability. Any provision of this Agreement which is unenforceable or invalid in any respect in any jurisdiction shall be ineffective in such jurisdiction to the extent that it is unenforceable or invalid without affecting the remaining provisions hereof, which shall continue in full force and effect. The enforceability or invalidity of a provision of the Agreement in one jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.6 Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein. If this Agreement is satisfactory to you, would you kindly indicate your acceptance by signing and returning the enclosed copy thereof to the Bank. Very truly yours, THE FIRST OF LONG ISLAND CORPORATION By: /s/ J. William Johnson ----------------------------- J. William Johnson, President Accepted and agreed to as of the 28th day of January, 2002 /s/ Donald L. Manfredonia - -------------------------- Donald L. Manfredonia 14 EX-10.8 4 d50058_ex10-8.txt EMPLOYMENT AGREEMENT (PERRI) EXHIBIT 10.8 - EMPLOYMENT AGREEMENT BETWEEN REGISTRANT AND JOSEPH G. PERRI 15 THE FIRST OF LONG ISLAND CORPORATION 10 GLEN HEAD ROAD GLEN HEAD, NEW YORK 11545 January 1, 2002 Mr. Joseph G. Perri Dear Mr. Perri: This letter employment agreement (the "Agreement") supersedes and replaces your Special Severance Agreement dated as of July 1, 1999. The terms and conditions of your employment by The First of Long Island Corporation ("FLIC"), and its subsidiary, The First National Bank of Long Island (the "Bank"), are as follows: 1. TERM; RENEWAL The Initial Term of the Agreement shall run from January 1, 2002 through and including June 30, 2003 and, if not terminated as described below, the Agreement shall, on January 1 of each year, automatically be extended for an additional year, resulting in a new one and one-half year term (the "Renewal Terms"), with such modifications hereto as the parties shall agree in writing; provided, however, that the Agreement shall not be so extended in the event that you or FLIC provides written notice of non-extension to the other party no later than October 31 of the preceding year. Notwithstanding the foregoing, FLIC may not provide such notice of non-extension during any period of time in which the Board of Directors of FLIC is actively negotiating a transaction the consummation of which would constitute a Change of Control Event (as hereinafter defined). 2. CAPACITY A. You shall be employed in the capacity of Executive Vice President of the Bank and such other senior executive title or titles of FLIC or the Bank as may from time to time be determined by the Board of Directors of the Bank and FLIC. You shall be the senior commercial marketing officer of the Bank, with such duties and responsibilities as shall be assigned to you by the Chief Executive Officer or by the Board of Directors of the Bank. You shall be responsible to the Chief Executive Officer of FLIC and the Bank. B. You agree to devote your full time and attention and best efforts to the faithful and diligent performance of your duties to FLIC and the Bank and shall serve and further the best interests and enhance the reputation of FLIC and the Bank to the best of your ability. Nothing herein shall be construed as preventing you from serving as a member of the board of directors of any non-profit organization. 3. COMPENSATION As full compensation for your services, you shall receive the following from FLIC or, in the discretion of FLIC, it shall cause the following to be paid or provided by the Bank: A. A Base Annual Salary of not less than One Hundred Sixty Eight Thousand Five Hundred Dollars ($168,500.00), payable bi-weekly; provided, however, that no later than January 15 of each year that this Agreement shall remain in effect, the Chief Executive Officer and the Board of Directors of FLIC shall review your compensation, without any commitment, to determine whether to increase your Base Annual Salary hereunder. In the event that the Board of Directors of FLIC does, from time to time, increase your Base Annual Salary, the increased amount shall be 16 your Base Annual Salary for all purposes of this Agreement, and such increased amount shall be the minimum amount payable hereunder. B. Such other benefits as are consistent with the personnel benefits provided by the Bank and FLIC to its officers and employees. C. The use of an appropriate automobile furnished by the Bank. 4. TERMINATION PAYMENT. A. You will be entitled to a payment (the "Termination Payment") equal to One Hundred Twenty Five Per Cent (125%) of your then current Base Annual Salary (the dollar amount so calculated being hereafter referred to as the "Full Severance") and FLIC shall make such Termination Payment to you, in the event of, and within ten (10) days after, the occurrence of any of the following: (i) Your employment is terminated by the Bank, provided, however, that you shall not be entitled to receive such payment if such termination is due to gross and substantial dishonesty on your part; or (ii) You resign your employment with the Bank for Good Reason (as hereinafter defined) within twenty-four months after a Change of Control Event. B. You will be entitled to a Termination Payment equal to Sixty Six and Two-Thirds Per Cent (66 2/3%) of the Full Severance in the event that you resign your employment with the Bank for any reason during the period beginning on the thirty-first day after a Change of Control Event (as hereinafter defined) and ending on the sixtieth day after such event. C. FLIC may elect to discharge its obligation to make the Termination Payment by causing the Bank, its wholly owned subsidiary, to do so. 5. NON-WAIVER. Your failure to resign upon the occurrence of a particular event constituting Good Reason hereunder shall not bar you from resigning upon the subsequent occurrence of any other or further event constituting Good Reason, and thereby becoming eligible to receive the Termination Payment, provided that such resignation occurs within twenty-four months after a Change of Control Event. 6. INELIGIBILITY FOR TERMINATION PAYMENT. Regardless of whether a Change of Control Event shall have occurred, you shall not be entitled to any Termination Payment in the event that your employment is terminated by reason of your death, normal retirement or disability. 7. DEFINITIONS. A. "Good Reason" for resignation by you of your employment shall mean the occurrence (without your express written consent) of any one of the following acts or omissions to act by FLIC or the Bank: (i) The assignment to you of any duties materially inconsistent with the nature and status of your responsibilities immediately prior to a Change of Control Event, or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change of Control Event; provided, however, that a redesignation of your title shall not in and of itself constitute Good Reason if your overall duties and status within FLIC and the Bank are not substantially adversely affected. (ii) The failure by FLIC or the Bank to pay you any portion of your current compensation, or to pay you any portion of an installment of a deferred compensation amount under any deferred compensation program, within fourteen (14) days of the date such compensation is due. 17 B. "Change of Control Event" shall mean the occurrence of any one of the following: (i) Continuing Outside Directors (as hereinafter defined) no longer constitute at least two-thirds (2/3) of Outside Directors (as hereinafter defined) of FLIC; (ii) There shall be consummated a merger or consolidation of FLIC, unless at least two-thirds (2/3) of Continuing Outside Directors are to continue to constitute at least two-thirds (2/3) of Continuing Directors; (iii) At least two-thirds (2/3) of Continuing Outside Directors determine that action taken by stockholders constitutes a Change of Control Event; or (iv) The Bank shall cease to be a wholly-owned subsidiary of FLIC. C. "Continuing Outside Director" shall mean any individual who is not an employee of FLIC or the Bank and who (i) is a director of FLIC as of the date hereof, (ii) prior to election as a director is nominated by at least two-thirds (2/3) of the Continuing Outside Directors, or (iii) following election as a director is designated a Continuing Outside Director by at least two-thirds (2/3) of Continuing Outside Directors. D. "Outside Director" shall mean an individual who is not an employee of FLIC or the Bank who is a director of FLIC. 8. INSURANCE. 8.1 In the event that you shall cease to be employed by the Bank under circumstances entitling you to receive a Termination Payment hereunder, you shall be entitled to the following insurance coverage: (a) Health Insurance. FLIC shall, at no cost to you, continue to cover you under, or provide you with, family medical and dental coverage subsequent to the date of termination of your employment. Such coverage shall be continued for a period ending on the date which is eighteen (18) months after the termination date and shall be no less favorable than your medical and dental coverage in effect on such termination date; provided, however, that if such termination date is subsequent to the occurrence of a Change of Control Event, the coverage to be provided hereunder shall be no less favorable than the coverage in effect immediately prior to the occurrence of such Change of Control Event. (b) Additional Insurance. FLIC shall also continue to cover you under, or provide you with insurance coverage no less favorable than that provided by, your disability, group term life and any other insurance policies in effect on the date of termination of your employment for a period ending on the date which is eighteen (18) months after such termination date. 8.2 Notwithstanding the provisions of the foregoing Sections 8.1(a) and 8.1(b), the obligation of FLIC to provide the health and other insurance coverage described therein shall cease, as to each such policy and form of coverage, on the date when another employer makes available to you benefits which are substantially comparable to those described in such sections, regardless of whether the benefits made available by such employer require a contribution on your part. 9. DEATH. In the event of your death subsequent to termination of your employment, all payments and benefits due you hereunder shall be paid to your designated beneficiary or beneficiaries or, if you have not designated a beneficiary or beneficiaries, to your estate. 10. MISCELLANEOUS. 10.1 Legal Expenses. FLIC shall pay all costs and expenses incurred by you or us, including attorneys' fees and disbursements (at least monthly in the case of costs and expenses incurred by you), in connection with any legal proceedings (including, but not limited to, arbitration), whether or not instituted by you or us, relating to the interpretation or enforcement of any provision of this Agreement in connection with the termination of your 18 employment. FLIC also agrees to pay prejudgment interest on any money judgment obtained by you as a result of such proceedings, calculated at the prime interest rate of the Bank as in effect from time to time from the date that payment should have been made to you hereunder. Notwithstanding the foregoing, in the event that any legal proceedings referred to above result in a final non-appealable determination that your employment was terminated because of gross and substantial dishonesty on your part, FLIC shall have no further obligation to you under this section and you shall refund to FLIC all amounts previously paid to you pursuant to this section. 10.2 Binding Effect; Successors. This Agreement shall be binding upon, inure to the benefit of and be enforceable by you and us, your heirs and your and our respective legal representatives, successors and assigns. If FLIC shall be merged into or consolidated with another entity, the provisions hereof shall be binding upon and inure to the benefit of the entity surviving such merger or resulting from such consolidation. We shall required any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of FLIC, by agreement in form and substance satisfactory to you, to expressly assume and agree to perform hereunder in the same manner and to the same extent that we would be required to perform hereunder if no such succession had taken place. The provisions hereof shall continue to apply to each subsequent merger, consolidation or transfer of assets of such subsequent employer. 10.3 Notices. Any notices required to be given under this Agreement shall, unless otherwise agreed to by you and us, be in writing and shall be sent by certified mail, return receipt requested, to FLIC at 10 Glen Head Road, Glen Head, New York 11545, Attention: Board of Directors, and to you at the home address which you have designated in writing; or at such other address as you or we may designate in writing, respectively. 10.4 Waiver; Modification. No waiver or modification in whole or in part of this Agreement, or any term or condition hereof, shall be effective against any party unless in writing and duly signed by the party sought to be bound. Any waiver of any breach of any provision hereof or any right or power by any party on one occasion shall not be construed as a waiver of, or a bar to, the exercise of such right or power on any other occasion or as a waiver of any subsequent breach. 10.5 Separability. Any provision of this Agreement which is unenforceable or invalid in any respect in any jurisdiction shall be ineffective in such jurisdiction to the extent that it is unenforceable or invalid without affecting the remaining provisions hereof, which shall continue in full force and effect. The enforceability or invalidity of a provision of the Agreement in one jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.6 Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein. If this Agreement is satisfactory to you, would you kindly indicate your acceptance by signing and returning the enclosed copy thereof to the Bank. Very truly yours, THE FIRST OF LONG ISLAND CORPORATION By: /s/ J. William Johnson ------------------------------- J. William Johnson, President Accepted and agreed to as of the 30th day of January, 2002 /s/ Joseph G. Perri - ---------------------- Joseph G. Perri 19 EX-10.9 5 d50058_ex10-9.txt SPECIAL SEVERANCE AGREEMENT (KICK) EXHIBIT 10.9 - SPECIAL SEVERANCE AGREEMENT BETWEEN REGISTRANT AND RICHARD KICK 20 THE FIRST OF LONG ISLAND CORPORATION SPECIAL SEVERANCE AGREEMENT AGREEMENT dated as of January 1, 2002 by and between THE FIRST OF LONG ISLAND CORPORATION (hereinafter referred to as "FLIC") and RICHARD KICK (hereinafter referred to as the "Officer"). 1. Term. The term of this agreement shall be for a period of one (1) year commencing on the date hereof. The term shall be automatically renewed for additional one (1) year terms, unless the Board of Directors of FLIC chooses not to renew and notifies Officer of such intention not to renew at least thirty (30) days prior to the end of a term; provided, however, that FLIC may not decline to renew during any period of time in which the Board of Directors is actively negotiating a transaction the consummation of which would result in Officer becoming entitled to a Termination Payment hereunder. 2. Termination Payment. A. Officer will be entitled to a payment (the "Termination Payment") equal to One Hundred Twenty Five Per Cent (125%) of his then current annual base salary (the dollar amount so calculated being hereafter referred to as the "Full Severance"), and FLIC shall make such Termination Payment to Officer, in the event of the occurrence of any of the following: (i) The employment of Officer is terminated by The First National Bank Of Long Island ("FNBLI") within twenty-four months after a Change Of Control Event (as hereinafter defined); (ii) Officer resigns his employment with FNBLI for Good Reason (as hereinafter defined) within twenty-four months after a Change of Control Event; or (iii) The employment of Officer is terminated by FNBLI within twenty-four months after any entity, person or group shall have acquired more than twenty per cent (20%) of the voting shares of FLIC and, at the time of such termination, the Chief Executive Officer of FNBLI serving in that capacity as of the first day of the term hereof, or of the then current renewal term, as the case may be, shall have ceased to be employed by FNBLI in such capacity. B. Officer will be entitled to a Termination Payment equal to Sixty Six and Two Thirds Per Cent (66 2/3%) of the Full Severance in the event that Officer shall resign for any reason during the period beginning on the thirty-first day after a Change of Control Event and ending on the sixtieth day after such event. C. In the event that Officer shall become entitled to a Termination Payment pursuant to Section 21 2(A) or 2(B) hereof, FLIC shall, at no cost to Officer, continue to provide family medical and dental coverage to Officer for a period of twelve (12) months after Officer ceases to be employed by FNBLI, on terms and conditions substantially the same as FNBLI may, from time to time, make available to its employees generally during such period; provided, however, that the obligation of FLIC to provide such coverage shall cease on the date when another employer makes substantially comparable coverage available to Officer, regardless of whether the benefits made available by such employer require a contribution on the part of Officer. D. FLIC may elect to discharge its obligation to make the Termination Payment and provide such insurance coverage by causing FNBLI, its wholly owned subsidiary, to do so. 3. Non-Waiver. The failure of Officer to resign upon the occurrence of a particular event constituting Good Reason hereunder shall not bar the Officer from resigning upon the subsequent occurrence of any other or further event constituting Good Reason, and thereby becoming eligible to receive the Termination Payment, provided that such resignation occurs within twenty-four months after a Change of Control Event. 4. Ineligibility For Termination Payment. Regardless of whether a Change of Control Event shall have occurred, Officer shall not be entitled to any Termination Payment in the event that his employment is terminated (i) by reason of his death, normal retirement or disability, or (ii) by FNBLI for Cause (as hereinafter defined). 5. Definitions. A. "Good Reason" for resignation by Officer of his employment shall mean the occurrence (without the Officer's express written consent) of any one of the following acts or omissions to act by FLIC or FNBLI: (i) The assignment to Officer of any duties materially inconsistent with the nature and status of his responsibilities immediately prior to a Change of Control Event, or a substantial adverse alteration in the nature or status of his responsibilities from those in effect immediately prior to the Change of Control Event; provided, however, that a redesignation of his title shall not in and of itself constitute Good Reason if his overall duties and status within FLIC and FNBLI are not substantially adversely affected. (ii) A reduction in his annual base salary as in effect at the time of a Change of Control Event. For purposes hereof, "annual base salary" shall mean regular basic annual compensation prior to any reduction therein under a salary reduction agreement pursuant to Section 401(k) or Section 125 of the Internal Revenue Code and, without limitation, shall exclude fees, bonuses, incentive awards or similar payments. 22 (iii) The failure by FLIC or FNBLI to pay Officer any portion of his current compensation, or to pay him any portion of an installment of a deferred compensation amount under any deferred compensation program, within fourteen (14) days of the date such compensation is due. B. "Cause" shall mean any of the following: (i) The willful and continued failure by Officer to substantially perform his duties, as they may be defined by FLIC or FNBLI from time to time, or to abide by the written policies of FLIC or FNBLI after a written demand for substantial performance is delivered to him by the Chief Executive Officer of FLIC or FNBLI, as the case may be, which specifically identifies the manner in which he has failed substantially to perform his duties or has failed to abide by such written policies, and (ii) The willful engaging by Officer in conduct which is materially injurious to FLIC or FNBLI, monetarily or otherwise. For the purpose of the preceding sentence, no act, or failure to act, on the part of Officer shall be deemed "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his act, or failure to act, was in the best interest of FLIC or FNBLI, as the case may be. C. "Change of Control Event" shall mean the occurrence of any one of the following: (i) Continuing Outside Directors (as hereinafter defined) no longer constitute at lease two-thirds (2/3) of Outside Directors (as hereinafter defined) of FLIC; (ii) There shall be consummated a merger or consolidation of FLIC, unless at least two-thirds (2/3) of Continuing Outside Directors are to continue to constitute at least two-thirds (2/3) of Continuing Directors; (iii) At least two-thirds (2/3) of Continuing Outside Directors determine that action taken by stockholders constitutes a Change of Control Event; or (iv) FNBLI is no longer a wholly-owned subsidiary of FLIC. D. "Continuing Outside Director" shall mean any individual who is not an employee of FLIC or FNBLI and who (i) is a director of FLIC as of the date hereof, (ii) prior to election as a director is nominated by at least two-thirds (2/3) of the Continuing Outside Directors, or (iii) following election as a director is designated a Continuing Outside Director by at least two-thirds (2/3) of Continuing Outside Directors. E. "Outside Director" shall mean an individual who is not an employee of FLIC or FNBLI who is a director of FLIC. 6. Withholding Taxes; Other Deductions. 23 FLIC and FNBLI shall have the right (i) to deduct from any payments due under this Agreement amounts sufficient to cover withholding as required by law for any federal, state or local taxes and any amounts due from the Officer to FLIC or FNBLI and (ii) to take such other action as may be necessary to satisfy any such withholding or other obligations, including but not limited to withholding amounts equal to such taxes or obligations from any other amounts due or to become due from FLIC or FNBLI to Officer. 7. Miscellaneous. A. Prior Agreement Superseded. This Agreement supersedes and replaces the Amended Special Severance Agreement between FNBLI and Officer dated July 1, 1999. B. Employment at Will. Nothing contained herein shall be construed as an agreement that Officer will continue to be employed by FNBLI for any particular period of time and the employment of Officer may be terminated by FNBLI at any time. C. Accrued Rights. The determination of the Board of Directors of FLIC not to renew this Agreement shall not deprive Officer of any right that has accrued to Officer during the term hereof by reason of the occurrence during the term of this Agreement of an event described in Section "2" hereof. D. Notices. Any notices required to be given under this Agreement shall be in writing and shall be sent by certified mail, return receipt requested, to FLIC at 10 Glen Head Road, Glen Head, New York 11545, Attention: Chief Executive Officer, and to Officer at his residence address as reflected in the records of FLIC; or to such other address as either party may designate by written notice to the other. E. Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. THE FIRST OF LONG ISLAND CORPORATION By: /s/ J. William Johnson ---------------------------- By: /s/ Richard Kick ---------------------------- RICHARD KICK 24 EX-10.10 6 d50058_ex10-10.txt SPECIAL SEVERANCE AGREEMENT (CURTIS) EXHIBIT 10.10 - SPECIAL SEVERANCE AGREEMENT BETWEEN REGISTRANT AND MARK D. CURTIS 25 THE FIRST OF LONG ISLAND CORPORATION SPECIAL SEVERANCE AGREEMENT AGREEMENT dated as of January 1, 2002 by and between THE FIRST OF LONG ISLAND CORPORATION (hereinafter referred to as "FLIC") and MARK D. CURTIS (hereinafter referred to as the "Officer"). 1. Term. The term of this agreement shall be for a period of one (1) year commencing on the date hereof. The term shall be automatically renewed for additional one (1) year terms, unless the Board of Directors of FLIC chooses not to renew and notifies Officer of such intention not to renew at least thirty (30) days prior to the end of a term; provided, however, that FLIC may not decline to renew during any period of time in which the Board of Directors is actively negotiating a transaction the consummation of which would result in Officer becoming entitled to a Termination Payment hereunder. 2. Termination Payment. A. Officer will be entitled to a payment (the "Termination Payment") equal to One Hundred Twenty Five Per Cent (125%) of his then current annual base salary (the dollar amount so calculated being hereafter referred to as the "Full Severance"), and FLIC shall make such Termination Payment to Officer, in the event of the occurrence of any of the following: (i) The employment of Officer is terminated by The First National Bank Of Long Island ("FNBLI") within twenty-four months after a Change Of Control Event (as hereinafter defined); (ii) Officer resigns his employment with FNBLI for Good Reason (as hereinafter defined) within twenty-four months after a Change of Control Event; or (iii) The employment of Officer is terminated by FNBLI within twenty-four months after any entity, person or group shall have acquired more than twenty per cent (20%) of the voting shares of FLIC and, at the time of such termination, the Chief Executive Officer of FNBLI serving in that capacity as of the first day of the term hereof, or of the then current renewal term, as the case may be, shall have ceased to be employed by FNBLI in such capacity. B. Officer will be entitled to a Termination Payment equal to Sixty Six and Two Thirds Per Cent (66 2/3%) of the Full Severance in the event that Officer shall resign for any reason during the period beginning on the thirty-first day after a Change of Control Event and ending on the sixtieth day after such event. C. In the event that Officer shall become entitled to a Termination Payment pursuant to Section 26 2(A) or 2(B) hereof, FLIC shall, at no cost to Officer, continue to provide family medical and dental coverage to Officer for a period of twelve (12) months after Officer ceases to be employed by FNBLI, on terms and conditions substantially the same as FNBLI may, from time to time, make available to its employees generally during such period; provided, however, that the obligation of FLIC to provide such coverage shall cease on the date when another employer makes substantially comparable coverage available to Officer, regardless of whether the benefits made available by such employer require a contribution on the part of Officer. D. FLIC may elect to discharge its obligation to make the Termination Payment and provide such insurance coverage by causing FNBLI, its wholly owned subsidiary, to do so. 3. Non-Waiver. The failure of Officer to resign upon the occurrence of a particular event constituting Good Reason hereunder shall not bar the Officer from resigning upon the subsequent occurrence of any other or further event constituting Good Reason, and thereby becoming eligible to receive the Termination Payment, provided that such resignation occurs within twenty-four months after a Change of Control Event. 4. Ineligibility For Termination Payment. Regardless of whether a Change of Control Event shall have occurred, Officer shall not be entitled to any Termination Payment in the event that his employment is terminated (i) by reason of his death, normal retirement or disability, or (ii) by FNBLI for Cause (as hereinafter defined). 5. Definitions. A. "Good Reason" for resignation by Officer of his employment shall mean the occurrence (without the Officer's express written consent) of any one of the following acts or omissions to act by FLIC or FNBLI: (i) The assignment to Officer of any duties materially inconsistent with the nature and status of his responsibilities immediately prior to a Change of Control Event, or a substantial adverse alteration in the nature or status of his responsibilities from those in effect immediately prior to the Change of Control Event; provided, however, that a redesignation of his title shall not in and of itself constitute Good Reason if his overall duties and status within FLIC and FNBLI are not substantially adversely affected. (ii) A reduction in his annual base salary as in effect at the time of a Change of Control Event. For purposes hereof, "annual base salary" shall mean regular basic annual compensation prior to any reduction therein under a salary reduction agreement pursuant to Section 401(k) or Section 125 of the Internal Revenue Code and, without limitation, shall exclude fees, bonuses, incentive awards or similar payments. 27 (iii) The failure by FLIC or FNBLI to pay Officer any portion of his current compensation, or to pay him any portion of an installment of a deferred compensation amount under any deferred compensation program, within fourteen (14) days of the date such compensation is due. B. "Cause" shall mean any of the following: (i) The willful and continued failure by Officer to substantially perform his duties, as they may be defined by FLIC or FNBLI from time to time, or to abide by the written policies of FLIC or FNBLI after a written demand for substantial performance is delivered to him by the Chief Executive Officer of FLIC or FNBLI, as the case may be, which specifically identifies the manner in which he has failed substantially to perform his duties or has failed to abide by such written policies, and (ii) The willful engaging by Officer in conduct which is materially injurious to FLIC or FNBLI, monetarily or otherwise. For the purpose of the preceding sentence, no act, or failure to act, on the part of Officer shall be deemed "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his act, or failure to act, was in the best interest of FLIC or FNBLI, as the case may be. C. "Change of Control Event" shall mean the occurrence of any one of the following: (i) Continuing Outside Directors (as hereinafter defined) no longer constitute at lease two-thirds (2/3) of Outside Directors (as hereinafter defined) of FLIC; (ii) There shall be consummated a merger or consolidation of FLIC, unless at least two-thirds (2/3) of Continuing Outside Directors are to continue to constitute at least two-thirds (2/3) of Continuing Directors; (iii) At least two-thirds (2/3) of Continuing Outside Directors determine that action taken by stockholders constitutes a Change of Control Event; or (iv) FNBLI is no longer a wholly-owned subsidiary of FLIC. D. "Continuing Outside Director" shall mean any individual who is not an employee of FLIC or FNBLI and who (i) is a director of FLIC as of the date hereof, (ii) prior to election as a director is nominated by at least two-thirds (2/3) of the Continuing Outside Directors, or (iii) following election as a director is designated a Continuing Outside Director by at least two-thirds (2/3) of Continuing Outside Directors. E. "Outside Director" shall mean an individual who is not an employee of FLIC or FNBLI who is a director of FLIC. 6. Withholding Taxes; Other Deductions. 28 FLIC and FNBLI shall have the right (i) to deduct from any payments due under this Agreement amounts sufficient to cover withholding as required by law for any federal, state or local taxes and any amounts due from the Officer to FLIC or FNBLI and (ii) to take such other action as may be necessary to satisfy any such withholding or other obligations, including but not limited to withholding amounts equal to such taxes or obligations from any other amounts due or to become due from FLIC or FNBLI to Officer. 7. Miscellaneous. A. Prior Agreement Superseded. This Agreement supersedes and replaces the Amended Special Severance Agreement between FNBLI and Officer dated July 1, 1999. B. Employment at Will. Nothing contained herein shall be construed as an agreement that Officer will continue to be employed by FNBLI for any particular period of time and the employment of Officer may be terminated by FNBLI at any time. C. Accrued Rights. The determination of the Board of Directors of FLIC not to renew this Agreement shall not deprive Officer of any right that has accrued to Officer during the term hereof by reason of the occurrence during the term of this Agreement of an event described in Section "2" hereof. D. Notices. Any notices required to be given under this Agreement shall be in writing and shall be sent by certified mail, return receipt requested, to FLIC at 10 Glen Head Road, Glen Head, New York 11545, Attention: Chief Executive Officer, and to Officer at his residence address as reflected in the records of FLIC; or to such other address as either party may designate by written notice to the other. E. Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. THE FIRST OF LONG ISLAND CORPORATION By: /s/ J. William Johnson ------------------------------ By: /s/ Mark D. Curtis ------------------------------ MARK D. CURTIS 29 EX-10.11 7 d50058_ex10-11.txt SPECIAL SEVERANCE AGREEMENT (KEENEY) EXHIBIT 10.11 - SPECIAL SEVERANCE AGREEMENT BETWEEN REGISTRANT AND BRIAN J. KEENEY 30 THE FIRST OF LONG ISLAND CORPORATION SPECIAL SEVERANCE AGREEMENT AGREEMENT dated as of January 1, 2002 by and between THE FIRST OF LONG ISLAND CORPORATION (hereinafter referred to as "FLIC") and BRIAN J. KEENEY (hereinafter referred to as the "Officer"). 1. Term. The term of this agreement shall be for a period of one (1) year commencing on the date hereof. The term shall be automatically renewed for additional one (1) year terms, unless the Board of Directors of FLIC chooses not to renew and notifies Officer of such intention not to renew at least thirty (30) days prior to the end of a term; provided, however, that FLIC may not decline to renew during any period of time in which the Board of Directors is actively negotiating a transaction the consummation of which would result in Officer becoming entitled to a Termination Payment hereunder. 2. Termination Payment. A. Officer will be entitled to a payment (the "Termination Payment") equal to One Hundred Twenty Five Per Cent (125%) of his then current annual base salary (the dollar amount so calculated being hereafter referred to as the "Full Severance"), and FLIC shall make such Termination Payment to Officer, in the event of the occurrence of any of the following: (i) The employment of Officer is terminated by The First National Bank Of Long Island ("FNBLI") within twenty-four months after a Change Of Control Event (as hereinafter defined); (ii) Officer resigns his employment with FNBLI for Good Reason (as hereinafter defined) within twenty-four months after a Change of Control Event; or (iii) The employment of Officer is terminated by FNBLI within twenty-four months after any entity, person or group shall have acquired more than twenty per cent (20%) of the voting shares of FLIC and, at the time of such termination, the Chief Executive Officer of FNBLI serving in that capacity as of the first day of the term hereof, or of the then current renewal term, as the case may be, shall have ceased to be employed by FNBLI in such capacity. B. Officer will be entitled to a Termination Payment equal to Sixty Six and Two Thirds Per Cent (66 2/3%) of the Full Severance in the event that Officer shall resign for any reason during the period beginning on the thirty-first day after a Change of Control Event and ending on the sixtieth day after such event. C. In the event that Officer shall become entitled to a Termination Payment pursuant to Section 31 2(A) or 2(B) hereof, FLIC shall, at no cost to Officer, continue to provide family medical and dental coverage to Officer for a period of twelve (12) months after Officer ceases to be employed by FNBLI, on terms and conditions substantially the same as FNBLI may, from time to time, make available to its employees generally during such period; provided, however, that the obligation of FLIC to provide such coverage shall cease on the date when another employer makes substantially comparable coverage available to Officer, regardless of whether the benefits made available by such employer require a contribution on the part of Officer. D. FLIC may elect to discharge its obligation to make the Termination Payment and provide such insurance coverage by causing FNBLI, its wholly owned subsidiary, to do so. 3. Non-Waiver. The failure of Officer to resign upon the occurrence of a particular event constituting Good Reason hereunder shall not bar the Officer from resigning upon the subsequent occurrence of any other or further event constituting Good Reason, and thereby becoming eligible to receive the Termination Payment, provided that such resignation occurs within twenty-four months after a Change of Control Event. 4. Ineligibility For Termination Payment. Regardless of whether a Change of Control Event shall have occurred, Officer shall not be entitled to any Termination Payment in the event that his employment is terminated (i) by reason of his death, normal retirement or disability, or (ii) by FNBLI for Cause (as hereinafter defined). 5. Definitions. A. "Good Reason" for resignation by Officer of his employment shall mean the occurrence (without the Officer's express written consent) of any one of the following acts or omissions to act by FLIC or FNBLI: (i) The assignment to Officer of any duties materially inconsistent with the nature and status of his responsibilities immediately prior to a Change of Control Event, or a substantial adverse alteration in the nature or status of his responsibilities from those in effect immediately prior to the Change of Control Event; provided, however, that a redesignation of his title shall not in and of itself constitute Good Reason if his overall duties and status within FLIC and FNBLI are not substantially adversely affected. (ii) A reduction in his annual base salary as in effect at the time of a Change of Control Event. For purposes hereof, "annual base salary" shall mean regular basic annual compensation prior to any reduction therein under a salary reduction agreement pursuant to Section 401(k) or Section 125 of the Internal Revenue Code and, without limitation, shall exclude fees, bonuses, incentive awards or similar payments. 32 (iii) The failure by FLIC or FNBLI to pay Officer any portion of his current compensation, or to pay him any portion of an installment of a deferred compensation amount under any deferred compensation program, within fourteen (14) days of the date such compensation is due. B. "Cause" shall mean any of the following: (i) The willful and continued failure by Officer to substantially perform his duties, as they may be defined by FLIC or FNBLI from time to time, or to abide by the written policies of FLIC or FNBLI after a written demand for substantial performance is delivered to him by the Chief Executive Officer of FLIC or FNBLI, as the case may be, which specifically identifies the manner in which he has failed substantially to perform his duties or has failed to abide by such written policies, and (ii) The willful engaging by Officer in conduct which is materially injurious to FLIC or FNBLI, monetarily or otherwise. For the purpose of the preceding sentence, no act, or failure to act, on the part of Officer shall be deemed "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his act, or failure to act, was in the best interest of FLIC or FNBLI, as the case may be. C. "Change of Control Event" shall mean the occurrence of any one of the following: (i) Continuing Outside Directors (as hereinafter defined) no longer constitute at lease two-thirds (2/3) of Outside Directors (as hereinafter defined) of FLIC; (ii) There shall be consummated a merger or consolidation of FLIC, unless at least two-thirds (2/3) of Continuing Outside Directors are to continue to constitute at least two-thirds (2/3) of Continuing Directors; (iii) At least two-thirds (2/3) of Continuing Outside Directors determine that action taken by stockholders constitutes a Change of Control Event; or (iv) FNBLI is no longer a wholly-owned subsidiary of FLIC. D. "Continuing Outside Director" shall mean any individual who is not an employee of FLIC or FNBLI and who (i) is a director of FLIC as of the date hereof, (ii) prior to election as a director is nominated by at least two-thirds (2/3) of the Continuing Outside Directors, or (iii) following election as a director is designated a Continuing Outside Director by at least two-thirds (2/3) of Continuing Outside Directors. E. "Outside Director" shall mean an individual who is not an employee of FLIC or FNBLI who is a director of FLIC. 6. Withholding Taxes; Other Deductions. 33 FLIC and FNBLI shall have the right (i) to deduct from any payments due under this Agreement amounts sufficient to cover withholding as required by law for any federal, state or local taxes and any amounts due from the Officer to FLIC or FNBLI and (ii) to take such other action as may be necessary to satisfy any such withholding or other obligations, including but not limited to withholding amounts equal to such taxes or obligations from any other amounts due or to become due from FLIC or FNBLI to Officer. 7. Miscellaneous. A. Prior Agreement Superseded. This Agreement supersedes and replaces the Special Severance Agreement between FNBLI and Officer dated May 1, 2000. B. Employment at Will. Nothing contained herein shall be construed as an agreement that Officer will continue to be employed by FNBLI for any particular period of time and the employment of Officer may be terminated by FNBLI at any time. C. Accrued Rights. The determination of the Board of Directors of FLIC not to renew this Agreement shall not deprive Officer of any right that has accrued to Officer during the term hereof by reason of the occurrence during the term of this Agreement of an event described in Section "2" hereof. D. Notices. Any notices required to be given under this Agreement shall be in writing and shall be sent by certified mail, return receipt requested, to FLIC at 10 Glen Head Road, Glen Head, New York 11545, Attention: Chief Executive Officer, and to Officer at his residence address as reflected in the records of FLIC; or to such other address as either party may designate by written notice to the other. E. Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. THE FIRST OF LONG ISLAND CORPORATION By: /s/ J. William Johnson -------------------------- By: /s/ Brian J. Keeney -------------------------- BRIAN J. KEENEY 34 EX-13 8 d50058_ex13.txt ANNUAL REPORT EXHIBIT 13 - REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 35 [LOGO] The First of Long Island The First of Long Island Corporation [PHOTO OMITTED] 2001 ANNUAL REPORT 36 BUSINESS OF THE CORPORATION The First of Long Island Corporation ("Corporation") is a one-bank holding company organized under the laws of the State of New York. Its primary business is the operation of its sole subsidiary, The First National Bank of Long Island ("Bank"). The Bank was organized in 1927 under national banking laws and became the sole subsidiary of the Corporation under a plan of reorganization effected April 30, 1984. The Bank is a full service commercial bank which provides a broad range of financial services to individual, professional, corporate, institutional and government customers through its twenty-one branch system on Long Island. The First of Long Island Agency, Inc. was organized in 1994 under the laws of the State of New York, as a subsidiary of the Bank to conduct business as a licensed insurance agency engaged in the sale of insurance, primarily fixed annuity products. The Bank is subject to regulation and supervision of the Federal Reserve Board, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation which also insures its deposits. The Comptroller of the Currency is the primary banking agency responsible for regulating the subsidiary Bank. In addition, the Corporation is subject to the regulations and supervision of the Federal Reserve Board and the Securities and Exchange Commission. CONTENTS Selected Financial Data - 1 Letter to Stockholders - 2 A Journey Through History - 4 Board of Directors - 7 Senior Management - 8 Management's Discussion and Analysis of Financial Condition and Results of Operations - 9 Management's Responsibility for Financial Reporting - 19 Consolidated Financial Statements and Notes - 20 Report of Independent Public Accountants - 42 Official Staff - 43 Annual Meeting Notice - 44 Business Development Board - IBC 37 SELECTED FINANCIAL DATA The following is selected consolidated financial data for the past five years. This data should be read in conjunction with the information contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the accompanying consolidated financial statements and related notes.
2001 2000 1999* 1998 1997 ------------- ------------- ------------- ------------- ------------- INCOME STATEMENT DATA: Total Interest Income .................. $ 37,989,000 $ 38,822,000 $ 33,963,000 $ 32,682,000 $ 30,401,000 Total Interest Expense ................. 9,451,000 13,106,000 9,513,000 9,867,000 9,197,000 Net Interest Income .................... 28,538,000 25,716,000 24,450,000 22,815,000 21,204,000 Provision for Loan Losses (Credit) ..... 100,000 (75,000) -- (100,000) (100,000) Net Income ............................. 10,094,000 9,318,000 9,034,000 8,236,000 7,415,000 PER SHARE DATA: Basic Earnings ......................... $3.55 $3.19 $2.97 $2.65 $2.38 Diluted Earnings ....................... 3.50 3.15 2.92 2.60 2.33 Cash Dividends Declared ................ .81 .72 .64 .57 .49 Stock Splits/Dividends Declared ........ -- -- -- -- 3-for-2 Book Value ............................. $26.76 $24.50 $21.68 $20.59 $18.55 BALANCE SHEET DATA AT PERIOD END: Total Assets ........................... $ 684,081,000 $ 625,992,000 $ 570,551,000 $ 546,127,000 $ 483,316,000 Total Loans ............................ 226,688,000 192,909,000 182,774,000 170,718,000 154,730,000 Allowance for Loan Losses .............. 2,020,000 1,943,000 2,033,000 3,651,000 3,579,000 Total Deposits ......................... 604,870,000 550,472,000 503,189,000 479,231,000 422,759,000 Stockholders' Equity ................... 74,746,000 70,866,000 64,233,000 63,744,000 57,743,000 AVERAGE BALANCE SHEET DATA: Total Assets ........................... $ 661,958,000 $ 600,326,000 $ 554,561,000 $ 508,982,000 $ 459,391,000 Total Loans ............................ 205,959,000 186,451,000 176,078,000 164,063,000 153,733,000 Allowance for Loan Losses .............. 1,941,000 1,961,000 2,835,000 3,643,000 3,597,000 Total Deposits ......................... 584,279,000 530,850,000 486,532,000 445,266,000 402,392,000 Stockholders' Equity ................... 73,390,000 66,711,000 65,406,000 61,037,000 55,116,000 FINANCIAL RATIOS: Return on Average Total Assets (ROA) ... 1.52% 1.55% 1.63% 1.62% 1.61% Return on Average Stockholders' Equity (ROE) ......................... 13.75% 13.97% 13.81% 13.49% 13.45% Average Equity to Average Assets ....... 11.09% 11.11% 11.79% 11.99% 12.00%
*Net income, earnings per share, ROA, and ROE for 1999 are before a $945,000 ($.31 per share) credit resulting from a transition adjustment to the allowance for loan losses. STOCK PRICES The Corporation's Common Stock trades on The Nasdaq SmallCap Market tier of The Nasdaq Stock Market under the symbol FLIC. The following table sets forth high and low sales prices for the years ended December 31, 2001 and 2000. 2001 2000 ---------------------- ---------------------- Quarter High Low High Low - -------------- ---------- ---------- ---------- ---------- First $ 39.06 $ 37.75 $ 33.25 $ 29.38 Second 40.75 38.25 34.31 29.75 Third 40.90 38.65 42.00 33.50 Fourth 40.25 37.80 39.56 37.25 At December 31, 2001, there were 710 stockholders of record of the Corporation's Common Stock. The number of stockholders of record includes banks and brokers who act as nominees, each of whom may represent more than one stockholder. 38 LETTER TO STOCKHOLDERS [PHOTO OMITTED] "As we have said so many times in the past, we strongly believe we offer a unique type of service not available from the very large institutions with which we compete. ...We have the radical idea that `we'd like you to speak to a real person if you want!'" J. William Johnson Chairman and Chief Executive Officer Dear Stockholders, I am pleased to report that 2001 was a strong year for the Bank in almost all respects. Earnings per share were $3.50 which was a growth of 11% over the $3.15 that was earned in the prior year. As shown in the chart below, The First of Long Island has enjoyed exceptionally good and steady growth in earnings per share over many years. Cash dividends were increased during 2001 for the 23rd consecutive year. The dividend declared in December, of 43 cents per share, was 13% greater than the 38 cents declared in June. Total dividends declared last year were 81 cents. Our Return on Assets remained high at 1.52%, while Return on Equity was 13.75%. Once again the most important reason for the increase in earnings was the growth in average checking balances. Although not as large an increase as in the prior few years, balances increased approximately 8%, or $15,500,000 in 2001. Also favorably impacting earnings per share was the growth in average loans outstanding, money market type account balances, and service charge income. The growth in loans was particularly gratifying as there was good production in all major categories. Production was strong for commercial loans, construction loans, equity lines of credit, residential mortgages and commercial mortgages. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL] Earnings per share 1979 $.12 1980 $.23 1981 $.25 1982 $.31 1983 $.39 1984 $.57 1985 $.87 1986 $1.02 1987 $1.09 1988 $1.25 1989 $1.29 1990 $1.37 1991 $1.29 1992 $1.55 1993 $1.66 1994 $1.82 1995 $1.86 1996 $2.08 1997 $2.33 1998 $2.60 1999 $2.92 2000 $3.15 2001 $3.50 On a fully diluted basis Interest rates continued to be major news in the U.S. economy throughout 2001. Rates have been on a roller coaster for a number of years, and to say the least, managing in the face of those changes is challenging. Despite a decline in rates during the year, we were able to again effectuate a securities program in which we took approximately $250,000 in losses from the sale of lower yielding municipal securities; the total gain in interest income for the securities purchased will be significantly more than the loss on the securities sold. 39 Interest rates will likely be a continuing challenge in 2002. Short term rates available to us for investment are so low that it has been difficult to lower money market savings rates to maintain our normal margin between rates earned and paid. Furthermore, although at this writing the yield curve (the difference between short and long term interest rates) is fairly steep, the yields on long term investments are still relatively low. We were again active in the technology area last year. As planned, we introduced several "imaging" based products throughout our item processing systems. We now provide a statement with clear, legible images of customers' checks, in check number order, neatly presented on 8 1/2" x 11" pages. Although some customers were concerned about not receiving their cancelled checks, the overall reaction has been positive. Our archive retrieval capabilities allow immediate access to images of deposits, credits/debits, checks and account statements. Soon customers who use FirstNet Online Banking will also be able to do this from their home or office computer. In addition, customers can now receive their monthly statements via e-mail and businesses can receive all of their prior month's banking activity on one compact CD-ROM. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL] Return on Average Assets 1997 1.61% 1998 1.62% 1999 1.63% 2000 1.55% 2001 1.52% During the year, we continued to work on our most important strategy - soliciting banking relationships from service conscious consumers, professionals and privately owned businesses. This year we designated a seasoned professional to head our lawyer's program. We continue our active solicitation of business and professional accounts at all our branches and especially our new commercial banking offices. We closed our Cross Island Plaza office after 15 months of operation, as the available business opportunities were not what we anticipated. A number of good account relationships from that office were transferred to other branches. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL] Cash Dividends Declared Per Share 1979 $.01 1980 $.03 1981 $.03 1982 $.05 1983 $.07 1984 $.08 1985 $.12 1986 $.15 1987 $.17 1988 $.19 1989 $.19 1990 $.23 1991 $.25 1992 $.28 1993 $.31 1994 $.34 1995 $.37 1996 $.43 1997 $.49 1998 $.57 1999 $.64 2000 $.72 2001 $.81 Going forward we fully expect to continue opening new branches especially commercial banking offices. As we have said so many times in the past, we strongly believe we offer a unique type of service not available from the very large institutions with which we compete. We offer the latest technological services, but more importantly have very knowledgeable professionals who provide the 40 type of personal service that all of us want and deserve. We have the radical idea that "we'd like you to speak to a real person if you want!" The year 2002 marks the 75th anniversary of the founding of The First of Long Island. As we look forward to it and the years to come, we face many challenges such as lower and fluctuating interest rates and the continuing possibility of interest being paid on corporate checking. However, we are confident in our ability to prosper in our marketplace. Long Island and its environs remain an excellent market, and customers' focus on our type of service probably has never been greater. /s/ J. William Johnson J. William Johnson Chairman and Chief Executive Officer 41 OUR JOURNEY THROUGH TIME [PHOTO OMITTED] 1927 - The First National Bank of Glen Head opens for business Institution capitalized at $50,000 Original Officers G. Thomas Powell, President; Harry Tappan, Vice President; and Robert S. Miller, Cashier 1930's - Personal Loan Department established, loan limits $50 - $1,000 [PHOTO OMITTED] 1936 - Home Loan Plan introduced Anthony D. Famighetti becomes third employee of the Bank 1937 - Bank celebrates 10th Anniversary 1939 - Auto Loan Department formed, finance charges 25% lower than competition, 24 month term available 1947 - Bank marks 20th Anniversary 1948 - State-of-the-art teller machines installed; pen and ink entries in passbooks made obsolete [PHOTO OMITTED] 1949 - "In our estimation the most important asset of our Bank is one we are unable to list in this year end report. It is intangible...We speak, of course of the confidence and cooperation of all the friends we serve." - G. Thomas Powell, President [PHOTO OMITTED] 1952 - Glen Cove Echo article acknowledges Bank's 25th Anniversary [PHOTO OMITTED] 1953 - "It is our aim to work even more closely with our customers in the future than we have in the past." - G. Thomas Powell, President [PHOTO OMITTED] 1954 - Robert S. Miller, first employee of the Bank, elected President 1956 -Roslyn opens as a Full Service Office 1957 - Bank observes 30th Anniversary [PHOTO OMITTED] 1958 - "...500 people visited the Glen Head branch and public response to the carpeted and enlarged lobby area, new counters and entrance...has been most enthusiastic." Robert S. Miller, President 1960 - "We do not believe that the expansion of the commercial and savings banks of New York City into Nassau County will materially affect us nor impede our progress." - Robert S. Miller, President [PHOTO OMITTED] 1961 - Passage of the Omnibus Banking Bill has resulted in the establishment of a number of new branches in Nassau County by the large New York City commercial and savings banks 1962 - Top-level management meetings instituted Officer Call Program organized to actively seek out new business [PHOTO OMITTED] 1963 - Chairman of the Board of Directors and one of the original officers of the Bank, G. Thomas Powell, passes away [PHOTO OMITTED] 1964 - Greenvale opens as a Full Service Office [PHOTO OMITTED] 1965 - Northport opens as 1st Full Service Office in Suffolk County equipped with town's only drive-up window Active Public Relations Department in development 42 [PHOTO OMITTED] 1966 - BANK TALK names Anthony D. Famighetti as President and Robert S. Miller as Chairman of the Board [PHOTO OMITTED] 1967 - The First celebrates 40 years as the "Bankway to the North Shore". Board of Directors acknowledges the passing of Robert S. Miller on March 22nd Glen Head branch gets new drive-up facility 1968 - Security systems updated Very latest in electronic and photographic security devices are in use 1971 - Trust Department formed [PHOTO OMITTED] 1972 - FirstLines - Bank employee newsletter debuts [PHOTO OMITTED] 1974 - New Full Service Office in Old Brookville opens to the public A dividend check mailer sent to shareholders 1975 - Edward F. "Ned" McAdams elected President Anthony D. Famighetti elected Chairman and CEO 1976 - First Class Banking package preempts NOW and Free Checking services of other banks [PHOTO OMITTED] 1977 - Newspaper clipping announces "The First is Fifty" Woodbury opens as a Full Service Office 1978 - The First National Bank of Glen Head officially changes name to The First National Bank of Long Island [PHOTO OMITTED] 1979 - J. William Johnson joins the Bank as President Key Customer Call Program introduced Money Market Certificates offered to consumers Sign Boards installed in all branches reflecting current interest rates [PHOTOS OMITTED] 1980 - New bank logo adopted, "Our true nickname - The First of Long Island" Anthony D. Famighetti retires as CEO - remains Chairman First edition of Shareholder Newsletter "First Takes Stock" is published NOW accounts are offered [PHOTO OMITTED] 1981 - Lake Success opens, as first Commercial Banking Office, catering to business clientele exclusively [PHOTO OMITTED] 1982 - Money Market Savings, FirstEquity & Golden Passbook debut First Class Teller, "One of the first banks on Long Island to introduce 24-Hour ATM Banking", premieres Donald L. Manfredonia joins the Bank as Executive Officer, Vice President, Commercial Lending The First of Long Island actively promotes Commercial Mortgages 1984 -The First National Bank of Long Island becomes wholly-owned subsidiary of newly formed First of LI Corporation Bank's second ATM installed at Northport branch [PHOTOS OMITTED] 1985 - Construction begins on newest branch in Huntington, to be modeled after historic house in Bethpage Restoration Village Arthur J. Lupinacci, Jr. joins the management team as Executive Vice President, Senior Operating Officer Newsday article, "The Little Bank That Could" appears Professional Account Group targeting Physicians is established 43 1986 - First Famighetti Award presented to Bank employee at Annual Meeting Huntington opens as Full Service Office 1987 - FLIC (NASDAQ(R)) begins trading in January J. William Johnson elected Chairman of the Board 1988 - Two new Commercial Banking Offices open - Hicksville and Mineola [PHOTO OMITTED] 1989 - Diamond Passbook introduced First Business Development Board formed, "The goal is to market to privately owned businesses and professionals." [PHOTOS OMITTED] 1990 - Bank becomes member of NYCE & Cirrus networks Rockville Centre opens as Commercial Banking Office Joseph G. Perri joins the Bank as Executive Officer, Senior Vice President 1991 - Richard Kick, Executive Officer, Vice President, is welcomed to the Bank New Hyde Park opens as Commercial Banking Office StarEquity Program introduced [PHOTO OMITTED] 1992 - Bank dedicates 65th year in business to Anthony D. Famighetti and Thomas J. Andersen, Executive Vice President, both of whom pass away Fixed Rate Home Mortgage program rolled out 1993 - Locust Valley Branch opens, first full service office since 1977 [PHOTOS OMITTED] 1994 - PrimeLine - Home Equity Line of Credit debuts FirstLine Automated Telephone Banking premieres 1995 - Valley Stream opens as Commercial Banking Office 1996 - The First of Long Island cable commercial airs Great Neck opens as Commercial Banking Office Mark D. Curtis joins as Senior Vice President, Chief Financial Officer [PHOTO OMITTED] 1997 - The First celebrates 70 years Marketing Construction Financing to residential builders begins Bank's new Website, www.firstofli.com, released onto the Internet First Annual Tree Lighting Ceremony at Old Brookville Office a big hit 1998 - Rockville Centre becomes Full Service Office June `98 issue US Banker recognizes Bank as 3rd in Nation in terms of overall financial performance and 1st in terms of capital Commercial Banking Offices, Hauppauge and Bohemia open [PHOTO OMITTED] 1999 - US Banker June `99 edition ranks the Bank 2nd in Nation - up a notch from the prior year Garden City opens as Commercial Banking Office [PHOTOS OMITTED] 2000 - Two new Commercial Banking Offices open: New Highway and Allen Boulevard, both in Farmingdale FirstNet PC Banking rolled out to business and personal customers Security measures upgraded - account holder photos and scanned signatures implemented at branches Brian J. Keeney joins the Bank as Senior Vice President & Executive Trust Officer Huntington becomes the largest branch in terms of checking deposits 44 [PHOTO OMITTED] 2001 - Deer Park opens as Commercial Banking Office FirstStatement check imaging rolled out to business and personal customers Celebrate with us in 2002! 45 BOARD OF DIRECTORS [PHOTO OMITTED] Rear, l to r: Walter C. Teagle III, Allen E. Bushing, J. William Johnson, Howard Thomas Hogan, Jr., Paul T. Canarick, J. Douglas Maxwell, Jr. Seated, l to r: John R. Miller III, Beverly Ann Gehlmeyer J. William Johnson Chairman and Chief Executive Officer Allen E. Busching Principal, B&B Capital (consulting and private investment) Paul T. Canarick President and Principal Paul Todd, Inc. (construction company) Beverly Ann Gehlmeyer Tax Manager and Principal Gehlmeyer & Gehlmeyer, P.C. (certified public accounting firm) Howard Thomas Hogan, Jr. Hogan & Hogan (lawyer, private practice) J. Douglas Maxwell, Jr. Chairman and Chief Executive Officer NIRx Medical Technologies LLC (medical technology) John R. Miller III President and Publisher Equal Opportunity Publications, Inc. (publishing) Walter C. Teagle III Executive Vice President Lexent Inc. (infrastructure service provider) "Our philosophy has remained consistent since our inception - exceptional personal service and attention to detail." -J. William Johnson 46 SENIOR MANAGEMENT [PHOTO OMITTED] l to r: Richard Kick, Joseph G. Perri, Mark D. Curtis, J. William Johnson, Donald L. Manfredonia, Arthur J. Lupinacci, Jr., Brian J. Keeney THE FIRST OF LONG ISLAND CORPORATION OFFICERS J. William Johnson Chairman and Chief Executive Officer Arthur J. Lupinacci, Jr. Executive Vice President and Chief Administrative Officer Mark D. Curtis Senior Vice President and Treasurer Brian J. Keeney Senior Vice President Richard Kick Senior Vice President Donald L. Manfredonia Senior Vice President Joseph G. Perri Senior Vice President and Secretary Wayne B. Drake Assistant Treasurer THE FIRST NATIONAL BANK OF LONG ISLAND EXECUTIVE OFFICERS J. William Johnson Chairman and Chief Executive Officer Arthur J. Lupinacci, Jr. Executive Vice President and Chief Administrative Officer Donald L. Manfredonia Executive Vice President Senior Lending Officer Joseph G. Perri Executive Vice President Senior Commercial Marketing Officer Mark D. Curtis Senior Vice President Chief Financial Officer and Cashier Brian J. Keeney Senior Vice President Executive Trust Officer Richard Kick Senior Vice President Senior Operations and Senior Retail Loan Officer 47 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 2001 Versus 2000 Summary. The Corporation earned $3.50 per share in 2001 as compared to $3.15 in 2000, an increase of 11%. Based on 2001 net income of $10,094,000, the Corporation returned 1.52% on average total assets and 13.75% on average total equity as compared to returns of 1.55% and 13.97% in 2000. Total assets and deposits were $684,081,000 and $604,870,000, respectively, at December 31, 2001, representing increases over prior year-end balances of 9.3% and 9.9%, respectively. Despite continued purchases under the Corporation's stock repurchase program, total capital before unrealized gains on available-for-sale securities grew by $3,570,000 in 2001, or approximately 5%, and the Corporation's capital ratios continue to substantially exceed the current regulatory criteria for a well-capitalized bank. In addition, the Corporation's liquidity continues to be strong. The most important reason for the earnings increase in 2001 was growth in average checking balances. Other important factors were growth in average loan and money market type savings balances and an increase in service charge income. Average checking balances for 2001 were up approximately $15.5 million, or just over 8%, average loans outstanding were up approximately $19.5 million, or 10.5%, average money market type savings balances were up approximately $41.3 million, or almost 16%, and service charge income grew by $509,000, or approximately 17%. Also positively impacting earnings were growth in stockholders' equity and the Corporation's share repurchase program. An increase in noninterest expense partially offset the earnings growth brought about by the aforementioned items. When comparing year-end balances, the Bank's mortgage loan portfolio grew by almost 16% in 2001 as compared to 5.2% in 2000 and 11.5% in 1999. The 2001 growth is comprised of an increase in commercial mortgages of 6.8% and an increase in residential mortgages, including home equity loans and lines, of 25.0%. This compares to increases of 3.2% for commercial mortgages and 7.4% for residential mortgages in 2000. The increased growth rates for residential and commercial mortgage loans experienced in 2001 is believed to be partially attributable to a decrease in mortgage rates and a resulting increase in the desire of customers to refinance their existing mortgages and favorable conditions in the Long Island economy. Commercial mortgages continue to be the Bank's most important loan product. The Bank's portfolios of tax-exempt and mortgage securities grew during 2001, while the long-term U.S. Treasury portfolio declined. This occurred as a result of management's efforts to take advantage of the better returns afforded by municipal and mortgage securities relative to the Treasury sector. Savings and money market deposits were up 11.8% when comparing year-end 2001 to 2000 primarily because of growth in "Select Savings", nonpersonal money market, and IOLA (interest on lawyer) accounts. The Select Savings product is a statement savings account that earns a higher money market rate. 2001 was a successful year from the standpoint of the Corporation's stock repurchase program in that the Corporation was able to repurchase almost 119,000 shares of common stock, representing approximately 4% of total shares outstanding at the beginning of the year. This compares to repurchases of approximately 84,000 and 143,000 shares in 2000 and 1999, respectively. The stock repurchase program has been used by management to enhance earnings per share and return on average stockholders' equity (ROE). The stock repurchase program is estimated to have contributed approximately 7 cents of the 35 cent increase in earnings per share for 2001. 2000 Versus 1999 Summary. The Corporation earned $3.15 per share in 2000 as compared to $2.92 in 1999, an increase of 8%. The 1999 earnings are before a transition adjustment to the allowance for loan losses that added $.31 per share. Based on 2000 net income of $9,318,000, the Corporation returned 1.55% on average total assets and 13.97% on average total equity as compared to returns of 1.63% and 13.81% in 1999. Total assets and deposits were $625,992,000 and $550,472,000, respectively, at December 31, 2000, representing increases over prior year-end balances of 9.7% and 9.4%, respectively. Despite continued purchases under the Corporation's stock repurchase program, total capital before 48 unrealized gains and losses on available-for-sale securities grew by $4,647,000 in 2000, or approximately 7%, and the Corporation's capital ratios continued to substantially exceed the regulatory criteria for a well-capitalized bank. In addition, the Corporation's liquidity continued to be strong. The most important factor in the increase in earnings for 2000 was an increase in checking account balances. Average checking balances for 2000 were up approximately $17.4 million, or just over 10%. As in prior years, the Bank used growth of checking balances as a key strategy in increasing earnings per share. Also important to the earnings increase was growth in money market savings type balances, the preferential tax treatment afforded certain of the Bank's subsidiaries, and the positive impact of the Corporation's share repurchase program. The earnings enhancement brought about by these items was partially offset by a decrease in net interest yield and an increase in personnel expense. When comparing year-end balances, the Bank's mortgage loan portfolio grew by 5.2% in 2000 as compared to 11.5% in 1999 and 8.8% in 1998. The 2000 growth was comprised of an increase in commercial mortgages of 3.2% and an increase in residential mortgages, including home equity loans and lines, of 7.4%. This compares to increases of 7.6% for commercial mortgages and 15.9% for residential mortgages in 1999. The decreased growth rate for residential mortgage loans experienced in the 2000 year is believed to be partially attributable to an increase in mortgage rates and a resulting reduction in the desire of customers to refinance their existing residential mortgages. Commercial mortgages continued to be the Bank's most important loan product. The Bank's portfolios of tax-exempt and mortgage securities grew during 2000 while the U.S. Treasury portfolio declined. This occurred as a result of management's efforts to take advantage of the better returns afforded by municipal and mortgage securities relative to the Treasury sector. Savings and money market deposits were up 7.9% when comparing year-end 2000 to 1999 primarily because of growth in "Select Savings". The Select Savings product is a statement savings account that earns a higher money market rate. 2000 was a successful year from the standpoint of the Corporation's stock repurchase program in that the Corporation was able to repurchase a bit more than 84,000 shares of common stock, representing approximately 3% of total shares outstanding at the beginning of the year. This compares to repurchases of approximately 143,000 and 34,000 shares in 1999 and 1998, respectively. The stock repurchase program has been used by management to enhance earnings per share and return on average stockholders' equity (ROE). The stock repurchase program is estimated to have contributed approximately 6 cents of the 23 cent increase in earnings per share for 2000. 49 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.
2001 2000 -------------------------------- -------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ----------- -------- ------- ----------- -------- ------- (dollars in thousands) Assets: Federal funds sold .............. $ 82,017 $ 3,291 4.01% $ 80,387 $ 5,044 6.27% Investment securities: Taxable ....................... 223,538 12,643 5.66 204,272 12,725 6.23 Nontaxable (1) ................ 114,982 8,038 6.99 96,141 6,832 7.11 Loans (1) (2) ................... 205,959 16,781 8.15 186,451 16,596 8.90 ----------- ------- ------- ----------- ------- ------- Total interest-earning assets (1) 626,496 40,753 6.51 567,251 41,197 7.26 ------- ------- ------- ------- Allowance for loan losses ....... (1,941) (1,961) ----------- ----------- Net interest-earning assets ..... 624,555 565,290 Cash and due from banks ......... 24,472 22,026 Premises and equipment, net ..... 7,133 6,695 Other assets .................... 5,798 6,315 ----------- ----------- $ 661,958 $ 600,326 =========== =========== Liabilities and Stockholders' Equity: Savings and money market deposits ............... $ 343,389 7,944 2.31 $ 303,530 11,127 3.67 Time deposits ................... 39,202 1,507 3.84 41,105 1,979 4.81 ----------- ------- ------- ----------- ------- ------- Total interest-bearing deposits . 382,591 9,451 2.47 344,635 13,106 3.80 ----------- ------- ------- ----------- ------- ------- Checking deposits (3) ........... 201,688 186,215 Other liabilities ............... 4,289 2,765 ----------- ----------- 588,568 533,615 Stockholders' equity ............ 73,390 66,711 ----------- ----------- $ 661,958 $ 600,326 =========== =========== Net interest income (1) ......... $31,302 $28,091 ======= ======= Net interest spread (1) ......... 4.04% 3.46% ==== ==== Net interest yield (1) .......... 5.00% 4.95% ==== ==== 1999 -------------------------------- Average Average Balance Interest Rate ----------- -------- ------- Assets: Federal funds sold .............. $ 69,860 $ 3,439 4.92% Investment securities: Taxable ....................... 192,824 11,646 6.04 Nontaxable (1) ................ 84,040 5,705 6.79 Loans (1) (2) ................... 176,078 15,171 8.62 ----------- ------- ------- Total interest-earning assets (1) 522,802 35,961 6.88 ------- ------- Allowance for loan losses ....... (2,835) ----------- Net interest-earning assets ..... 519,967 Cash and due from banks ......... 20,954 Premises and equipment, net ..... 6,444 Other assets .................... 7,196 ----------- $ 554,561 =========== Liabilities and Stockholders' Equity: Savings and money market deposits ............... $ 280,124 7,984 2.85 Time deposits ................... 37,617 1,529 4.06 ----------- ------- ------- Total interest-bearing deposits . 317,741 9,513 2.99 ----------- ------- ------- Checking deposits (3) ........... 168,791 Other liabilities ............... 2,623 ----------- 489,155 Stockholders' equity ............ 65,406 ----------- $ 554,561 =========== Net interest income (1) ......... $26,448 ======= Net interest spread (1) ......... 3.89% ==== Net interest yield (1) .......... 5.06% ====
(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 Bank'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 each year presented, 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. 50 Rate/Volume Analysis. The following table sets forth the effect of changes in volumes, rates, and rate/volume on tax-equivalent interest income, interest expense and net interest income.
Year Ended December 31, ----------------------------------------------------------------------------------------- 2001 versus 2000 2000 versus 1999 Increase (decrease) due to changes in: Increase (decrease) due to changes in: ------------------------------------------- ----------------------------------------- Rate/ Net Rate/ Net Volume Rate Volume (2) Change Volume Rate Volume (2) Change ------- ------- ------- ------- ------- ------- ------- ------- (in thousands) Interest Income: Federal funds sold .................... $ 102 $(1,818) $ (37) $(1,753) $ 518 $ 944 $ 143 $ 1,605 Investment securities: Taxable ............................. 1,200 (1,172) (110) (82) 691 366 22 1,079 Nontaxable (1) ...................... 1,339 (111) (22) 1,206 821 267 39 1,127 Loans (1) ............................. 1,736 (1,404) (147) 185 894 502 29 1,425 ------- ------- ------- ------- ------- ------- ------- ------- Total interest income ................. 4,377 (4,505) (316) (444) 2,924 2,079 233 5,236 ------- ------- ------- ------- ------- ------- ------- ------- Interest Expense: Savings and money market deposits ..................... 1,461 (4,105) (539) (3,183) 667 2,285 191 3,143 Time deposits ......................... (92) (399) 19 (472) 142 282 26 450 ------- ------- ------- ------- ------- ------- ------- ------- Total interest expense ................ 1,369 (4,504) (520) (3,655) 809 2,567 217 3,593 ------- ------- ------- ------- ------- ------- ------- ------- Increase (decrease) in net interest income ..................... $ 3,008 $ (1) $ 204 $ 3,211 $ 2,115 $ (488) $ 16 $ 1,643 ======= ======= ======= ======= ======= ======= ======= =======
(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 - 2001 Versus 2000 Net interest income on a tax-equivalent basis increased by $3,211,000, or 11.4%, from $28,091,000 in 2000 to $31,302,000 in 2001. As can be seen from the above rate/volume analysis, the increase is primarily comprised of a positive volume variance of $3,008,000 and a positive rate/volume variance of $204,000. The positive volume variance was largely caused by: (1) growth in average checking deposits and the use of such funds to purchase investment securities and originate loans; and (2) 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 2001 to 2000, average checking deposits increased by $15,473,000, or 8.3%, average savings and money market deposits increased by $39,859,000, or 13.1%, average loans increased by $19,508,000, or 10.5%, and average investment securities increased by $38,107,000, or 12.7%. The growth in loans was largely comprised of increases in residential mortgages, including home equity loans, and commercial loans, with the commercial loan growth having the largest positive impact on net interest income. 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 new business program is a significant factor that favorably impacted the growth in average checking balances noted when comparing 2001 to 2000, and competitive pricing and customer demographics are believed to be important factors 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 local economic conditions. 51 The Bank's net interest spread and yield increased from 3.46% and 4.95%, respectively, in 2000 to 4.04% and 5.00%, respectively, in 2001. It would appear that the principal cause of the increase in net interest spread was the significant decline in short-term interest rates experienced during 2001, and the principal cause of the increase in net interest margin was a change in the mix of investments. Federal funds sold, which is the Bank's lowest yielding investment, became a smaller percentage of total interest-earning assets and nontaxable securities, a higher yielding investment, became a larger percentage. During 2001, both the federal funds target rate and the Bank's prime lending rate decreased by 475 basis points. As more fully discussed in the Market Risk section of this discussion and analysis of financial condition and results of operations, a decline in interest rates should initially have a positive impact on net interest income. However, net interest income in 2001 was not positively impacted by declining interest rates because the Bank did not decrease the rates paid on its money market type deposit accounts as quickly or in the same amount as market decreases in the overnight federal funds rate or the prime lending rate. Net Interest Income - 2000 Versus 1999 Net interest income on a tax-equivalent basis increased by $1,643,000, or 6.2%, from $26,448,000 in 1999 to $28,091,000 in 2000. As can be seen from the above rate/volume analysis, the increase is primarily comprised of a positive volume variance of $2,115,000 and a negative rate variance of $488,000. 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 2000 to 1999, average checking deposits increased by $17,424,000, or 10.3%. Also making a significant contribution to the positive volume variance was growth in the overall balance of money market type products and the use of such funds to purchase investment securities, originate loans, and increase the Bank's overnight position in federal funds sold. When comparing 2000 to 1999, the average balance for money market type products increased by $25,340,000, or 10.7%. The Bank's new business program is a significant factor that favorably impacted the growth in average checking balances noted when comparing 2000 to 1999, and competitive pricing and customer demographics are believed to be important factors 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 local economic conditions. 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. In addition, despite rising interest rates, the yield on the Bank's mortgage loan portfolio was substantially unchanged. This occurred because the origination and repricing of mortgage loans during the period at current rates did not favorably impact the overall yield on the portfolio. These factors contributed to the reduction in the Bank's net interest spread and yield from 3.89% and 5.06%, respectively, in 1999 to 3.46% and 4.95%, respectively, in 2000. 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. However, over the longer term, the impact should be positive. Noninterest Income, Noninterest Expense, and Income Taxes Noninterest income includes service charges on deposit accounts, Trust Department income, gains or losses on sales of available-for-sale securities, and all other items of income, other than interest, resulting from the business activities of the Corporation. Noninterest income was $4,949,000, $4,525,000, and $4,966,000 in 2001, 2000, and 1999, respectively. The 9.4% increase in noninterest income in 2001 is primarily attributable to revisions made to the Bank's service charge schedule in the third quarter of 2000 and the resulting impact on overdraft check charges and maintenance/activity charges. The 8.9% decrease in noninterest income in 2000 is primarily attributable to $229,000 in losses realized on sales of available-for-sale securities and the loss of several accounts that incurred large maintenance/activity and overdraft check charges. The securities losses in 2001 and 2000 resulted from the execution of loss programs in which the Bank sold municipal securities with an amortized cost of approximately $5.5 million and $7.7 million, respectively, and then purchased higher-yielding replacement securities of the same type and slightly longer duration. The after-tax losses realized in 2001 and 2000 will be more than offset by the impact of higher future yields. 52 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 was $19,767,000 and $17,567,000 in 2001 and 2000, respectively, representing increases over prior year amounts of $2,200,000, or 12.5%, and $1,246,000, or 7.6%. The increase for 2001 is comprised of an increase in salaries of $822,000, or 10.1%, an increase in employee benefits expense of $413,000, or 12.8%, an increase in occupancy and equipment expense of $409,000, or 17%, and an increase in other operating expenses of $556,000, or 14.6%. The increase in salaries is attributable to normal annual salary adjustments, filling of staff vacancies, and additions to staff resulting from, among other things, the opening of three new branch offices in the latter part of 2000 and one new branch office in the early part of 2001. The increase in employee benefits expense is largely attributable to the increased number of employees, an increase in retirement plan expense resulting from decreased interest rates and lower returns on retirement plan assets, revisions made to the Bank's incentive compensation program, and an increase in medical insurance premiums. The increase in occupancy and equipment expense is primarily attributable to increases in depreciation and rental expense resulting from recent improvements in technology and new branch openings, respectively. A substantial portion of the increase in other operating expenses resulted from increases in mortgage recording tax, appraisal fees, stationery and supplies expense, marketing expense, and charges associated with the January 2002 closing of the Bank's Cross Island Plaza branch. The increases in mortgage recording tax and appraisal fees resulted from increased mortgage origination activity and the increase in stationery and supplies expense is partially attributable to the new branch openings and form changes necessitated by the implementation of imaging technology. The increase in noninterest expense for 2000 is primarily comprised of an increase in salaries of $450,000, or 5.9%, an increase in employee benefits expense of $533,000, or almost 20%, and an increase in occupancy and equipment expense of $222,000, or approximately 10%. The increase in salaries is largely attributable to normal annual salary increases and new branch openings. The increase in employee benefits expense is primarily attributable to higher retirement plan expense caused by, among other things, growth in salaries of retirement plan participants, the negative impact of changing interest rates on required employer contributions, and an accrual for directors' retirement benefits. The increase in occupancy and equipment expense in 2000 is largely attributable to an increase in depreciation expense resulting from significant capital expenditures made in 1999 and 2000 and the new branch openings. Income tax expense as a percentage of book income was 25.9%, 26.9%, and 31.0% in 2001, 2000, and 1999, respectively. The decrease in the percentage for 2001 is primarily attributable to an increase in the amount of tax-exempt income on municipal securities and increased funding by the Bank of its REIT (real estate investment trust) and investment subsidiaries. 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 its REIT subsidiary, and the funding by the Bank of its investment subsidiary. Allowance and Provision For Loan Losses The allowance for loan losses was $2,020,000, or .9% of total loans, at December 31, 2001 as compared to $1,943,000, or 1% of total loans, at December 31, 2000. The change in the allowance during 2001 is due to a $100,000 provision for loan losses, chargeoffs of $52,000, and recoveries of $29,000. 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. Because the process for estimating credit losses and determining the allowance for loan losses as of any balance sheet date is subjective in nature and requires material estimates, there is not an exact amount but rather a range for what constitutes an appropriate allowance. In estimating a range, 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. Management also considers relevant loan loss statistics for the Bank's peer group. 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 53 approximately 79% of total loans outstanding at December 31, 2001. 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 present more than the normal risk that the Bank will be unable to eventually collect or realize their full carrying value. The Corporation's risk elements at December 31, 2001 and 2000 are as follows:
2001 2000 ---------- ---------- (dollars in thousands) Nonaccruing loans ............................................ $ 105 $ -- Foreclosed real estate ....................................... -- -- ---------- ---------- Total nonperforming assets ................................. 105 -- Troubled debt restructurings ................................. 10 -- Loans past due 90 days or more as to principal or interest payments and still accruing .......... 236 173 ---------- ---------- Total risk elements ........................................ $ 351 $ 173 ========== ========== Nonaccruing loans as a percentage of total loans ............. .05% .00% ========== ========== Nonperforming assets as a percentage of total loans and foreclosed real estate ................................. .05% .00% ========== ========== Risk elements as a percentage of total loans and foreclosed real estate ..................................... .15% .09% ========== ==========
Capital The Corporation's capital management policy is designed to build and maintain capital levels that exceed regulatory standards. Under current regulatory capital standards, banks are classified as well capitalized, adequately capitalized or undercapitalized. Under such standards, a well capitalized bank is one that has a total risk-based capital ratio equal to or greater than 10%, a Tier 1 risk-based capital ratio equal to or greater than 6%, and a Tier 1 leverage capital ratio equal to or greater than 5%. The Corporation's total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage capital ratios of 29.22%, 28.44% and 10.63%, respectively, at December 31, 2001 substantially exceed the requirements for a well-capitalized bank. During the 2001 year, total stockholders' equity increased by $3,880,000 from $70,866,000 at December 31, 2000 to $74,746,000 at December 31, 2001. The increase in stockholders' equity is primarily attributable to net income of $10,094,000 less repurchases of common stock amounting to $4,698,000 and less cash dividends declared of $2,281,000. 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. The Board of Directors approved two stock repurchase plans in 2001, each for 50,000 shares. Total shares purchased in 2001 were 118,951, of which 64,308 were purchased under plans approved in 2000. As of December 31, 2001, there were 52,210 shares that could be purchased under the plans approved in 2001. Cash Flows and Liquidity Cash Flows. As shown in the consolidated statement of cash flows, cash and cash equivalents declined by $56,463,000 during 2001 primarily because the cash provided by deposit growth and operations was less than the cash used to make loans, purchase securities, pay dividends, and repurchase common stock. During 2001, loan and securities portfolio growth required cash of $33,802,000 and $80,349,000, respectively. Securities portfolio growth was significantly impacted by the purchase of "Short-Term" (maturities within two years) U.S. Treasury securities as an alternative to the overnight sale of federal funds. The Bank had $96,132,000 in Short-Term U.S. Treasury securities and $27,000,000 in overnight funds sales at December 31, 2001 as compared to $7,495,000 and $87,800,000, respectively, at December 31, 2000. Purchases and maturities of short-term commercial paper account for a significant portion of the 54 cash used to purchase held-to-maturity securities and cash proceeds from the maturity of held-to-maturity securities as shown in the consolidated statement of cash flows. As reflected in the accompanying consolidated balance sheet, the $54,398,000 growth in deposits from year-end 2000 to year-end 2001 is comprised of an increase in checking deposits of $27,205,000, or 13.9%, and an increase in total interest-bearing deposits of $27,193,000, or 7.7%. The increase in interest-bearing deposits is primarily attributable to growth in money market type savings balances. 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 two years and securities with average lives of two years or less; maturities and monthly payments on the balance of the investment securities portfolio and loan portfolio; and longer-term investment securities designated as available-for-sale. At December 31, 2001, the Corporation had $27,000,000 in federal funds sales, short-term securities not subject to pledge agreements of $99,096,000, and longer-term available-for-sale securities not subject to pledge agreements of $71,564,000. The Corporation's liquidity is enhanced by its stable deposit base which primarily consists of checking, savings and money market accounts. Such accounts comprised 94.3% of total deposits at December 31, 2001, while time deposits of $100,000 and over and other time deposits comprised only 2.2% and 3.5%, 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 as a funding source. 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 having assets and liabilities that have different maturity, repricing, and prepayment/withdrawal characteristics. The Bank defines interest rate risk as the risk that the Bank's earnings and/or net portfolio value (defined below) 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. During 2001, there was a significant decrease in short-term interest rates as evidenced by a 475 basis point reduction in both the federal funds target rate and the Bank's prime lending rate. In addition, rates on intermediate term securities and loans also decreased but by much lesser amounts. Because the Bank's loans and investment securities generally reprice slower than its interest-bearing deposit accounts, a decrease in interest rates should initially have a positive impact on the Bank's net interest income. However, if the Bank does not decrease the rates paid on its money market type deposit accounts as quickly or in the same amount as market decreases in the overnight federal funds rate or the prime lending rate, the magnitude of the positive impact will decline and the positive impact may even be eliminated. In addition, rates may decrease to the point that the Bank can not reduce its money market rates any further. If interest rates decline and are sustained at the lower levels and, as a result, the Bank purchases securities and originates loans at yields lower than those maturing, the impact on net interest income should eventually be negative because 39% of the Bank's average interest-earning assets are funded by noninterest-bearing checking deposits and capital. The Bank monitors and controls interest rate risk through a variety of techniques including the use of interest rate sensitivity models and traditional interest rate sensitivity gap analysis. Through use of the models, the Bank projects future net interest income and then estimates the effect on projected net interest income of various changes in interest rates and balance sheet growth rates. The Bank also uses the models to calculate the change in net portfolio value ("NPV") over a range of interest rate change scenarios. Net portfolio value is the present value of expected future cash flows from assets less the present value of expected cash flows from liabilities. Traditional gap analysis involves arranging the Bank's interest-earning assets and interest-bearing liabilities by repricing periods and then computing the difference, or interest-rate sensitivity gap, between the assets and liabilities which are estimated to reprice during each time period and cumulatively through the end of each time period. Both interest rate sensitivity modeling and gap analysis involve a variety of significant estimates and assumptions and are done at a specific point in time. Interest rate sensitivity modeling requires, among other things, estimates of: (1) how 55 much and when yields and costs on individual categories of interest-earning assets and interest-bearing liabilities will adjust because of projected changes in market interest rates; (2) future cash flows; and (3) discount rates. Gap analysis requires estimates as to when individual categories of interest-sensitive assets and liabilities will reprice and assumes that assets and liabilities assigned to the same repricing period will reprice at the same time and in the same amount. Like sensitivity modeling, gap analysis does not fully take into account the fact that the repricing of some assets and liabilities is discretionary and subject to competitive and other pressures. Changes in the estimates and assumptions made for interest rate sensitivity modeling and gap analysis could have a significant impact on projected results and conclusions. Therefore, these techniques may not accurately reflect the actual impact of general interest rate movements on the Bank's net interest income or net portfolio value. The following table is provided pursuant to the market risk disclosure rules set forth in Item 305 of Regulation S-K of the Securities and Exchange Commission. The information provided in the table is based on significant estimates and assumptions and constitutes, like certain other statements included herein, a forward-looking statement. The base case information in the table shows (1) an estimate of the Corporation's NPV at December 31, 2001 arrived at by discounting estimated future cash flows at current market rates and (2) an estimate of net interest income for 2002 assuming that maturing assets or liabilities are replaced with new balances of the same type, in the same amount, and at current rate levels and repricing balances are adjusted to current rate levels. The rate change information in the table shows estimates of NPV at December 31, 2001 and net interest income for 2002 assuming rate changes of plus 100 and 200 basis points and minus 100 and 200 basis points. Rate changes are assumed to be shock or immediate changes and occur uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. In projecting future net interest income under the indicated rate change scenarios, activity is simulated by replacing maturing balances with new balances of the same type, in the same amount, but at the assumed rate level and adjusting repricing balances to the assumed rate level. Based on the foregoing assumptions and as depicted in the table below, an immediate increase in interest rates of 100 or 200 basis points would have a negative effect on net interest income over a one-year time period. This is principally because the Bank's interest-bearing deposit accounts reprice faster than its loans and investment securities. However, if the Bank does not increase the rates paid on its money market type deposit accounts as quickly or in the same amount as market increases in the overnight federal funds rate or the prime lending rate, the magnitude of the negative impact will decline and the negative impact may even be eliminated. Over a longer period of time, and assuming that interest rates remain stable after the initial rate increase and the Bank purchases securities and originates loans at yields higher than those maturing and reprices loans at higher yields, the impact of an increase in interest rates should be positive. This occurs primarily because with the passage of time more loans and investment securities will reprice at the higher rates and there will be no offsetting increase in interest expense for those loans and investment securities funded by noninterest-bearing checking deposits and capital.
Net Portfolio Value (NPV) Net Interest Income at December 31, 2001 for 2002 -------------------------- ------------------------- Percent Percent Change Change From From Rate Change Scenario Amount Base Case Amount Base Case - --------------------------------------------- ------- --------- ------- --------- (dollars in thousands) + 200 basis point rate shock ................ $55,393 (32.6)% $26,233 (12.3)% + 100 basis point rate shock ................ 68,454 (16.7) 28,074 (6.2) Base case (no rate change)................ 82,181 -- 29,916 -- - - 100 basis point rate shock ................ 96,666 17.6 31,250 4.5 - - 200 basis point rate shock ................ 111,954 36.2 30,387 1.6
56 The following table summarizes the Corporation's cumulative interest rate sensitivity gap at December 31, 2001 based upon significant estimates and assumptions that the Corporation believes to be reasonable.
Repricing Date -------------------------------------------------------------------------------------------- Over Over Over Three Six One Year Three Months Months Total Through Over Non- Months Through Through Within Five Five interest- or Less Six Months One Year One Year Years Years Sensitive Total --------- --------- --------- --------- --------- --------- --------- --------- (in thousands) Assets: Federal funds sold ............... $ 27,000 $ -- $ -- $ 27,000 $ -- $ -- $ -- $ 27,000 Investment securities ............ 43,522 16,782 36,528 96,832 186,999 105,038 1,621 390,490 Loans ............................ 84,220 15,348 30,694 130,262 71,374 24,459 (1,427) 224,668 Other assets ..................... -- -- -- -- -- -- 41,923 41,923 --------- --------- --------- --------- --------- --------- --------- --------- 154,742 32,130 67,222 254,094 258,373 129,497 42,117 684,081 --------- --------- --------- --------- --------- --------- --------- --------- Liabilities and Stockholders' Equity: Checking deposits ................ -- -- -- -- -- -- 222,822 222,822 Savings and money market deposits 257,562 7,294 10,632 275,488 29,833 42,109 -- 347,430 Time deposits .................... 22,612 5,971 4,469 33,052 1,534 32 -- 34,618 Other liabilities ................ -- -- -- -- -- -- 4,465 4,465 Stockholders' equity ............. -- -- -- -- -- -- 74,746 74,746 --------- --------- --------- --------- --------- --------- --------- --------- 280,174 13,265 15,101 308,540 31,367 42,141 302,033 684,081 --------- --------- --------- --------- --------- --------- --------- --------- Interest-rate sensitivity gap ....... $(125,432) $ 18,865 $ 52,121 $ (54,446) $ 227,006 $ 87,356 $(259,916) $ -- ========= ========= ========= ========= ========= ========= ========= ========= Cumulative interest-rate sensitivity gap .................... $(125,432) $(106,567) $ (54,446) $ (54,446) $ 172,560 $ 259,916 $ -- $ -- ========= ========= ========= ========= ========= ========= ========= =========
Regulatory Matters Pending Legislation. Commercial checking deposits currently account for approximately 27% of the Bank's total deposits. Congress is currently 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. Examinations. The subsidiary Bank was examined by the Office of the Comptroller of the Currency in the first quarter of 2001. The examination was a regularly scheduled safety and soundness examination. Management is not aware, nor has it been apprised, of any recommendations by regulatory authorities that would have a material adverse impact on the Corporation's liquidity, capital resources, or operations. New Accounting Pronouncements A discussion of new accounting pronouncements is included in Note A to the Corporation's consolidated financial statements. Forward Looking Statements With respect to financial performance and business matters, Management's Discussion and Analysis of Financial Condition and Results of Operations contains various "forward-looking statements" within the meaning of that term as set forth in Rule 175 of the Securities Act of 1933 and Rule 3b-6 of the Securities Act of 1934. Such statements are generally contained in sentences including the words "may" or "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. 57 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The management of The First of Long Island Corporation is responsible for the preparation of the consolidated financial statements, related financial data and other information in this annual report. The consolidated financial statements are prepared in accordance with generally accepted accounting principles and include amounts based on management's estimates and judgment where appropriate. Financial information appearing throughout this annual report is consistent with the consolidated financial statements. In meeting its responsibility both for the reliability and integrity of these statements and information, management depends on its accounting systems and related internal control structures. These systems and controls have been designed to provide reasonable assurances that assets are safeguarded and that transactions are authorized and recorded in accordance with established procedures and that reliable records are maintained. As an integral part of the internal control structure, the Corporation maintains a staff of internal auditors who monitor compliance with and assess the effectiveness of the internal control structure and coordinate audit coverage with the independent auditors. The Corporation's Examining Committee of the Board of Directors, composed solely of outside directors, meets regularly with the Corporation's internal auditors, independent auditors and regulatory examiners to review matters relating to financial reporting, internal control structure and the nature, extent and results of the audit effort. The independent auditors, internal auditors and banking regulators have direct access to the Examining Committee with or without management present. The consolidated financial statements for each of the three years in the period ended December 31, 2001 have been audited by Arthur Andersen LLP, independent public accountants, who render an independent professional opinion on management's consolidated financial statements. Their appointment was approved by the Board of Directors. The examinations provide an objective assessment of the degree to which the Corporation's management meets its responsibility for financial reporting. Their opinion on the consolidated financial statements is based on auditing procedures which include reviewing internal control structures and performing selected tests of transactions and records as deemed appropriate. These auditing procedures are designed to provide a reasonable level of assurance that the consolidated financial statements are fairly presented in all material respects. 58 CONSOLIDATED BALANCE SHEETS
December 31, --------------------------------- 2001 2000 ------------- ------------- Assets: Cash and due from banks ................................................. $ 28,209,000 $ 23,872,000 Federal funds sold ...................................................... 27,000,000 87,800,000 ------------- ------------- Cash and cash equivalents ............................................. 55,209,000 111,672,000 ------------- ------------- Investment securities: Held-to-maturity, at amortized cost (fair value of $257,670,000 and $229,045,000) .......................... 252,215,000 226,361,000 Available-for-sale, at fair value (amortized cost of $136,654,000 and $82,582,000) ................................. 138,275,000 83,680,000 ------------- ------------- 390,490,000 310,041,000 ------------- ------------- Loans: Commercial and industrial ........................................... 40,993,000 30,514,000 Secured by real estate .............................................. 179,905,000 155,283,000 Consumer ............................................................ 6,198,000 7,504,000 Other ............................................................... 593,000 560,000 ------------- ------------- 227,689,000 193,861,000 Unearned income ..................................................... (1,001,000) (952,000) ------------- ------------- 226,688,000 192,909,000 Allowance for loan losses ........................................... (2,020,000) (1,943,000) ------------- ------------- 224,668,000 190,966,000 ------------- ------------- Bank premises and equipment, net ........................................ 7,156,000 7,021,000 Prepaid income taxes .................................................... 1,000 -- Other assets ............................................................ 6,557,000 6,292,000 ------------- ------------- $ 684,081,000 $ 625,992,000 ============= ============= Liabilities: Deposits: Checking ............................................................ $ 222,822,000 $ 195,617,000 Savings and money market ............................................ 347,430,000 310,681,000 Time, other ......................................................... 21,022,000 24,255,000 Time, $100,000 and over ............................................. 13,596,000 19,919,000 ------------- ------------- 604,870,000 550,472,000 Accrued expenses and other liabilities .................................. 3,968,000 4,137,000 Current income taxes payable ............................................ -- 91,000 Deferred income taxes payable ........................................... 497,000 426,000 ------------- ------------- 609,335,000 555,126,000 ------------- ------------- Commitments and Contingent Liabilities (Note G) Stockholders' Equity: Common stock, par value $.10 per share: Authorized, 20,000,000 shares; Issued and outstanding, 2,792,902 and 2,892,549 shares .............. 279,000 289,000 Surplus ................................................................. 955,000 1,188,000 Retained earnings ....................................................... 72,550,000 68,737,000 ------------- ------------- 73,784,000 70,214,000 Accumulated other comprehensive income net of tax ....................... 962,000 652,000 ------------- ------------- 74,746,000 70,866,000 ------------- ------------- $ 684,081,000 $ 625,992,000 ============= =============
See notes to consolidated financial statements 59 CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, -------------------------------------------------- 2001 2000 1999 ------------ ------------ ------------ Interest income: Loans .................................................................. $ 16,750,000 $ 16,544,000 $ 15,113,000 Investment securities: Taxable ............................................................ 12,643,000 12,725,000 11,646,000 Nontaxable ......................................................... 5,305,000 4,509,000 3,765,000 Federal funds sold ..................................................... 3,291,000 5,044,000 3,439,000 ------------ ------------ ------------ 37,989,000 38,822,000 33,963,000 ------------ ------------ ------------ Interest expense: Savings and money market deposits ...................................... 7,944,000 11,127,000 7,984,000 Time deposits .......................................................... 1,507,000 1,979,000 1,529,000 ------------ ------------ ------------ 9,451,000 13,106,000 9,513,000 ------------ ------------ ------------ Net interest income ................................................ 28,538,000 25,716,000 24,450,000 Provision for loan losses (credit) ......................................... 100,000 (75,000) -- ------------ ------------ ------------ Net interest income after provision for loan losses (credit) ............... 28,438,000 25,791,000 24,450,000 ------------ ------------ ------------ Noninterest income: Trust Department income ................................................ 1,081,000 1,131,000 1,153,000 Service charges on deposit accounts .................................... 3,481,000 2,972,000 3,258,000 Net losses on sales of available-for-sale securities ................... (249,000) (229,000) -- Other .................................................................. 636,000 651,000 555,000 ------------ ------------ ------------ 4,949,000 4,525,000 4,966,000 ------------ ------------ ------------ Noninterest expense: Salaries ............................................................... 8,958,000 8,136,000 7,686,000 Employee benefits ...................................................... 3,628,000 3,215,000 2,682,000 Occupancy and equipment expense ........................................ 2,819,000 2,410,000 2,188,000 Other operating expenses ............................................... 4,362,000 3,806,000 3,765,000 ------------ ------------ ------------ 19,767,000 17,567,000 16,321,000 ------------ ------------ ------------ Income before income taxes and transition adjustment to allowance for loan losses .......................... 13,620,000 12,749,000 13,095,000 Income tax expense ......................................................... 3,526,000 3,431,000 4,061,000 ------------ ------------ ------------ Net income before transition adjustment to allowance for loan losses ..................................... 10,094,000 9,318,000 9,034,000 Transition adjustment to allowance for loan losses, net of income taxes of $655,000 .................................. -- -- 945,000 ------------ ------------ ------------ Net Income ......................................................... $ 10,094,000 $ 9,318,000 $ 9,979,000 ============ ============ ============ Weighted average: Common shares .......................................................... 2,844,076 2,922,345 3,041,536 Dilutive stock options ................................................. 39,525 39,402 50,137 ------------ ------------ ------------ 2,883,601 2,961,747 3,091,673 ============ ============ ============ Earnings per share before transition adjustment to allowance for loan losses: Basic .................................................................. $3.55 $3.19 $2.97 ============ ============ ============ Diluted ................................................................ $3.50 $3.15 $2.92 ============ ============ ============ Earnings per share: Basic .................................................................. $3.55 $3.19 $3.28 ============ ============ ============ Diluted ................................................................ $3.50 $3.15 $3.23 ============ ============ ============
See notes to consolidated financial statements 60 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated Other Common Stock Compre- Compre- ------------------------ hensive Retained hensive Shares Amount Surplus Income Earnings Income (Loss) Total --------- ------------ ----------- ----------- ------------ ------------ ------------ Balance, January 1, 1999 ....... 3,095,971 $ 310,000 $ 4,219,000 $ 57,949,000 $ 1,266,000 $ 63,744,000 Net Income .................... $ 9,979,000 9,979,000 9,979,000 Repurchase and retirement of common stock .............. (142,797) (15,000) (5,101,000) (5,116,000) Exercise of stock options ..... 9,629 1,000 136,000 137,000 Unrealized losses on available- for-sale-securities, net of tax of $1,803,000 ........... (2,600,000) (2,600,000) (2,600,000) ------------ Comprehensive income .......... $ 7,379,000 ============ Cash dividends declared - $.64 per share ............... (1,915,000) (1,915,000) Tax benefit of stock options .. 4,000 4,000 Transfer from retained earnings to surplus .......... 3,000,000 (3,000,000) --------- ------------ ----------- ------------ ------------ ------------ Balance, December 31, 1999 ..... 2,962,803 296,000 2,258,000 63,013,000 (1,334,000) 64,233,000 Net Income .................... $ 9,318,000 9,318,000 9,318,000 Repurchase and retirement of common stock .............. (84,435) (8,000) (2,811,000) (2,819,000) Exercise of stock options ..... 14,181 1,000 222,000 223,000 Unrealized gains on available- for-sale-securities, net of tax of $1,372,000 ........... 1,986,000 1,986,000 1,986,000 ------------ Comprehensive income .......... $ 11,304,000 ============ Cash dividends declared - $.72 per share ............... (2,094,000) (2,094,000) Tax benefit of stock options .. 19,000 19,000 Transfer from retained earnings to surplus .......... 1,500,000 (1,500,000) --------- ------------ ----------- ------------ ------------ ------------ Balance, December 31, 2000 ..... 2,892,549 289,000 1,188,000 68,737,000 652,000 70,866,000 Net Income .................... $ 10,094,000 10,094,000 10,094,000 Repurchase and retirement of common stock .............. (118,951) (12,000) (4,686,000) (4,698,000) Exercise of stock options ..... 19,304 2,000 418,000 420,000 Unrealized gains on available- for-sale-securities, net of tax of $213,000 ............. 310,000 310,000 310,000 ------------ Comprehensive income .......... $ 10,404,000 ============ Cash dividends declared - $.81 per share ............... (2,281,000) (2,281,000) Tax benefit of stock options .. 35,000 35,000 Transfer from retained earnings to surplus .......... 4,000,000 (4,000,000) --------- ------------ ----------- ------------ ------------ ------------ Balance, December 31, 2001 ..... 2,792,902 $ 279,000 $ 955,000 $ 72,550,000 $ 962,000 $ 74,746,000 ========= ============ =========== ============ ============ ============
See notes to consolidated financial statements 61 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ------------------------------------------------- 2001 2000 1999 ------------- ------------- ------------- Increase (Decrease) in Cash and Cash Equivalents Cash Flows From Operating Activities: Net income ................................................................. $ 10,094,000 $ 9,318,000 $ 9,979,000 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses (credit) ..................................... 100,000 (75,000) -- Transition adjustment to allowance for loan losses, net of income taxes .......................................................... -- -- (945,000) Deferred income tax provision (credit) ................................. (142,000) 252,000 67,000 Depreciation and amortization .......................................... 1,166,000 918,000 801,000 Premium amortization (discount accretion) on investment securities, net ................................................................... 174,000 (243,000) 868,000 Net losses on sales of available-for-sale securities ................... 249,000 229,000 -- Decrease (increase) in prepaid income taxes ............................ 34,000 194,000 (37,000) Increase in other assets ............................................... (265,000) (656,000) (147,000) Increase (decrease) in accrued expenses and other liabilities .......... (270,000) 915,000 (101,000) Increase (decrease) in income taxes payable ............................ (91,000) 110,000 -- ------------- ------------- ------------- Net cash provided by operating activities ............................ 11,049,000 10,962,000 10,485,000 ------------- ------------- ------------- Cash Flows From Investing Activities: Proceeds from sales of available-for-sale securities ....................... 5,270,000 7,423,000 -- Proceeds from maturities and redemptions of investment securities: Held-to-maturity ........................................................... 391,181,000 229,246,000 67,042,000 Available-for-sale ......................................................... 15,003,000 13,765,000 9,718,000 Purchase of investment securities: Held-to-maturity ........................................................... (416,922,000) (250,235,000) (69,999,000) Available-for-sale ......................................................... (74,881,000) (16,005,000) (28,241,000) Net increase in loans to customers ......................................... (33,802,000) (10,150,000) (12,074,000) Purchases of bank premises and equipment ................................... (1,301,000) (1,193,000) (1,235,000) ------------- ------------- ------------- Net cash used in investing activities .................................... (115,452,000) (27,149,000) (34,789,000) ------------- ------------- ------------- Cash Flows From Financing Activities: Net increase in total deposits ............................................. 54,398,000 47,283,000 23,958,000 Proceeds from exercise of stock options .................................... 420,000 223,000 137,000 Repurchase and retirement of common stock .................................. (4,698,000) (2,819,000) (5,116,000) Cash dividends paid ........................................................ (2,180,000) (2,002,000) (1,837,000) ------------- ------------- ------------- Net cash provided by financing activities ............................ 47,940,000 42,685,000 17,142,000 ------------- ------------- ------------- Net increase (decrease) in cash and cash equivalents ......................... (56,463,000) 26,498,000 (7,162,000) Cash and cash equivalents, beginning of year ................................. 111,672,000 85,174,000 92,336,000 ------------- ------------- ------------- Cash and cash equivalents, end of year ...................................... $ 55,209,000 $ 111,672,000 $ 85,174,000 ============= ============= ============= Supplemental Schedule of Noncash: Investing Activities Unrealized gains (losses) on available-for-sale securities ............... $ 523,000 $ 3,358,000 $ (4,403,000) Transfer of available-for-sale securities to held-to-maturity category ... -- 14,836,000 -- Financing Activities Tax benefit from exercise of employee stock options ...................... 35,000 19,000 4,000 Cash dividends payable ................................................... 1,200,000 1,099,000 1,007,000
The Corporation made interest payments of $9,632,000, $13,016,000, and $9,523,000 and income tax payments of $3,726,000, $2,875,000, and $4,031,000 in 2001, 2000 and 1999, respectively. See notes to consolidated financial statements 62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include the accounts of The First of Long Island Corporation (the "Corporation") and its wholly-owned subsidiary, The First National Bank of Long Island (the "Bank"). The Corporation's financial condition and operating results principally reflect those of the Bank. All intercompany balances and amounts have been eliminated. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported asset and liability balances and revenue and expense amounts. Actual results could differ significantly from those estimates. The accounting and reporting policies of the Corporation reflect banking industry practice and conform to generally accepted accounting principles. The following is a summary of the significant accounting policies. Investment Securities Current accounting standards require that investment securities be classified as held-to-maturity, trading, or available-for-sale. The trading category is not applicable to any securities in the Bank's portfolio because the Bank does not buy or hold debt or equity securities principally for the purpose of selling in the near term. Held-to-maturity securities are those debt securities which the Bank has the intent and expected ability to hold to maturity, and are reported at amortized cost. Available-for-sale securities are those debt and equity securities which are neither held-to-maturity securities nor trading securities and are reported at fair value, with unrealized gains and losses, net of the related income tax effect, included in accumulated other comprehensive income. Realized gains and losses on the sale of available-for-sale securities are determined using the specific identification method. Loans and Allowance For Loan Losses Loans are reported at their outstanding principal balance less any chargeoffs, the allowance for loan losses, and any unearned income. Interest on loans is credited to income based on the principal amount outstanding. Unearned discounts are recognized as income over the terms of the loans by the interest method. Nonrefundable loan origination fees are deferred and amortized as yield adjustments over the lives of the related loans. The accrual of interest income is generally discontinued when a loan becomes 90 days past due as to principal or interest payments. In addition, any accrued but unpaid interest is reversed against current period income. The Bank considers nonaccruing loans to be impaired under Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"). The valuation allowance for nonaccrual and other impaired loans is reported within the overall allowance for loan losses. The allowance for loan losses is established through provisions for loan losses charged against income. Amounts deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. 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. Because the process for estimating credit losses and determining the allowance for loan losses as of any balance sheet date is subjective in nature and requires material estimates, there is not an exact amount but rather a range for what constitutes an appropriate allowance. In estimating a range, 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. Management also considers relevant loan loss statistics for the Bank's peer group. Bank Premises and Equipment Bank premises and equipment are carried at cost, less accumulated depreciation and amortization. Buildings are depreciated using the straight-line method over their estimated useful lives which range between thirty-one and forty years. Building improvements are depreciated using the straight-line method over the then remaining lives of the buildings. Leasehold improvements are amortized using the straight-line method over the remaining lives of the leases or their estimated useful lives, whichever is shorter. The lives of the respective leases range between seven and ten years. Furniture, fixtures, and equipment are depreciated over their estimated useful lives which range between three and seven 63 years. The straight-line method of depreciation is used for furniture, fixtures, and equipment acquired after 1997 and the 150% declining balance method is used for all other assets. Checking Deposits Each of the Bank's commercial checking accounts has a related noninterest-bearing sweep account. The sole purpose of the sweep accounts is to reduce the noninterest-bearing reserve balances that the Bank is required to maintain with the Federal Reserve Bank, and thereby increase funds available for investment. Although the sweep accounts are classified as savings accounts for regulatory purposes, they are included in checking deposits in the accompanying consolidated balance sheets. Income Taxes A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current year. A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law. The effects of future changes in tax laws or rates are not considered. Fair Values of Financial Instruments The following methods and assumptions are used by the Corporation in estimating fair values of financial instruments as disclosed herein. Cash and cash equivalents. The recorded book value of cash and cash equivalents is their fair value. Investment securities. For investment securities other than commercial paper, fair values are based on quoted market prices. All of the commercial paper in the Bank's investment portfolio as of December 31, 2001 and 2000 had a remaining maturity of less than thirty days. For these short-term instruments, the recorded book value is deemed to be a reasonable estimate of fair value. Loans. Fair values are estimated for portfolios of loans with similar financial characteristics. The total loan portfolio is first divided into adjustable and fixed rate interest terms. For adjustable rate loans that are subject to immediate repricing, the recorded book value less the related allowance for loan losses is a reasonable estimate of fair value. For adjustable rate loans that are subject to repricing over time and fixed rate loans, fair value is calculated by discounting anticipated future repricing amounts or cash flows using discount rates equivalent to the rates at which the Bank would currently make loans which are similar with regard to collateral, maturity, and the type of borrower. The discounted value of the repricing amounts and cash flows is reduced by the related allowance for loan losses to arrive at an estimate of fair value. Deposit liabilities. The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, money market accounts, and savings accounts, is equal to their recorded book value at December 31 of each year. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is equivalent to the rate currently offered by the Bank for deposits of similar size, type and maturity. Accrued interest receivable and payable. For these short-term instruments, the recorded book value is a reasonable estimate of fair value. Off-balance-sheet assets and liabilities. The fair value of off-balance-sheet commitments to extend credit and letters of credit is estimated using fees currently charged to enter into similar agreements. Stockholders' Equity Earnings Per Share. Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share, which reflects the potential dilution that could occur if outstanding and exercisable stock options were exercised and resulted in the issuance of common stock that then shared in the earnings of the Corporation, is computed by dividing net income by the weighted average number of common shares and dilutive stock options. Other than stock options and the Rights described in Note H, the Corporation has no securities that could be converted into common stock nor does the Corporation have any contracts that could result in the issuance of common stock. Stock Repurchase Program. Since 1988, the Corporation has had a stock repurchase program under which it can purchase shares of its own common stock in market or private transactions. As of December 31, 2001, and in accordance 64 with prior approval by its Board of Directors, the Corporation could purchase 52,210 shares of stock under the latest stock repurchase plans. Comprehensive Income Comprehensive income includes net income and all other changes in equity during a period except those resulting from investments by owners and distributions to owners. Other comprehensive income includes revenues, expenses, gains, and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income. Comprehensive income and accumulated other comprehensive income are reported net of related income taxes. Accumulated other comprehensive income for the Corporation consists solely of unrealized holding gains or losses on available-for-sale securities. Stock-Based Compensation The Corporation accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB No. 25") and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Corporation's stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation costs for stock appreciation rights, if any, are recorded annually based on the quoted market price of the Corporation's stock at the end of the period. Trust and Investment Services Division Assets held in a fiduciary capacity are not assets of the Corporation and, accordingly, are not included in the accompanying financial statements. Trust fees are recorded on the accrual basis. Report of Independent Public Accountants The notes to consolidated financial statements include selected information as of December 31, 1999, 1998 and 1997 and for the years ended December 31, 1998 and 1997 that is not covered by the Report of Independent Public Accountants. This information has been presented in order to comply with the Form 10-K reporting requirements. New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS No. 142"). This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses how intangible assets that are acquired individually or with a group of other assets should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of this Statement are required to be applied starting with fiscal years beginning after December 15, 2001. The adoption of SFAS No. 142 and its application to amounts currently included in the Corporation's balance sheet will not have a material impact on the Corporation's accounting and disclosures. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143 "Accounting For Asset Retirement Obligations" ("SFAS No. 143") and in August 2001 issued Statement of Financial Accounting Standards No. 144 "Accounting For The Impairment and Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 144, which supersedes and amends certain existing accounting and reporting pronouncements, addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002 and SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. Neither of these pronouncements is currently applicable to the Corporation. 65 NOTE B - INVESTMENT SECURITIES The following table sets forth the amortized cost and estimated fair values of the Bank's investment securities at December 31, 2001, 2000 and 1999.
2001 -------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- --------- --------- --------- (in thousands) Held-to-Maturity Securities: U.S. Treasury ...................................... $ 84,579 $ 1,526 $ -- $ 86,105 U.S. government agencies ........................... 30,430 586 (125) 30,891 Commercial paper ................................... 7,994 -- -- 7,994 Corporates ......................................... 2,970 194 -- 3,164 State and municipals ............................... 55,511 1,789 (97) 57,203 Collateralized mortgage obligations ................ 70,731 1,761 (179) 72,313 --------- --------- --------- --------- $ 252,215 $ 5,856 $ (401) $ 257,670 ========= ========= ========= ========= Available-for-Sale Securities: U.S. Treasury ...................................... $ 67,223 $ 891 $ (10) $ 68,104 Corporates ......................................... 5,951 187 -- 6,138 State and municipals ............................... 63,353 837 (284) 63,906 Equity ............................................. 127 -- -- 127 --------- --------- --------- --------- $ 136,654 $ 1,915 $ (294) $ 138,275 ========= ========= ========= =========
2000 -------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- --------- --------- --------- (in thousands) Held-to-Maturity Securities: U.S. Treasury ...................................... $ 56,172 $ 645 $ -- $ 56,817 U.S. government agencies ........................... 20,862 228 (125) 20,965 Commercial paper ................................... 22,962 -- -- 22,962 Corporates ......................................... 2,961 87 -- 3,048 State and municipals ............................... 57,747 1,510 (28) 59,229 Collateralized mortgage obligations ................ 65,657 640 (273) 66,024 --------- --------- --------- --------- $ 226,361 $ 3,110 $ (426) $ 229,045 ========= ========= ========= ========= Available-for-Sale Securities: U.S. Treasury ...................................... $ 35,380 $ 358 $ -- $ 35,738 Corporates ......................................... 2,922 48 -- 2,970 State and municipals ............................... 44,153 722 (30) 44,845 Equity ............................................. 127 -- -- 127 --------- --------- --------- --------- $ 82,582 $ 1,128 $ (30) $ 83,680 ========= ========= ========= =========
1999 -------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- --------- --------- --------- (in thousands) Held-to-Maturity Securities: U.S. Treasury ...................................... $ 62,288 $ 59 $ (353) $ 61,994 U.S. government agencies ........................... 20,998 52 (630) 20,420 Commercial paper ................................... 12,467 -- -- 12,467 State and municipals ............................... 35,107 200 (167) 35,140 Collateralized mortgage obligations ................ 59,138 17 (1,918) 57,237 --------- --------- --------- --------- $ 189,998 $ 328 $ (3,068) $ 187,258 ========= ========= ========= ========= Available-for-Sale Securities: U.S. Treasury ...................................... $ 46,561 $ 67 $ (352) $ 46,276 State and municipals ............................... 56,437 41 (2,016) 54,462 Equity ............................................. 127 -- -- 127 --------- --------- --------- --------- $ 103,125 $ 108 $ (2,368) $ 100,865 ========= ========= ========= =========
At December 31, 2001 and 2000, investment securities with a carrying value of $37,793,000 and $35,904,000, respectively, were pledged as collateral to secure public deposits and for other purposes. 66 Maturities and Average Yields. The following table sets forth the maturities and weighted average yields of the Bank's investment securities at December 31, 2001.
Principal Maturing (1) ------------------------------------------------------------------------------ Within After One But After Five But After One Year Within Five Years Within Ten Years Ten Years --------------- ----------------- ----------------- ----------------- Amount Yield Amount Yield Amount Yield Amount Yield ------ ----- ------ ----- ------ ----- ------ ----- (dollars in thousands) Held-to-Maturity Securities: U.S. Treasury ................................ $57,419 3.61% $27,160 5.11% $ -- --% $ -- --% U.S. government agencies ..................... 185 6.22 4,594 6.47 8,140 6.31 17,511 5.93 Commercial paper ............................. 7,994 1.98 -- -- -- -- -- -- Corporates ................................... -- -- 1,983 7.44 -- -- 987 7.15 State and municipals (2) ..................... 5,397 7.38 19,220 7.26 23,056 7.43 7,838 7.49 Collateralized mortgage obligations .......... -- -- 1,434 6.15 8,416 6.35 60,881 6.28 ------- ---- ------- ---- ------- ---- ------- ---- $70,995 3.72% $54,391 6.10% $39,612 6.97% $87,217 6.33% ======= ==== ======= ==== ======= ==== ======= ==== Principal Maturing (1) ------------------------------------------------------------------------------ Within After One But After Five But After One Year Within Five Years Within Ten Years Ten Years --------------- ----------------- ----------------- ----------------- Amount Yield Amount Yield Amount Yield Amount Yield ------ ----- ------ ----- ------ ----- ------ ----- (dollars in thousands) Available-for-Sale Securities: U.S. Treasury ................................ $ 9,208 5.13% $58,896 3.52% $ -- --% $ -- --% Corporates ................................... -- -- 6,138 6.17 -- -- -- -- State and municipals (2) ..................... 1,217 7.67 8,112 6.98 36,226 6.97 18,351 7.11 ------- ---- ------- ---- ------- ---- ------- ---- Total debt securities .......................... 10,425 5.43 73,146 4.12 36,226 6.97 18,351 7.11 Equity ....................................... -- -- -- -- -- -- 127 8.45 ------- ---- ------- ---- ------- ---- ------- ---- $10,425 5.43% $73,146 4.12% $36,226 6.97% $18,478 7.12% ======= ==== ======= ==== ======= ==== ======= ====
(1) Maturities shown are stated maturities, except in the case of municipal securities which are shown at the earlier of their stated maturity or pre-refunded dates. Securities backed by mortgages, which include the U.S. government agencies and collateralized mortgage obligations shown above, are expected to have substantial periodic repayments resulting in weighted average lives considerably shorter than would be surmised from the above table. (2) Yields on tax-exempt obligations have been computed on a tax-equivalent basis. NOTE C - LOANS The following table sets forth major classifications of loans.
December 31, ---------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- (in thousands) Commercial and industrial ................ $ 40,993 $ 30,514 $ 30,296 $ 28,748 $ 25,686 Secured by real estate ................... 179,905 155,283 147,598 132,357 121,620 Consumer ................................. 6,198 7,504 5,284 6,366 7,152 Other .................................... 593 560 549 4,119 1,101 --------- --------- --------- --------- --------- 227,689 193,861 183,727 171,590 155,559 Unearned income .......................... (1,001) (952) (953) (872) (829) --------- --------- --------- --------- --------- 226,688 192,909 182,774 170,718 154,730 Allowance for loan losses ................ (2,020) (1,943) (2,033) (3,651) (3,579) --------- --------- --------- --------- --------- $ 224,668 $ 190,966 $ 180,741 $ 167,067 $ 151,151 ========= ========= ========= ========= =========
67 Allowance For Loan Losses. In the second quarter of 1999, the Bank made a transition adjustment to reduce its allowance for loan losses by $1,600,000. The transition adjustment was made in response to guidance issued by staff members of the Financial Accounting Standards Board in April 1999 and further guidance issued by staff members of the Securities and Exchange Commission. The following table sets forth changes in the Bank's allowance for loan losses.
Year ended December 31, -------------------------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- (dollars in thousands) Balance, beginning of year ......................... $ 1,943 $ 2,033 $ 3,651 $ 3,579 $ 3,600 --------- --------- --------- --------- --------- Loans charged off: Commercial and industrial ........................ (17) (28) (32) (50) -- Secured by real estate ........................... -- -- -- -- -- Consumer and other ............................... (35) (28) (28) (49) (59) --------- --------- --------- --------- --------- (52) (56) (60) (99) (59) --------- --------- --------- --------- --------- Recoveries of loans charged off: Commercial and industrial ........................ -- -- -- -- -- Secured by real estate ........................... 16 17 16 257 120 Consumer and other ............................... 13 24 26 14 18 --------- --------- --------- --------- --------- 29 41 42 271 138 --------- --------- --------- --------- --------- Net (chargeoffs) recoveries ........................ (23) (15) (18) 172 79 Provision for loan losses (credit) ................. 100 (75) -- (100) (100) Transition adjustment .............................. -- -- (1,600) -- -- --------- --------- --------- --------- --------- Balance, end of year ............................... $ 2,020 $ 1,943 $ 2,033 $ 3,651 $ 3,579 ========= ========= ========= ========= ========= Ratio of net (chargeoffs) recoveries to average loans outstanding ........................ (.01)% (.01)% (.01)% .10% .05% ========= ========= ========= ========= =========
Allocation of Allowance For Loan Losses. The following table sets forth the allocation of the Bank's total allowance for loan losses by loan type.
December 31, ------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 --------------- --------------- --------------- --------------- --------------- % of % of % of % of % of Loans Loans Loans Loans Loans To Total To Total To Total To Total To Total Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- (dollars in thousands) Commercial ......................... $ 667 18.1% $ 566 15.8% $ 397 16.5% $ 730 16.9% $ 564 16.6% Real-estate secured ................ 1,252 79.4 1,160 80.5 1,304 80.8 2,325 77.5 2,099 78.6 Consumer and other ................. 94 2.5 129 3.7 137 2.7 249 5.6 211 4.8 ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- Total allocated ................. 2,013 100.0 1,855 100.0 1,838 100.0 3,304 100.0 2,874 100.0 Unallocated ........................ 7 -- 88 -- 195 -- 347 -- 705 -- ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- $2,020 100.0% $1,943 100.0% $2,033 100.0% $3,651 100.0% $3,579 100.0% ====== ===== ====== ===== ====== ===== ====== ===== ====== =====
68 Selected Loan Maturity Information. The following table sets forth maturity and rate information for the Bank's commercial and industrial loans at December 31, 2001.
Maturity --------------------------------------------------------------- After One Within But Within After One Year Five Years Five Years Total -------- ---------- ---------- ----- (in thousands) Commercial and industrial loans: Fixed rate .......................................... $ 9,422 $ 2,458 $ -- $11,880 Variable rate ....................................... 13,342 10,795 4,976 29,113 ------- ------- ------- ------- $22,764 $13,253 $ 4,976 $40,993 ======= ======= ======= =======
Past Due, Nonaccrual, and Restructured Loans. The following table sets forth selected information about the Bank's nonaccrual, past due, and restructured loans.
2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- At December 31: (in thousands) Loans past due 90 days or more as to principal or interest payments and still accruing ............................. $236 $173 $ 5 $ -- $ 49 Nonaccrual loans .................................................... 105 -- 28 22 382 Restructured loans .................................................. 10 -- -- -- 6 Year Ended December 31: Gross interest income that would have been recorded during the year under original terms: Nonaccrual loans ................................................. 8 -- 4 2 55 Restructured loans ............................................... -- -- -- -- 1 Gross interest income recorded during the year: Nonaccrual loans ................................................. 4 -- 3 2 32 Restructured loans ............................................... -- -- -- -- 1 Commitments for additional funds .................................... 150 150 None None None
In addition to the past due and nonaccrual loans noted above, as of December 31, 2001 and 2000 the Corporation's portfolio of performing loans included $1,163,000 and $2,865,000, respectively, of loans considered to be impaired under SFAS No. 114. Of the Corporation's total impaired loans at December 31, 2001, $688,000 had a related allowance for loan losses of $347,000 and the balance had no related allowance for loan losses. The average recorded investment during 2001 in loans considered to be impaired as of December 31, 2001 was $1,611,000. Interest income recognized during 2001 on loans considered to be impaired as of December 31, 2001 and during the period in 2001 that such loans were impaired amounted to $122,000. Of the Corporation's total impaired loans at December 31, 2000, $2,647,000 had a related allowance for loan losses of $419,000 and the balance had no related allowance for loan losses. The average recorded investment during 2000 in loans considered to be impaired as of December 31, 2000 was $3,210,000. Interest income recognized during 2000 on loans considered to be impaired as of December 31, 2000 and during the period in 2000 that such loans were impaired amounted to $287,000. All interest income recorded by the Corporation during 2001 and 2000 on loans considered to be impaired was recognized using the accrual method of accounting. Certain directors, including their immediate families and companies in which they are principal owners, and executive officers were loan customers of the Bank during 2001 and 2000. Such loans are made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and do not involve more than the normal risk of collectibility or present other unfavorable features. The aggregate amount of these loans was approximately $2,239,000 and $2,082,000 at December 31, 2001 and 2000, respectively. During 2001, $839,000 of new loans to such persons were made and repayments totaled $682,000. There were no loans to directors or executive officers which were nonaccruing at December 31, 2001 or 2000. 69 NOTE D - PREMISES AND EQUIPMENT Bank premises and equipment consist of the following: December 31, ----------------------- 2001 2000 -------- -------- (in thousands) Land ............................................. $ 1,274 $ 1,274 Buildings ........................................ 4,771 4,755 Leasehold improvements ........................... 1,953 1,713 Furniture and equipment .......................... 11,284 10,236 -------- -------- 19,282 17,978 Accumulated depreciation and amortization ........ (12,126) (10,957) -------- -------- $ 7,156 $ 7,021 ======== ======== A building occupied by one of the Bank's branch offices is leased from a director of the Corporation and the Bank. The lease, which has a term of 10 years and expires on October 30, 2002, currently provides for annual base rentals of $28,206 plus certain charges for real estate taxes and common area maintenance. The Bank may cancel this lease at any time by giving the director ninety days written notice. The Bank believes that the terms of this lease are comparable to those that could have been obtained from other persons. NOTE E - DEPOSITS The following table sets forth major classifications of average deposits.
Year ended December 31, ----------------------------------------------------------------------------------- 2001 2000 1999 ------------------------ ----------------------- ----------------------- Average Average Average Average Average Average Balance Rate Paid Balance Rate Paid Balance Rate Paid ------- --------- ------- --------- ------- --------- (dollars in thousands) Checking .......................... $201,688 --% $186,215 --% $168,791 --% Savings and money market .......... 343,389 2.31 303,530 3.67 280,124 2.85 Time deposits ..................... 39,202 3.84 41,105 4.81 37,617 4.06 -------- ---- -------- ---- -------- ---- $584,279 1.62% $530,850 2.47% $486,532 1.95% ======== ==== ======== ==== ======== ====
Time Deposits of $100,000 and Over. The following table sets forth the remaining maturities of the Bank's time deposits in amounts of $100,000 or more. Remaining Maturity Amount ----------------------------------- -------------- (in thousands) 3 months or less .................. $10,295 Over 3 through 6 months ........... 2,075 Over 6 through 12 months .......... 1,123 Over 12 months .................... 103 ------- $13,596 ======= 70 NOTE F - INCOME TAXES The Corporation and its subsidiary file a consolidated federal income tax return. Income taxes charged to earnings in 2001, 2000, and 1999 had effective tax rates of 25.9%, 26.9%, and 31.0%, respectively. The following table sets forth a reconciliation of the statutory Federal income tax rate to the Corporation's effective tax rate.
Year Ended December 31, ---------------------------- 2001 2000 1999 ------ ------ ------ Statutory federal income tax rate ............................. 34.0% 34.0% 34.0% State and local income taxes, net of federal income tax benefit 4.2 4.1 6.0 Tax-exempt interest on securities and loans, net of disallowed cost of funding ................................. (12.6) (11.1) (9.3) Other ......................................................... .3 (.1) .3 ------ ------ ------ 25.9% 26.9% 31.0% ====== ====== ======
Provision For Income Taxes. The following table sets forth the components of the provision for income taxes. Year Ended December 31, -------------------------------------- 2001 2000 1999 ------- ------- ------- (in thousands) Currently payable: Federal ........................ $ 2,840 $ 2,506 $ 2,818 State and local ................ 828 673 1,176 ------- ------- ------- 3,668 3,179 3,994 ------- ------- ------- Deferred: Federal ........................ (175) 141 49 State and local ................ 33 111 18 ------- ------- ------- (142) 252 67 ------- ------- ------- $ 3,526 $ 3,431 $ 4,061 ======= ======= ======= In addition to the provision shown in the table above, in 1999 the Corporation provided deferred federal and state income taxes of $487,000 and $168,000, respectively, on the $1,600,000 transition adjustment to the allowance for loan losses. Net Deferred Tax Asset/Liability. The following table sets forth the components of the Bank's net deferred tax asset/liability. December 31, ------------------- 2001 2000 ------- ------- Deferred tax assets: (in thousands) Allowance for loan losses ............................. $ 366 $ 341 Supplemental executive retirement expense ............. 54 83 Directors' retirement expense ......................... 62 -- Postretirement benefits expense ....................... 41 38 Writeoff of bank premises and equipment ............... 32 -- Accrued professional fees ............................. 12 12 Other ................................................. 1 -- ------- ------- 568 474 Valuation allowance ...................................... -- -- ------- ------- 568 474 ------- ------- Deferred tax liabilities: Pension expense ....................................... 117 226 Depreciation .......................................... 197 191 Accumulated earnings of Bank subsidiaries ............. 93 38 Unrealized gains on available-for-sale securities ..... 658 445 ------- ------- 1,065 900 ------- ------- Net deferred tax asset (liability) ....................... $ (497) $ (426) ======= ======= 71 NOTE G - COMMITMENTS AND CONTINGENT LIABILITIES Financial Instruments With Off-Balance-Sheet Risk. The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and commercial letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The Bank's exposure to credit loss in the event of nonperformance by the other party to financial instruments for commitments to extend credit, standby letters of credit, and commercial letters of credit is represented by the contractual notional amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. At December 31, financial instruments whose contract amounts represent credit risk are as follows: 2001 2000 ------- ------- (in thousands) Commitments to extend credit ......... $53,513 $36,937 Standby letters of credit ............ 999 705 Commercial letters of credit ......... 38 312 Commitments to extend credit are legally binding agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if any, by the Bank upon extension of credit is based on management's credit evaluation of the borrower. Collateral held varies but may include security interests in business assets, mortgages on commercial and residential real estate, deposit accounts with the Bank or other financial institutions, and securities. Standby letters of credit are conditional commitments issued by the Bank to assure the performance or financial obligations of a customer to a third party. The Bank's standby letters of credit extend through December 2002. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. The Bank generally holds collateral and/or obtains personal guarantees supporting these commitments. The extent of collateral held for these commitments at December 31, 2001 varied from 0% to 100%, and averaged 46%. Commercial letters of credit are conditional commitments issued by the Bank to assure the payment by a customer to a supplier. All of the Bank's commercial letters of credit extend for less than one year. The credit risk involved in issuing commercial letters of credit is the same as that discussed in the preceding paragraph for standby letters of credit. The Bank generally obtains personal guarantees supporting these commitments. Concentrations of Credit Risk. Most of the Bank's loans, personal and commercial, are to borrowers who are domiciled on Long Island. As a result, the income of many of the Bank's borrowers is dependent on the Long Island economy. In addition, most of the Bank's real estate loans involve mortgages on Long Island properties. Thus, the Bank's loan portfolio is susceptible to the economy of Long Island. Lease Commitments. At December 31, 2001, minimum annual rental commitments under noncancelable operating leases are as follows: Year Amount -------------------------------------------------------------- (in thousands) 2002 ........................................ $ 420 2003 ........................................ 375 2004 ........................................ 341 2005 ........................................ 225 2006 ........................................ 120 Thereafter .................................. 155 ------ $1,636 ====== In addition, the Bank has various renewal options on the above leases. Rent expense was $457,000, $384,000, and $352,000 in 2001, 2000, and 1999, respectively. 72 NOTE H - SHAREHOLDER PROTECTION RIGHTS PLAN On July 16, 1996, the Board of Directors of the Corporation (the "Board") adopted a Shareholder Protection Rights Plan and declared a dividend of one right ("Right") on each outstanding share of the Corporation's common stock (the "Common Stock"). The dividend was paid on July 31, 1996 to shareholders of record as of the same date. In the absence of an event of the type described below, the Rights will be evidenced by and trade with the Common Stock and will not be exercisable. However, the Rights will separate from the Common Stock and become exercisable following the earlier of (1) the tenth business day, or such later date as the Board may decide, after any person or persons (collectively referred to as "person") commences a tender offer that would result in such person holding a total of 20% or more of the outstanding Common Stock, or (2) ten business days after, or such earlier or later date as the Board may decide, the announcement by the Corporation that any person has acquired 20% or more of the outstanding Common Stock. When separated from the Common Stock, each Right will entitle the holder to purchase one share of Common Stock for $83 (the "Exercise Price"). However, in the event that the Corporation has announced that any person has acquired 20% or more of the outstanding Common Stock, the Rights owned by that person will be automatically void and each other Right will automatically become a right to buy, for the Exercise Price, that number of shares of Common Stock having a market value of twice the Exercise Price. Also, if any person acquires 20% or more of the outstanding Common Stock, the Board can require that, in lieu of exercise, each outstanding Right be exchanged for one share of Common Stock. The Rights may be redeemed by action of the Board at a price of $.01 per Right at any time prior to announcement by the Corporation that any person has acquired 20% or more of the outstanding Common Stock. The Exercise Price and the number of Rights outstanding are subject to adjustment to prevent dilution. The Rights expire ten years from the date of their issuance. NOTE I - STOCK-BASED COMPENSATION The Corporation has two stock option and appreciation rights plans (the "Plans"). The 1996 Plan was approved by the Corporation's Board of Directors on January 16, 1996 and subsequently approved by its stockholders. Under the 1996 Plan, as amended, options to purchase up to 360,000 shares of common stock were made available for grant to key employees and to non-employee directors of the Corporation and its subsidiaries through January 15, 2006. The number of stock options and stock appreciation rights that can be granted to any one person in any one fiscal year is limited to 25,000. Each option granted under the 1996 Plan is granted at a price equal to the fair market value of one share of the Corporation's stock on the date of grant. Options granted on or before December 31, 2000 are exercisable in whole or in part commencing six months from the date of grant and ending ten years after the date of grant. Options granted after December 31, 2000 are exercisable in whole or in part commencing three years from the date of grant and ending ten years after the date of grant. The date on which options first become exercisable is subject to acceleration in the event of a change in control, retirement, death, disability, and certain other limited circumstances. Each option granted to an employee under the 1996 Plan may be granted with or without a stock appreciation right ("SAR") attached. The 1996 Plan also provides for the granting of stand-alone SARs to employees. Non-employee directors are not eligible for SAR grants, whether stand-alone or attached to options. At December 31, 2001, options to purchase 95,279 shares of Common Stock were outstanding with respect to the 1996 Plan, of which 51,087 were exercisable. No stock appreciation rights have been granted under the 1996 Plan, either attached to options or on a stand-alone basis. The 1986 Plan was approved by the Corporation's Board of Directors on January 21, 1986 and subsequently approved by its stockholders. Under the 1986 Plan, as later amended, options to purchase up to 387,675 shares of common stock were available to be granted to key employees of the Corporation and its subsidiaries through January 21, 1996. The terms of the 1986 Plan are substantially the same as those of the 1996 Plan except that the 1986 Plan did not provide for the granting of stock options to non-employee directors and did not limit to 25,000 the number of stock options and stock appreciation rights that could be granted to any one person in any one fiscal year. At December 31, 2001, options to purchase 47,648 shares of Common Stock were outstanding and exercisable under the 1986 Plan and there were no outstanding stock appreciation rights. The Corporation has chosen to account for stock-based compensation using the intrinsic value method prescribed in APB No. 25. Since each option is granted at a price equal to the fair market value of one share of the Corporation's stock on the date of grant, no compensation cost has been recognized. 73 The following table compares reported net income and earnings per share to net income and earnings per share on a pro forma basis assuming that the Corporation accounted for stock-based compensation under SFAS No. 123 "Accounting For Stock Based Compensation."
2001 2000 1999 ---------- ---------- ---------- (in thousands, except per share data) Net Income Before Transition Adjustment To Allowance For Loan Losses: As Reported ............................... $10,094 $9,318 $9,034 Pro Forma ................................. 9,717 9,156 8,846 Net Income: As Reported ............................... $10,094 $9,318 $9,979 Pro Forma ................................. 9,717 9,156 9,791 Earnings Per Share Before Transition Adjustment To Allowance For Loan Losses: As Reported: Basic ................................... $3.55 $3.19 $2.97 Diluted ................................. 3.50 3.15 2.92 Pro Forma: Basic ................................... $3.42 $3.13 $2.91 Diluted ................................. 3.37 3.09 2.86 Earnings Per Share: As Reported: Basic ................................... $3.55 $3.19 $3.28 Diluted ................................. 3.50 3.15 3.23 Pro Forma: Basic ................................... $3.42 $3.13 $3.22 Diluted ................................. 3.37 3.09 3.17
The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. Future awards are anticipated under the 1996 Plan. Stock Option Activity. The following table sets forth stock option activity and the weighted average fair value of options granted.
Year Ended December 31, ------------------------------------------------------------------------ 2001 2000 1999 -------------------- ---------------------- --------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price -------- ------- --------- -------- ------- ----------- Outstanding, beginning of year ...................... 118,589 $25.21 111,020 $23.19 113,599 $20.48 Granted ............................................. 45,688 38.27 23,100 30.09 15,100 41.56 Exercised ........................................... (19,304) 21.76 (14,181) 15.74 (9,629) 14.26 Forfeited ........................................... (2,046) 39.16 (1,350) 41.92 (8,050) 30.10 -------- ------ -------- ------ -------- ------ Outstanding, end of year ............................ 142,927 $29.65 118,589 $25.21 111,020 $23.19 ======== ====== ======== ====== ======== ====== Exercisable, end of year ............................ 98,735 $25.79 118,589 $25.21 111,020 $23.19 ======== ====== ======== ====== ======== ====== Weighted average fair value of options granted ...... $ 8.26 $ 7.00 $ 12.43 ======== ========= ========
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions: risk-free interest rates of 4.85%, 5.14%, and 6.81% for options granted in 2001, 2000, and 1999, respectively; volatility of 15.30%, 15.80%, and 15.00% for options granted in 2001, 2000, and 1999, respectively; expected dividend yield of 2.0%, 1.9%, and 1.5% for options granted in 2001, 2000, and 1999, respectively; and expected lives of 7 years for options granted in 2001, 2000 and 1999. 74 Stock Options Outstanding. The following table sets forth information about outstanding and exercisable stock options at December 31, 2001.
Outstanding Stock Options Exercisable Stock Options ---------------------------------------------- --------------------------- Weighted Average -------------------------- Weighted Remaining Average Contractual Exercise Exercise Range of Exercise Prices Number Life (yrs.) Price Number Price - ---------------------------------------- ------ ------------ ----- ------ ----- $9.01 to $15.00 ........................ 12,161 .72 $12.19 12,161 $12.19 $15.01 to $25.00 ....................... 46,024 3.61 19.55 46,024 19.55 $25.01 to $45.00 ....................... 84,742 8.19 37.65 40,550 36.96 ------- ------ ------ ------- ------ 142,927 6.08 $29.65 98,735 $25.79 ======= ====== ====== ======= ======
NOTE J - RETIREMENT PLANS The Bank has a defined benefit pension plan (the "Pension Plan") covering eligible employees. The provisions of the Pension Plan are governed by the rules and regulations contained in the Prototype Plan of the New York State Bankers Retirement System (the "Retirement System") and the Retirement System Adoption Agreement executed by the Bank. For investment purposes, the Pension Plan's contributions are pooled with the contributions of the other participants in the Retirement System. Assets of the Pension Plan are invested in various debt and equity securities. Employees are eligible to participate in the Pension Plan after attaining 21 years of age and completing 12 full months of service. Pension benefits are generally based on a percentage of average annual compensation during the period of creditable service. The Bank makes annual contributions to the Pension Plan in an amount sufficient to fund these benefits and participants contribute 2% of their compensation. The Bank's funding policy, the entry age normal cost-frozen initial liability method, is consistent with the funding requirements of federal law and regulations. Employees become fully vested after four years of participation in the Pension Plan (no vesting occurs during the four-year period). Net Pension Cost. The following table sets forth the components of net periodic pension cost. 2001 2000 1999 ----- ----- ----- (in thousands) Service cost .......................... $ 410 $ 397 $ 341 Interest cost ......................... 462 428 364 Expected return on plan assets ........ (598) (540) (509) Net amortization and deferral ......... (44) (44) (44) ----- ----- ----- Net pension cost ...................... $ 230 $ 241 $ 152 ===== ===== ===== Significant Actuarial Assumptions. The following table sets forth the significant actuarial assumptions as of the end of each plan year. 2001 2000 1999 ------ ------ ------ Discount rate ..................................... 6.75% 6.75% 6.75% Rate of increase in compensation levels ........... 5.00% 5.00% 5.00% Expected long-term rate of return on plan assets .. 7.50% 7.00% 7.00% 75 Funded Status of The Plan. The following table sets forth the change in the benefit obligation and plan assets for each Plan year and, as of the end of each Plan year, the funded status of the Plan and prepaid benefit cost.
Year Ended September 30, ------------------------------------------------ 2001 2000 1999 ------- ------- ------- (in thousands) Change in projected benefit obligation Projected benefit obligation at beginning of year ...................... $ 6,969 $ 6,457 $ 6,180 Service cost ........................................................... 520 519 473 Plan participants' contributions ....................................... (110) (122) (132) Expenses ............................................................... (55) (63) (60) Interest cost .......................................................... 462 428 364 Benefits paid .......................................................... (260) (312) (265) Additional prior service cost at valuation date ........................ 302 -- -- Assumption changes and other ........................................... (32) 62 (103) ------- ------- ------- Projected benefit obligation at end of year ............................ 7,796 6,969 6,457 ------- ------- ------- Change in plan assets Fair value of plan assets at beginning of year ......................... 8,580 7,751 6,884 Actual return on plan assets ........................................... (712) 796 1,057 Employer contribution .................................................. 327 286 3 Plan participants' contributions ....................................... 110 122 132 Benefits paid .......................................................... (260) (312) (265) Expenses ............................................................... (55) (63) (60) ------- ------- ------- Fair value of plan assets at end of year ............................... 7,990 8,580 7,751 ------- ------- ------- Funded status .......................................................... 194 1,611 1,294 Unrecognized net actuarial loss (gain) ................................. 385 (784) (468) Unrecognized prior service cost ........................................ 275 (31) (35) Unrecognized transition asset .......................................... (87) (127) (167) ------- ------- ------- Prepaid benefit cost ................................................... $ 767 $ 669 $ 624 ======= ======= =======
The Bank has a combined profit sharing/401(k) plan (the "Profit Sharing Plan"). Employees are eligible to participate provided they are at least 21 years of age and have completed one year of service in which they worked 1,000 hours if full-time and 700 hours if part-time. Participants may elect to contribute, on a tax-deferred basis, up to 25% of gross compensation, as defined, subject to the limitations of Section 401(k) of the Internal Revenue Code. The Bank may, at its sole discretion, make "Additional" contributions to each participant's account based on the amount of the participant's tax deferred contributions and make profit sharing contributions to each participant's account equal to a percentage of the participant's compensation, as defined. Participants are fully vested in their elective contributions and, after five years of participation in the Profit Sharing Plan, are fully vested (20% vesting per year) in the Additional and profit sharing contributions made by the Bank. Additional contributions were $130,000, $113,000, and $103,000 for 2001, 2000, and 1999, respectively, and profit sharing contributions were $587,000, $446,000, and $430,000, respectively. On August 3, 1995, the Bank adopted The First National Bank of Long Island Supplemental Executive Retirement Program ("SERP"). The SERP provides benefits to certain employees, designated by the Compensation Committee of the Board of Directors, whose benefits under the Pension Plan and Profit Sharing Plan are limited by the applicable provisions of the Internal Revenue Code. The benefit under the SERP is equal to the additional amount the employee would be entitled to under the Pension and Profit Sharing Plans in the absence of such Internal Revenue Code limitations. The effective date of the SERP, which superseded the Bank's previous supplemental retirement benefit plan, was January 1, 1994. SERP expense was $389,000, $190,000 and $49,000 in 2001, 2000 and 1999, respectively. The fluctuations in SERP expense during the three year period ended December 31, 2001 are primarily attributable to the impact of changing interest rates and stock market performance on required employer contributions. 76 NOTE K - OTHER OPERATING EXPENSES Expenses included in other operating expenses which exceed one percent of the aggregate of total interest income and noninterest income in 2001, 2000, and 1999 are as follows: 2001 2000 1999 ---- ---- ---- (in thousands) Computer services ........... $543 $490 $487 Insurance ................... 481 440 407 Marketing ................... 465 393 397 NOTE L - REGULATORY MATTERS Capital. The Corporation is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation's assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. The Corporation's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Under current regulations, banks are classified as well capitalized, adequately capitalized or undercapitalized. The following table sets forth the Corporation's capital ratios at December 31, 2001 and 2000 and the minimum ratios necessary to be classified as well capitalized and adequately capitalized. The capital ratios of the Corporation's subsidiary bank at December 31, 2001 and 2000 are not significantly different than those shown in the table below, both of which substantially exceed the requirements for a well-capitalized bank.
Corporation's Capital Ratios at December 31: ---------------------------- Well Adequately 2001 2000 Capitalized Capitalized ------ ----- ------------ ----------- Total Risk-Based Capital Ratio ......... 29.22% 28.42% 10.00% 8.00% Tier 1 Risk-Based Capital Ratio ......... 28.44 27.65 6.00 4.00 Tier 1 Leverage Capital Ratio ........... 10.63 11.19 5.00 4.00
Other Matters. The amount of dividends paid by the Bank to the Corporation is subject to restrictions under Federal Reserve Board Regulation H. Under Regulation H, the Bank is required to obtain regulatory approval for the payment of dividends during any one calendar year that exceed the Bank's net income for the calendar year plus the retained net income for the two preceding calendar years. At December 31, 2001, the Bank had retained net income for the current and two preceding calendar years of $10,349,000. Regulation D of the Board of Governors of The Federal Reserve System requires banks to maintain reserves against certain deposit balances. The Bank's average reserve requirement for 2001 was approximately $5,183,000. Under national banking laws and related statutes, the Bank is limited as to the amount it may loan to the Corporation, unless such loans are collateralized by specified obligations. At December 31, 2001, the maximum amount available for transfer from the Bank to the Corporation in the form of loans approximated $10,838,000. 77 NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value estimates are made at a specific point in time and are based on existing on and off-balance-sheet financial instruments. Such estimates are generally subjective in nature and dependent upon a number of significant assumptions associated with each financial instrument or group of similar financial instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows, and relevant available market information. Changes in assumptions could significantly affect the estimates. In addition, fair value estimates do not reflect the value of anticipated future business, premiums or discounts that could result from offering for sale at one time the Corporation's entire holdings of a particular financial instrument, or the tax consequences of realizing gains or losses on the sale of financial instruments. The following table sets forth the carrying/contract amounts and estimated fair values of the Corporation's financial instruments at December 31, 2001 and 2000.
2001 2000 --------------------------- --------------------------- Carrying/ Carrying/ Contract Contract Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- (in thousands) Financial Assets: Cash and due from banks ................................ $ 28,209 $ 28,209 $ 23,872 $ 23,872 Federal funds sold ..................................... 27,000 27,000 87,800 87,800 Held-to-maturity securities ............................ 252,215 257,670 226,361 229,045 Available-for-sale securities .......................... 138,275 138,275 83,680 83,680 Loans .................................................. 224,668 226,675 190,966 191,067 Accrued interest receivable ............................ 5,047 5,047 4,450 4,450 Financial Liabilities: Checking deposits ...................................... 222,822 222,822 195,617 195,617 Savings and money market deposits ...................... 347,430 347,430 310,681 310,681 Time deposits .......................................... 34,618 34,645 44,174 44,257 Accrued interest payable ............................... 95 95 275 275 Off-Balance-Sheet Liabilities: Commitments to extend credit ........................... 53,513 -- 36,937 -- Standby and commercial letters of credit ............... 1,037 10 1,017 7
NOTE N - PARENT COMPANY FINANCIAL INFORMATION Condensed financial information for The First of Long Island Corporation (parent company only) is as follows:
CONDENSED BALANCE SHEETS December 31, ----------------------------- Assets: (in thousands) 2001 2000 ------- ------- Checking and money market accounts with subsidiary ...................... $ 3,646 $ 2,417 Investment in subsidiary bank, at equity ................................ 72,255 69,536 Other assets ............................................................ 45 12 ------- ------- $75,946 $71,965 ======= ======= Liabilities: Cash dividends payable .................................................. $ 1,200 $ 1,099 ------- ------- Stockholders' equity: Common stock ............................................................ 279 289 Surplus ................................................................. 955 1,188 Retained earnings ....................................................... 72,550 68,737 ------- ------- 73,784 70,214 Accumulated other comprehensive income, net of tax ...................... 962 652 ------- ------- 74,746 70,866 ------- ------- $75,946 $71,965 ======= =======
78
CONDENSED STATEMENTS OF INCOME Year ended December 31, ------------------------------------------------- 2001 2000 1999 -------- -------- -------- Income: (in thousands) Dividends from subsidiary bank .................................... $ 7,700 $ 4,500 $ 6,850 Interest on deposits with subsidiary bank ......................... 33 73 53 -------- -------- -------- 7,733 4,573 6,903 -------- -------- -------- Expenses: Other operating expenses .......................................... 59 58 56 -------- -------- -------- Income before income taxes ........................................ 7,674 4,515 6,847 Income tax expense (credit) .......................................... (11) 6 (1) -------- -------- -------- Income before undistributed earnings of subsidiary bank ................................................ 7,685 4,509 6,848 Equity in undistributed earnings ..................................... 2,409 4,809 3,131 -------- -------- -------- Net income ........................................................ $ 10,094 $ 9,318 $ 9,979 ======== ======== ========
CONDENSED STATEMENTS OF CASH FLOWS Year ended December 31, ---------------------------------------------- Increase (Decrease) in Cash and Cash Equivalents* 2001 2000 1999 -------- -------- -------- (in thousands) Cash Flows From Operating Activities: Net income ............................................................. $ 10,094 $ 9,318 $ 9,979 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of subsidiary bank ........................ (2,409) (4,809) (3,131) Decrease in other assets ......................................... 2 13 86 -------- -------- -------- Net cash provided by operating activities ........................... 7,687 4,522 6,934 -------- -------- -------- Cash Flows From Financing Activities: Repurchase and retirement of common stock .............................. (4,698) (2,819) (5,116) Proceeds from exercise of stock options ................................ 420 223 137 Cash dividends paid .................................................... (2,180) (2,002) (1,837) -------- -------- -------- Net cash used in financing activities ............................... (6,458) (4,598) (6,816) -------- -------- -------- Net increase (decrease) in cash and cash equivalents ...................... 1,229 (76) 118 Cash and cash equivalents, beginning of year .............................. 2,417 2,493 2,375 -------- -------- -------- Cash and cash equivalents, end of year .................................... $ 3,646 $ 2,417 $ 2,493 ======== ======== ======== Supplemental Schedule of Noncash Financing Activities: Tax benefit from exercise of employee stock options .................... $ 35 $ 19 $ 4 Cash dividends payable ................................................. 1,200 1,099 1,007
*Cash and cash equivalents include the checking and money market accounts with the Corporation's wholly-owned bank subsidiary. 79 NOTE O - QUARTERLY FINANCIAL DATA (Unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter Total -------- -------- -------- -------- -------- 2001 (in thousands, except per share data) Interest income .................................. $ 9,881 $ 9,570 $ 9,524 $ 9,014 $ 37,989 Interest expense ................................. 3,127 2,494 2,281 1,549 9,451 Net interest income .............................. 6,754 7,076 7,243 7,465 28,538 Provision for loan losses (credit) ............... -- -- -- 100 100 Noninterest income ............................... 1,280 1,385 1,281 1,003 4,949 Noninterest expense .............................. 4,895 4,836 4,876 5,160 19,767 Income before income taxes ....................... 3,139 3,625 3,648 3,208 13,620 Income taxes ..................................... 804 975 974 773 3,526 Net income ....................................... 2,335 2,650 2,674 2,435 10,094 Earnings per share: Basic .......................................... .81 .93 .94 .87 3.55 Diluted ........................................ .80 .91 .93 .86 3.50 Comprehensive income ............................. 2,938 2,458 3,613 1,395 10,404 2000 Interest income .................................. $ 8,964 $ 9,484 $ 10,065 $ 10,309 $ 38,822 Interest expense ................................. 2,830 3,157 3,510 3,609 13,106 Net interest income .............................. 6,134 6,327 6,555 6,700 25,716 Provision for loan losses (credit) ............... (75) -- -- -- (75) Noninterest income ............................... 1,110 1,104 1,247 1,064 4,525 Noninterest expense .............................. 4,312 4,408 4,357 4,490 17,567 Income before income taxes ....................... 3,007 3,023 3,445 3,274 12,749 Income taxes ..................................... 834 815 908 874 3,431 Net income ....................................... 2,173 2,208 2,537 2,400 9,318 Earnings per share: Basic .......................................... .74 .75 .87 .83 3.19 Diluted ........................................ .73 .74 .86 .82 3.15 Comprehensive income ............................. 2,155 2,543 3,059 3,547 11,304
80 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Stockholders and Board of Directors of The First of Long Island Corporation: We have audited the accompanying consolidated balance sheets of The First of Long Island Corporation and subsidiary as of December 31, 2001 and 2000 and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The First of Long Island Corporation and subsidiary as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP New York, New York January 22, 2002 81 OFFICIAL STAFF FULL SERVICE OFFICES Glen Head 10 Glen Head Road Glen Head, NY 11545 (516) 671-4900 John J. Mulder, Jr. Vice President and Branch Manager Elaine Ballinger Assistant Manager Daphne Johnson Administrative Assistant Greenvale 7 Glen Cove Road Greenvale, NY 11548 (516) 621-8811 Philip R. Thompson Vice President and Branch Manager Patricia Ovalle-Wood Assistant Manager Huntington 253 New York Avenue Huntington, NY 11743 (631) 427-4143 William Pyszczymuka Vice President and Branch Manager Jenny Malandruccolo Assistant Vice President Marie McManus Assistant Cashier Margaret Hanrahan Administrative Assistant Locust Valley 108 Forest Avenue Locust Valley, NY 11560 (516) 671-2299 John T. Noonan Vice President and Branch Manager Mary Lou Martin Assistant Vice President Carol Luzynski Administrative Assistant Northport 711 Fort Salonga Road Northport, NY 11768 (631) 261-4000 Henry C. Suhr Vice President and Branch Manager David Lippa Assistant Vice President 82 Janet Kittle Administrative Assistant Old Brookville 209 Glen Head Road Old Brookville, NY 11545 (516) 759-9002 Frank Plesche Vice President and Branch Manager Carolyn McIntyre Assistant Vice President Rockville Centre 310 Merrick Road Rockville Centre, NY 11570 (516) 763-5533 Raffaella Marciari Vice President and Branch Manager Kathryn M. Sachs Assistant Manager Theresa Crawford Administrative Assistant Roslyn Heights 130 Mineola Avenue Roslyn Heights, NY 11577 (516) 621-1900 Archie J. Arrington Vice President and Branch Manager Carole Ann Snayd Assistant Vice President Lucile Pelliccione Administrative Assistant Woodbury 800 Woodbury Road Woodbury, NY 11797 (516) 364-3434 George P. Knott Vice President and Branch Manager June Pipito Assistant Vice President COMMERCIAL BANKING OFFICES Allen Boulevard 22 Allen Boulevard Farmingdale, NY 11735 (631) 753-8888 Patricia M. Gramble Assistant Vice President and Branch Manager 83 Bohemia 30 Orville Drive Bohemia, NY 11716 (631) 218-2500 Robert F. Covino Vice President and Branch Manager Deer Park 60 E. Industry Court Deer Park, NY 11729 (631) 243-2600 Albert M. Nordt, Jr. Assistant Vice President and Branch Manager Garden City 1050 Franklin Avenue Garden City, NY 11530 (516) 742-6262 Elizabeth A. Materia Assistant Vice President and Branch Manager Great Neck 536 Northern Boulevard Great Neck, NY 11021 (516) 482-6666 Janice B. Manditch Assistant Vice President and Branch Manager Hauppauge 330 Motor Parkway Hauppauge, NY 11788 (631) 952-2900 Mark A. Ryan Assistant Vice President and Branch Manager Hicksville 106 Old Country Road Hicksville, NY 11801 (516) 932-7150 Joyce C. Graber Assistant Vice President and Branch Manager Arlyne H. Kramer Assistant Cashier Lake Success 3000 Marcus Avenue Lake Success, NY 11042 (516) 775-3133 Lucy Ortiz Assistant Vice President and Branch Manager Patricia Scrudato Assistant Manger 84 Mineola 194 First Street Mineola, NY 11501 (516) 742-1144 Herta Tscherne Assistant Vice President and Branch Manager Rosemary Kerrane Assistant Manager New Highway 2091 New Highway Farmingdale, NY 11735 (631) 454-2022 Barbara Cavalier Assistant Vice President and Branch Manager New Hyde Park 200 Jericho Turnpike New Hyde Park, NY 11040 (516) 328-3100 Linda A. Cutter Assistant Vice President and Branch Manager Kathleen Martin Administrative Assistant Valley Stream 133 E. Merrick Road Valley Stream, NY 11580 (516) 825-0202 Peter J. Arebalo Assistant Vice President and Branch Manager Investment Division 800 Woodbury Road Woodbury, NY 11797 (516) 364-3436 Brian J. Keeney Senior Vice President Robert M. Heyssel, Jr. Vice President Sharon E. Pazienza Vice President Joanne Buckley Assistant Vice President Quyen T. Pham Operations Manager Dawn LoBraico Administrative Assistant Francis V. Liantonio Vice President Administration J. William Johnson Chairman and Chief Executive Officer Arthur J. Lupinacci, Jr. Executive Vice President 85 Lorraine Fogarty Executive Assistant Constance Miller Executive Assistant Auditing Kitty W. Craig Vice President Margaret M. DeBonis Assistant Vice President Cathy Balsiero Assistant Auditor Mathew Wallis Administrative Assistant Branch Administration James Clavell Vice President Monica Baker Assistant Vice President Ronald Pimental Assistant Vice President JoAnn Diamond Assistant Cashier Leonora Mintz Assistant Manager Susan Sciacca Assistant Manager Sara Melamed Administrative Assistant Commercial Banking Donald L. Manfredonia Executive Vice President Joseph G. Perri Executive Vice President Albert Arena Vice President Paul J. Daley Vice President Stephen Durso Vice President Richard K. Dzwlewicz Vice President James P. Johnis Vice President Henry A. Kramer Vice President Edward V. Mirabella Vice President William W. Riley Vice President John P. Solensky Vice President 86 Margaret M. Curran Assistant Vice President Gretchen B. Nesky Assistant Vice President Frank Pelliccione Assistant Vice President Andrew W. Malone Commercial Mortgage Originator Maureen Cannarsa Administrative Assistant Diane Mucci Executive Assistant Compliance and Procedures Wayne M. Sturges Vice President Computer Services Conrad A. Lissade Computer Services Manager Data Center Jose Diaz Assistant Vice President Christina Alexander Administrative Assistant Deposit Operations Carmela Lalonde Assistant Manager Donna Long Assistant Manager Neil Dastas Administrative Assistant Finance Mark D. Curtis Senior Vice President Aldo Columbano Vice President Wayne B. Drake Vice President Matthew J. Mankowski Assistant Vice President Catherine Irvin Assistant Manager Cheryl Romanski Assistant Manager Diane Pascucci Administrative Assistant General Services Frederick G. Ruff Assistant Vice President Alexandria Spearman Administrative Assistant 87 Human Resources Donna M. Kelly Vice President Takako Endo Assistant Vice President Susan J. Hempton Assistant Vice President Loan Center Robert Jacobs Assistant Vice President John F. Darcy Senior Mortgage Advisor Frederick T. Hughes Mortgage Originator Ann J. Cristodero Assistant Manager Eveline Ratte Assistant Manager Anna S. Fleming Administrative Assistant Veronica Gajkowski Administrative Assistant Barbara Johnson Administrative Assistant Patricia Lacorazza Administrative Assistant Marketing Cathy M. Poturny Assistant Vice President Anne Urtnowski Assistant Manager Operations Administration Richard Kick Senior Vice President Betsy Gustafson Vice President Counsel Schupbach, Williams & Pavone LLP Independent Auditors Arthur Andersen LLP FORM 10-K REPORT A copy of the Corporation's annual report on Form 10-K for 2001, filed with the Securities and Exchange Commission, may be obtained without charge upon written request to Mark D. Curtis, Senior Vice President and Treasurer, The First of Long Island Corporation, 10 Glen Head Road, PO Box 67, Glen Head, New York 11545-0067. 88 Executive Office The First of Long Island Corporation 10 Glen Head Road Glen Head, New York 11545 (516) 671-4900 www.firstofli.com Transfer Agent and Registrar Registrar and Transfer Company 10 Commerce Drive Cranford, New Jersey 07016-3572 (800) 368-5948 www.rtco.com Annual Meeting Notice The Annual Meeting of Stockholders will be held at the Old Brookville office of The First National Bank of Long Island, 209 Glen Head Road, Glen Head, New York 11545 on Tuesday, April 16, 2002 at 3:30 P.M. BUSINESS DEVELOPMENT BOARD David Black, CPA Robert Bogardt, CPA Bogardt & Company, LLP Christopher S. Byczek, Esq. Partner Cronin & Byczek, LLP Emil V. Cianciulli, Esq. Partner Cianciulli & Meng, P.C. Thomas N. Dufek Chief Financial Officer The Tyree Organization William L. Edwards Real Estate Investor C. J. Erickson, Esq. Hodgson Russ LLP Bernard Esquenet Chief Executive Officer The Ruhof Corp. Leonard Gleicher Partner Goldberg Bros. Realtors Kenneth R. Going President GOING SIGN CO. Inc. Herbert Haber, CPA 89 Kevin J. Harding, Esq. Partner Harding and Harding Alan B. Katcher Chief Executive Officer Terry Alan Adv. Co., Inc. Kevin T. Kelly Executive Administrator Ophthalmic Consultants of Long Island Herbert Kotler, Esq. Kenneth R. Latham Chairman of the Board Latham Bros. Lumber Co., Inc. Zachary Levy, Esq. James J. Lynch, Esq. Susan Hirschfeld Mohr President J. W. Hirschfeld Agency, Inc. Richard E. Nussbaum, CPA Managing Partner Nussbaum Yates & Wolpow, P.C. Douglas Pierce President Pierce Country Day School & Camp Inc. Quentin Sammis President Coldwell Banker Sammis Arthur C. Schupbach, Esq. Partner Schupbach, Williams & Pavone LLP Lawrence F. Steiner President Universal Unlimited, Inc. H. Craig Treiber Chairman/CEO The Treiber Insurance Group Arthur Ventura President Badge Agency Mark Wurzel President Calico Cottage, Inc. 90 [LOGO] The First of Long Island The First of Long Island Corporation [PHOTO OMITTED] 91 EX-21 9 d50058_ex21.txt SUBSIDIARY OF REGISTRANT EXHIBIT 21 - SUBSIDIARY OF REGISTRANT 92 SUBSIDIARY OF REGISTRANT THE FIRST NATIONAL BANK OF LONG ISLAND 10 GLEN HEAD ROAD GLEN HEAD, NY 11545 93 EX-23 10 d50058_ex23.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23 - CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 94 [ARTHUR ANDERSEN LETTERHEAD] CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated January 22, 2002, incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statement No. 33-44393. /s/ ARTHUR ANDERSEN LLP March 25, 2002 95 EX-99.2 11 d50058_ex99-2.txt LETTER TO COMMISSION EXHIBIT 99.2 - LETTER TO COMMISSION PURSUANT TO TEMPORARY NOTE 3T 1 [THE FIRST OF LONG ISLAND CORPORATION LETTERHEAD] LETTER TO COMMISSION PURSUANT TO TEMPORARY NOTE 3T March 25, 2002 Securities and Exchange Commission 450 Fifth Street N.W. Washington, D.C. 20549-0408 Ladies and Gentlemen: Pursuant to Temporary Note 3T to Article 3 of Regulation S-X, The First of Long Island Corporation has obtained a letter of representation from Arthur Andersen LLP ("Andersen") stating that the December 31, 2001 audit was subject to their quality control system for the U.S. accounting and auditing practice to provide reasonable assurance that the engagement was conducted in compliance with professional standards, that there was appropriate continuity of Andersen personnel working on the audit and availability of national office consultation. Availability of personnel at foreign affiliates of Andersen is not relevant to this audit. Very truly yours, The First of Long Island Corporation /s/ Mark D. Curtis ------------------------------------ Mark D. Curtis Senior Vice President and Treasurer 2 -----END PRIVACY-ENHANCED MESSAGE-----