-----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, EFEdHnpRK7eUlewgOChz4d0trkc6DKAbo0w2ROtvbAsEqI9uFPM2OFYhlO3EOJtC pXkZOOw6NrA6qlEuOk0+Ww== 0001169232-03-006458.txt : 20031110 0001169232-03-006458.hdr.sgml : 20031110 20031110154720 ACCESSION NUMBER: 0001169232-03-006458 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031110 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12220 FILM NUMBER: 03988360 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-Q 1 d57350_10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ----------------- FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2003 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from _______________ to _______________ Commission file number 0-12220 THE FIRST OF LONG ISLAND CORPORATION (Exact Name of Registrant as Specified in Its Charter) NEW YORK 11-2672906 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 10 Glen Head Road, Glen Head, New York 11545 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (516) 671-4900 Not Applicable (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS OUTSTANDING AT NOVEMBER 3, 2003 - ----- ------------------------------- Common stock, par value 4,082,462 $.10 per share THE FIRST OF LONG ISLAND CORPORATION SEPTEMBER 30, 2003 INDEX PART I. FINANCIAL INFORMATION PAGE NO. -------- Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets (Unaudited) September 30, 2003 And December 31, 2002 1 Consolidated Statements Of Income (Unaudited) Nine and Three Months Ended September 30, 2 2003 And 2002 Consolidated Statements Of Changes In Stockholders' Equity (Unaudited) Nine Months Ended September 30, 2003 And 2002 3 Consolidated Statements Of Cash Flows (Unaudited) Nine Months Ended September 30, 2003 And 2002 4 Notes To Unaudited Consolidated Financial Statements 5 Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 16 Item 4. Controls and Procedures 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 20 ITEM 1. - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 2003 2002 ------------- ------------- Assets: Cash and due from banks .................................. $ 33,069,000 $ 33,229,000 Federal funds sold ....................................... 39,500,000 34,000,000 ------------- ------------- Cash and cash equivalents .............................. 72,569,000 67,229,000 ------------- ------------- Investment securities: Held-to-maturity, at amortized cost (fair value of $263,269,000 and $282,438,000) ........ 257,562,000 273,102,000 Available-for-sale, at fair value (amortized cost of $268,454,000 and $173,794,000) .............. 274,387,000 180,406,000 ------------- ------------- 531,949,000 453,508,000 ------------- ------------- Loans: Commercial and industrial ......................... 41,363,000 37,329,000 Secured by real estate ............................ 249,336,000 217,730,000 Consumer .......................................... 5,895,000 6,414,000 Other ............................................. 602,000 628,000 ------------- ------------- 297,196,000 262,101,000 Unearned income ................................... (866,000) (993,000) ------------- ------------- 296,330,000 261,108,000 Allowance for loan losses ......................... (2,399,000) (2,085,000) ------------- ------------- 293,931,000 259,023,000 ------------- ------------- Bank premises and equipment, net ......................... 6,813,000 6,398,000 Other assets ............................................. 8,241,000 6,184,000 ------------- ------------- $ 913,503,000 $ 792,342,000 ============= ============= Liabilities: Deposits: Checking .......................................... $ 292,079,000 $ 256,444,000 Savings and money market .......................... 452,454,000 412,815,000 Time, other ....................................... 17,742,000 17,359,000 Time, $100,000 and over ........................... 16,170,000 13,107,000 ------------- ------------- 778,445,000 699,725,000 Securities sold under repurchase agreements .............. 41,697,000 -- Accrued expenses and other liabilities ................... 2,831,000 4,492,000 Current income taxes payable ............................. 233,000 289,000 Deferred income taxes payable ............................ 1,926,000 2,394,000 ------------- ------------- 825,132,000 706,900,000 ------------- ------------- Commitments and Contingent Liabilities Stockholders' Equity: Common stock, par value $.10 per share: Authorized, 20,000,000 shares; Issued and outstanding, 4,082,462 and 4,161,173 shares 408,000 416,000 Surplus .................................................. 946,000 724,000 Retained earnings ........................................ 83,455,000 80,354,000 ------------- ------------- 84,809,000 81,494,000 Accumulated other comprehensive income net of tax ........ 3,562,000 3,948,000 ------------- ------------- 88,371,000 85,442,000 ------------- ------------- $ 913,503,000 $ 792,342,000 ============= =============
See notes to unaudited consolidated financial statements 1 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Nine Months Ended September 30, Three Months Ended September 30, ------------------------------- -------------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ Interest income: Loans .................................................... $ 13,391,000 $ 12,438,000 $ 4,374,000 $ 4,229,000 Investment securities: Taxable .............................................. 8,967,000 10,189,000 3,149,000 3,512,000 Nontaxable ........................................... 4,637,000 4,336,000 1,590,000 1,441,000 Federal funds sold ....................................... 389,000 639,000 79,000 278,000 ------------ ------------ ------------ ------------ 27,384,000 27,602,000 9,192,000 9,460,000 ------------ ------------ ------------ ------------ Interest expense: Savings and money market deposits ........................ 2,542,000 3,313,000 754,000 1,191,000 Time deposits ............................................ 340,000 506,000 109,000 156,000 Securities sold under repurchase agreements .............. 43,000 -- 43,000 -- ------------ ------------ ------------ ------------ 2,925,000 3,819,000 906,000 1,347,000 ------------ ------------ ------------ ------------ Net interest income .................................. 24,459,000 23,783,000 8,286,000 8,113,000 Provision for loan losses (credit) ........................... 335,000 50,000 185,000 (100,000) ------------ ------------ ------------ ------------ Net interest income after provision for loan losses (credit) . 24,124,000 23,733,000 8,101,000 8,213,000 ------------ ------------ ------------ ------------ Noninterest income: Investment Management Division income .................... 932,000 841,000 314,000 275,000 Service charges on deposit accounts ...................... 2,713,000 2,809,000 918,000 904,000 Net gains (losses) on sales of available-for-sale securities ............................................. 444,000 (12,000) 211,000 -- Other .................................................... 564,000 489,000 208,000 140,000 ------------ ------------ ------------ ------------ 4,653,000 4,127,000 1,651,000 1,319,000 ------------ ------------ ------------ ------------ Noninterest expense: Salaries ................................................. 7,734,000 7,332,000 2,606,000 2,480,000 Employee benefits ........................................ 3,389,000 3,277,000 1,027,000 1,104,000 Occupancy and equipment expense .......................... 2,503,000 2,250,000 875,000 750,000 Other operating expenses ................................. 3,830,000 3,315,000 1,391,000 1,092,000 ------------ ------------ ------------ ------------ 17,456,000 16,174,000 5,899,000 5,426,000 ------------ ------------ ------------ ------------ Income before income taxes ........................... 11,321,000 11,686,000 3,853,000 4,106,000 Income tax expense ........................................... 2,834,000 3,077,000 969,000 1,112,000 ------------ ------------ ------------ ------------ Net income ........................................... $ 8,487,000 $ 8,609,000 $ 2,884,000 $ 2,994,000 ============ ============ ============ ============ Weighted average: Common shares ............................................ 4,087,964 4,182,053 4,078,796 4,177,494 Dilutive stock options ................................... 82,102 50,761 84,236 56,570 ------------ ------------ ------------ ------------ 4,170,066 4,232,814 4,163,032 4,234,064 ============ ============ ============ ============ Earnings per share: Basic .................................................... $ 2.08 $ 2.06 $ .71 $ .72 ============ ============ ============ ============ Diluted .................................................. $ 2.04 $ 2.03 $ .70 $ .71 ============ ============ ============ ============
See notes to unaudited consolidated financial statements 2 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
--------------------------------------------------------------------------------------------- Nine Months Ended September 30, 2003 --------------------------------------------------------------------------------------------- Accumulated Other Compre- Compre- Common Stock hensive Retained hensive Shares Amount Surplus Income* Earnings Income Total --------- --------- ----------- ----------- ----------- ------------- ----------- Balance, January 1, 2003 ......... 4,161,173 $ 416,000 $ 724,000 $80,354,000 $3,948,000 $85,442,000 Net Income ...................... $ 8,487,000 8,487,000 8,487,000 Repurchase and retirement of common stock ............... (131,808) (13,000) (4,758,000) (4,771,000) Exercise of stock options ....... 53,097 5,000 875,000 880,000 Tax benefit of stock options .... 105,000 105,000 Cash dividends declared - $.34 per share ................ (1,386,000) (1,386,000) Unrealized losses on available- for-sale-securities, net of income taxes ................ (386,000) (386,000) (386,000) Transfer from retained earnings to surplus ........... 4,000,000 (4,000,000) -- ----------- Comprehensive income ............ $ 8,101,000 --------- --------- ----------- =========== ----------- ---------- ----------- Balance, September 30, 2003 ...... 4,082,462 $ 408,000 $ 946,000 $83,455,000 $3,562,000 $88,371,000 ========= ========= =========== =========== ========== =========== --------------------------------------------------------------------------------------------- Nine Months Ended September 30, 2002 --------------------------------------------------------------------------------------------- Accumulated Other Compre- Compre- Common Stock hensive Retained hensive Shares Amount Surplus Income* Earnings Income Total --------- --------- ----------- ----------- ----------- ------------- ----------- Balance, January 1, 2002 ......... 2,792,902 $ 279,000 $ 955,000 $72,550,000 $ 962,000 $74,746,000 Net Income ...................... $ 8,609,000 8,609,000 8,609,000 Repurchase and retirement of common stock ............... (24,103) (2,000) (925,000) (927,000) Exercise of stock options ....... 15,840 2,000 270,000 272,000 Tax benefit of stock options .... 46,000 46,000 Cash dividends declared - $.29 per share ................ (1,197,000) (1,197,000) 3-for-2 stock split ............. 1,391,667 139,000 (139,000) -- Cash in lieu of fractional shares on 3-for-2 stock split ........ (8,000) (8,000) Unrealized gains on available- for-sale-securities, net of income taxes ................ 3,565,000 3,565,000 3,565,000 ----------- Comprehensive income ............ $12,174,000 --------- --------- ----------- =========== ----------- ---------- ----------- Balance, September 30, 2002 ...... 4,176,306 $ 418,000 $ 346,000 $79,815,000 $4,527,000 $85,106,000 ========= ========= =========== =========== ========== ===========
* Comprehensive income for the three months ended September 30, 2003 and 2002 was $1,684,000 and $4,477,000, respectively, and consists solely of net income and unrealized gains and losses on available-for-sale securities, net of income taxes. See notes to unaudited consolidated financial statements 3 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, --------------------------------- 2003 2002 ------------- ------------- Cash Flows From Operating Activities: Net income ....................................................... $ 8,487,000 $ 8,609,000 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses ..................................... 335,000 50,000 Deferred income tax credit .................................... (174,000) (35,000) Depreciation and amortization ................................. 965,000 959,000 Premium amortization on investment securities, net ............ 3,624,000 2,094,000 Losses (gains) on sales of available-for-sale securities ...... (444,000) 12,000 Decrease (increase) in prepaid income taxes ................... -- 1,000 Increase in other assets ...................................... (2,057,000) (75,000) Increase (decrease) in accrued expenses and other liabilities . (247,000) 361,000 Increase in income taxes payable .............................. 49,000 318,000 ------------- ------------- Net cash provided by operating activities ................ 10,538,000 12,294,000 ------------- ------------- Cash Flows From Investing Activities: Proceeds from sales of available-for-sale securities ............. 10,903,000 687,000 Proceeds from maturities and redemptions of investment securities: Held-to-maturity .............................................. 81,838,000 90,797,000 Available-for-sale ............................................ 69,306,000 7,428,000 Purchase of investment securities: Held-to-maturity .............................................. (69,114,000) (99,051,000) Available-for-sale ............................................ (175,233,000) (43,522,000) Net increase in loans to customers ............................... (35,243,000) (20,314,000) Purchases of bank premises and equipment ......................... (1,380,000) (308,000) Proceeds from sale of equipment .................................. -- 3,000 ------------- ------------- Net cash used in investing activities .................... (118,923,000) (64,280,000) ------------- ------------- Cash Flows From Financing Activities: Net increase in total deposits ................................... 78,720,000 90,951,000 Net increase in securities sold under repurchase agreements ...... 41,697,000 -- Proceeds from exercise of stock options .......................... 880,000 272,000 Repurchase and retirement of common stock ........................ (4,771,000) (927,000) Cash dividends paid .............................................. (2,801,000) (2,397,000) Cash in lieu of fractional shares on 3-for-2 stock split ......... -- (8,000) ------------- ------------- Net cash provided by financing activities ................ 113,725,000 87,891,000 ------------- ------------- Net increase in cash and cash equivalents .......................... 5,340,000 35,905,000 Cash and cash equivalents, beginning of year ....................... 67,229,000 55,209,000 ------------- ------------- Cash and cash equivalents, end of period ........................... $ 72,569,000 $ 91,114,000 ============= ============= Supplemental Schedule of Noncash: Investing Activities Unrealized gains (losses) on available-for-sale securities ....... $ (679,000) $ 5,960,000 Writeoff of premises and equipment against reserve ............... -- 60,000 Financing Activities Tax benefit from exercise of employee stock options .............. 105,000 46,000
The Corporation made interest payments of $2,924,000 and $3,846,000 and income tax payments of $2,961,000 and $2,792,000 during the first nine months of 2003 and 2002, respectively. See notes to unaudited consolidated financial statements 4 THE FIRST OF LONG ISLAND CORPORATION AND SUBSIDIARY SEPTEMBER 30, 2003 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accounting and reporting policies of the Corporation reflect banking industry practice and conform to generally accepted accounting principles in the United States. 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 and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates. 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") (collectively referred to as the "Corporation"). The Corporation's financial condition and operating results principally reflect those of the Bank. All intercompany balances and amounts have been eliminated. For further information refer to the consolidated financial statements and notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2002. The consolidated financial information included herein as of and for the periods ended September 30, 2003 and 2002 is unaudited; however, such information reflects all adjustments which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The December 31, 2002 consolidated balance sheet was derived from the Corporation's December 31, 2002 audited consolidated financial statements. 2. STOCK-BASED COMPENSATION At September 30, 2003, the Corporation had two stock option and appreciation rights plans. The Corporation accounts for those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations. No stock-based employee compensation cost is recorded for stock options, as all options granted have an exercise price equal to the market value of the underlying common stock on the date of grant. If there were any stock appreciation rights outstanding, compensation costs would be recorded periodically based on the quoted market price of the Corporation's stock at the end of the period. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148 "Accounting for Stock-Based Compensation--Transition and Disclosure" ("SFAS No. 148") in December 2002. SFAS No. 148 amends the disclosure and certain transition provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation". The new disclosure provisions are effective for financial statements for fiscal years ending after December 15, 2002 and for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. The following table provides the disclosures required by SFAS No. 148 and illustrates the effect on net income and earnings per share if the Corporation had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation. 5
Nine Months Ended ----------------------------- 9/30/03 9/30/02 --------- --------- (in thousands) Net income, as reported ............................... $ 8,487 $ 8,609 Deduct: Total cost of stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects ..................... (250) (164) --------- --------- Pro forma net income .................................. $ 8,237 $ 8,445 ========= ========= Earnings per share: Basic - as reported ................................. $ 2.08 $ 2.06 Basic - pro forma ................................... $ 2.01 $ 2.02 Diluted - as reported ............................... $ 2.04 $ 2.03 Diluted - pro forma ................................. $ 1.98 $ 2.00
3. NEW ACCOUNTING PRONOUNCEMENTS In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45 ("FIN No. 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." The Corporation adopted the disclosure provisions of FIN No. 45 in the fourth quarter of 2002 and, for guarantees issued or modified after December 31, 2002, adopted the initial recognition and measurement provisions on January 1, 2003. Adoption of the initial recognition and measurement provisions did not impact the Corporation's financial condition or results of operations at or for the nine months ended September 30, 2003. In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"). FIN No. 46, which is an interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial Statements", addresses the accounting and reporting for variable interest entities, as defined. Management anticipates that FIN No. 46, the provisions of which are not yet effective, will not impact the Corporation. In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149 "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. All provisions of this Statement shall be applied prospectively. Based on the Corporation's current business operations, the provisions of SFAS No. 149 do not impact the Corporation's financial condition, results of operations, or disclosures. In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"). SFAS No. 150 is generally effective for financial instruments entered into or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Based on the Corporation's current business operations, the provisions of SFAS No. 150 do not impact the Corporation's financial condition, results of operations, or disclosures. 6 ITEM 2. - 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 has historically been Nassau and Suffolk Counties, Long Island. However, the Bank opened three new commercial banking branches in Manhattan in the second quarter of this year. Overview The Corporation earned $2.04 per share for the first nine months of 2003 as compared to $2.03 for the same period last year. Based on net income of $8,487,000, the Corporation returned 1.37% on average total assets ("ROA") and 13.32% on average total equity ("ROE"). This compares to returns on assets and equity of 1.56% and 14.59%, respectively, for the first nine months of last year. Total assets and deposits grew by approximately 16% and 12%, respectively, when comparing balances at September 30, 2003 to those at September 30, 2002, and total capital before unrealized gains and losses on available-for-sale securities grew by approximately 5%. The Corporation's capital ratios continue to significantly exceed all current regulatory criteria for a well-capitalized bank. The most significant items positively affecting earnings for the nine months were a 14% increase in average checking balances and an unusually large commercial mortgage prepayment fee received in the first quarter. Other important factors also favorably impacting earnings were gains on sales of equity securities and the continued growth of money market type savings balances and residential mortgages. Overwhelmingly, the most negative influence on earnings is the overall decline in interest rates. On a sequential quarter-to-quarter basis, after a modest uptick in the first quarter, net interest margin continued to decrease. As we have cautioned in the past, sustained lower interest rates should result in continued margin pressure and further negatively impact our income. Also affecting earnings were expenses of our growth strategies particularly the opening of our three New York City commercial branches. The New York City branches were opened on June 2, 2003 and so far the results are encouraging. While it is premature to predict their ultimate success, we remain optimistic regarding the long-term results of our New York City strategy and investment. Our free checking campaign was started at the end of the first quarter and is attracting consumer checking business to the Bank resulting in a growth of over 10% in the number of net new consumer checking accounts so far this year. 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. 7
Nine Months Ended September 30, -------------------------------------------------------------------------- 2003 2002 ---------------------------------- ----------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate --------- -------- ------- --------- -------- ------- (dollars in thousands) Assets Federal funds sold .......................... $ 45,945 $ 389 1.13% $ 50,221 $ 639 1.70% Investment Securities: Taxable ................................... 315,462 8,967 3.80 281,887 10,189 4.83 Nontaxable (1) ........................... 152,809 7,026 6.13 126,142 6,570 6.94 Loans (1)(2) ............................... 271,062 13,395 6.61 238,842 12,451 6.97 --------- ------- ------- --------- ------- ------- Total interest-earning assets ............... 785,278 29,777 5.07 697,092 29,849 5.72 ------- ------- ------- ------- Allowance for loan losses (2,180) (2,112) --------- --------- Net interest-earning assets 783,098 694,980 Cash and due from banks ..................... 32,859 30,879 Premises and equipment, net ................. 6,553 6,752 Other assets ................................ 5,628 5,872 --------- --------- $ 828,138 $ 738,483 ========= ========= Liabilities and Stockholders' Equity Savings and money market deposits ........... $ 426,830 2,542 0.80 $ 383,662 3,313 1.15 Time deposits ............................... 34,212 340 1.33 35,514 506 1.90 Securities sold under repurchase agreements ..................... 6,963 43 0.83 -- -- -- --------- ------- ------- --------- ------- ------- Total interest-bearing liabilities .......... 468,005 2,925 0.84 419,176 3,819 1.22 --------- ------- ------- --------- ------- ------- Checking deposits(3) 269,614 236,022 Other liabilities ........................... 5,312 4,387 --------- --------- 742,931 659,585 Stockholders' equity ........................ 85,207 78,898 --------- --------- $ 828,138 $ 738,483 ========= ========= Net interest income (1) .................... $26,852 $26,030 ======= ======= Net interest spread (1) .................... 4.23% 4.50% ======= ======= Net interest margin (1) .................... 4.57% 4.99% ======= =======
(1) Tax-equivalent basis. Interest income on a tax-equivalent basis includes the additional amount of interest income that would have been earned if the Corporation's investment in tax-exempt loans and investment securities had been made in loans and investment securities subject to Federal income taxes yielding the same after-tax income. The tax-equivalent amount of $1.00 of nontaxable income was $1.52 in each period 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. As can be seen from the above table, net interest margin declined by .42% when comparing the first nine months of 2003 to the same period last year. This decline in net interest margin, when applied to average total interest-earning assets of approximately $785 million for the first nine months of 2003, negatively impacted net interest income by approximately $2.5 million. Also shown in the table is a decline in net interest spread of .27% resulting from a decrease in the yield on interest-earning assets of .65% accompanied by a less than offsetting decrease in the cost of total interest-bearing deposits of .38%. 8 It should be noted that during the first quarter of 2003 the Bank collected a $564,000 prepayment fee on one commercial mortgage. This fee, the recurrence of which is unlikely, is included in interest income on loans. The fee added .10% to net interest margin for the first nine months of 2003, .10% to net interest spread, and .28% to loan yield. The fundamental reason for the decreases in net interest margin and spread was the very low interest rate environment. Proceeds from the maturity, amortization, and prepayment of assets, primarily securities and loans, were reinvested at lower rates and variable rate loans adjusted to lower rates. To the extent that such assets were funded by noninterest-bearing checking deposits and capital, there was no offsetting cost reduction. To the extent that such assets were funded by interest-bearing deposits, there was a reduction in the cost of such deposits but such reduction was not totally offsetting. Rate/Volume Analysis. The following table sets forth the effect of changes in volumes, changes in rates, and changes in rate/volume on tax-equivalent interest income, interest expense and net interest income.
Nine Months Ended September 30, -------------------------------------------------- 2003 Versus 2002 Increase (decrease) due to changes in: -------------------------------------------------- Rate/ Net Volume Rate Volume (2) Change ------- ------- ---------- ------- (in thousands) Interest Income: Federal funds sold ......................................... $ (54) $ (214) $ 18 $ (250) Investment securities: Taxable .................................................. 1,214 (2,176) (260) (1,222) Nontaxable (1) ........................................... 1,389 (770) (163) 456 Loans (1) .................................................. 1,680 (648) (88) 944 ------- ------- ------- ------- Total interest income ...................................... 4,229 (3,808) (493) (72) ------- ------- ------- ------- Interest Expense: Savings and money market deposits .......................................... 373 (1,028) (116) (771) Time deposits .............................................. (19) (153) 6 (166) Securities sold under repurchase agreements ................ 43 -- -- 43 ------- ------- ------- ------- Total interest expense ..................................... 397 (1,181) (110) (894) ------- ------- ------- ------- Increase (decrease) in net interest income .......................................... $ 3,832 $(2,627) $ (383) $ 822 ======= ======= ======= =======
(1) Tax-equivalent basis. (2) Represents the change not solely attributable to change in rate or change in volume but a combination of these two factors. Net interest income on a tax-equivalent basis increased by $822,000, or 3.2%, from $26,030,000 for the first nine months of 2002 to $26,852,000 for the first nine months of this year. As can be seen from the above rate/volume analysis, the increase is primarily comprised of a positive volume variance of $3,832,000 and a negative rate variance of $2,627,000. It should be noted that without the large commercial mortgage prepayment fee previously discussed, net interest income on a tax-equivalent basis would have been up by only $258,000, or 1%, when comparing the nine month periods and the negative rate variance for loans would have been $564,000 higher. 9 Volume Variance. The positive volume variance was largely caused by substantial growth in average checking deposits and the use of such funds to purchase investment securities and originate loans. When comparing the first nine months of 2003 to the same period last year, average checking deposits increased by $33,592,000, or approximately 14%. Funding interest-earning asset growth with growth in checking deposits has a greater positive 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. Also making a contribution to the positive volume variance was growth in savings and money market type deposit balances and the use of such funds to purchase investment securities and originate loans. When comparing the first nine months of 2003 to the same period last year, average savings and money market deposit balances increased by $43,168,000, or 11%. Although the largest components of this increase were growth in "Select Savings", a statement savings account that earns a higher money market rate, and IOLA (interest on lawyer) accounts, the Bank also experienced growth in nonpersonal money market accounts, traditional savings, and escrow service accounts. The Bank's new business solicitation program is a significant factor that favorably impacted the growth in average checking and money market type deposit balances. Competitive pricing, customer demographics, and troubled conditions in the equity markets are also believed to be important factors with respect to the growth in average money market type deposit balances. In addition, the growth in checking and interest-bearing deposits is also believed to be attributable to the Bank's attention to customer service as well as national and local economic conditions. Rate Variance. Interest rates began to decline in early 2001. By the end of the year, short-term interest-rates had fallen significantly as evidenced by a reduction of 4.75% in both the federal funds target rate and the Bank's prime lending rate. During 2002, there were no further reductions in short-term rates until November when both the federal funds target rate and the Bank's prime lending rate declined by an additional .50%. Rates on intermediate and longer-term securities and loans also declined during 2001 and 2002, but by contrast to short-term rates, the magnitude of the decline was far more significant in 2002. In addition, the largest portion of the decrease occurred in the latter half of the year. During the first nine months of 2003, longer-term rates remained low. In addition, in late June 2003, the federal funds target rate and the Bank's prime lending rate were reduced further, by an additional .25%. Although both short and long-term rates are now at extremely low levels, they could decline more. As a result of the sharp decrease in interest rates, net interest margin trended downward during the latter half of 2002 as interest-earning assets repriced at lower yields and proceeds from the maturity, amortization and prepayment of such assets were reinvested at lower yields without an equal and offsetting reduction in the cost of funds. Excluding the effect of the large prepayment fee, there was a modest uptick in net interest margin for the first quarter of 2003 followed by a continuation of the downward trend for the second and third quarters. It should be noted that a portion of the decline in the Bank's net interest margin was caused by an acceleration of prepayments on mortgage securities and the resulting need to amortize premiums on these securities faster. If available yields remain at relatively low levels or decrease even further, and assets continue to reprice and be reinvested at lower yields, the Bank's net interest margin will 10 continue downward. In addition, the rate variance as depicted in the preceding table should become more negative. This obviously exerts pressure on earnings. Application of Critical Accounting Policies 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. Our determination of the allowance for loan losses is a critical accounting estimate because it is based on our subjective evaluation of a variety of factors at a specific point in time. As discussed more fully in the Allowance and Provision For Loan Losses section below, some of the factors we evaluate in determining an appropriate allowance for loans losses include expected future cash flows and/or collateral values on loans considered to be impaired, national and local economic conditions, the strength of the local real estate market, and environmental risks. Changes in the estimated impact of these factors on the ultimate collectibility of loans in the Bank's portfolio could require a significant change in the allowance, and this change could have a material impact on the Bank's results of operations. Asset Quality The Corporation has identified certain assets as risk elements. These assets include nonaccruing loans, foreclosed real estate, loans that are contractually past due 90 days or more as to principal or interest payments and still accruing and troubled debt restructurings. These assets present more than the normal risk that the Corporation will be unable to eventually collect or realize their full carrying value. The Corporation's risk elements at September 30, 2003 and December 31, 2002 are as follows:
September 30, December 31, 2003 2002 ------------- ------------ (dollars in thousands) Nonaccruing loans ......................................... $ 97 $ -- Foreclosed real estate .................................... -- -- -------- -------- Total nonperforming assets 97 -- Troubled debt restructurings .............................. 6 -- Loans past due 90 days or more as to principal or interest payments and still accruing ....... 1 2 -------- -------- Total risk elements ..................................... $ 104 $ 2 ======== ======== Nonaccruing loans as a percentage of total loans .......... .03% .00% ======== ======== Nonperforming assets as a percentage of total loans and foreclosed real estate .............................. .03% .00% ======== ======== Risk elements as a percentage of total loans and foreclosed real estate .................................. .04% .00% ======== ========
11 Allowance and Provision For Loan Losses The allowance for loan losses grew by $314,000 during the first nine months of 2003, amounting to $2,399,000 at September 30, 2003 as compared to $2,085,000 at December 31, 2002. The allowance represented approximately .8% of total loans at both dates. During the first nine months of 2003, the Bank had loan chargeoffs and recoveries of $40,000 and $19,000, respectively, and recorded a $335,000 provision for loan losses. The provision is up from $50,000 recorded for the same period last year primarily because of growth in the portfolio. The allowance for loan losses is an amount that management currently believes will be adequate to absorb estimated probable losses in the Bank's loan portfolio. 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. Actual results could differ significantly from these estimates. In determining the allowance for loan losses, there is not an exact amount but rather a range for what constitutes an appropriate allowance. In estimating losses the Bank reviews individual loans in its portfolio and, for those individual 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. Estimated losses for loans that are not individually deemed to be impaired 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 estimated losses on the loans specifically reviewed plus those determined on a pooled basis make up the allocated component of the allowance for loan losses. The unallocated or general component of the allowance for loan losses is a very small piece of the total allowance and could 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, economic conditions on Long Island. Such conditions could affect the financial strength of the Bank's borrowers and do effect the value of real estate collateral securing the Bank's mortgage loans. Loans secured by real estate represent approximately 84% of the Bank's total loans outstanding at September 30, 2003. Most of these loans were made to borrowers domiciled on Long Island and are secured by Long Island properties. In recent years, economic conditions on Long Island have been good and residential real estate values have grown to unprecedented highs. Such conditions and values could deteriorate in the future, and such deterioration could be substantial. If this were to occur, some of the Bank's borrowers may be unable to make the required contractual payments on their loans, and the Bank may be unable to realize the full carrying value of such loans through foreclosure. However, management believes that the Bank's underwriting policies for residential mortgages are relatively conservative and, as a result, the Bank should be less affected than the overall market. Future provisions and chargeoffs could also be affected by environmental impairment of properties securing the Bank's mortgage loans. 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 12 existing loans in the portfolio where there is environmental pollution originating on the mortgaged properties that would materially affect the value of the portfolio. Noninterest Income, Noninterest Expense, and Income Taxes Noninterest income includes service charges on deposit accounts, Investment Management Division 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. When comparing the first nine months of 2003 to the same period last year, noninterest income increased by $526,000, or 12.7%. The increase is primarily attributable to gains on sales of available-for-sale securities of $444,000, most of which resulted from the sale of an equity security which the Bank was once required to acquire and hold as part of a government sponsored loan program. As of September 30, 2003, the Bank still has a position in this security with a market value of $196,000. Noninterest expense is comprised of salaries, employee benefits, occupancy and equipment expense and other operating expenses incurred in supporting the various business activities of the Corporation. Noninterest expense increased by $1,282,000, or 7.9%, from $16,174,000 for the first nine months of 2002 to 17,456,000 for the same period this year. The increase is comprised of an increase in salaries of $402,000, an increase in employee benefits expense of $112,000, an increase in occupancy and equipment expense of $253,000, and an increase in other operating expenses of $515,000. The increase in salaries is primarily attributable to normal annual salary increases and the opening of three branches in New York City in June 2002. The increase in employee benefit expense is largely attributable to increases in retirement plan expense and the cost of group health insurance. The increase in occupancy and equipment expense was largely caused by increases in rent expense and maintenance costs, a significant portion of which resulted from the opening of the three New York City branches. The largest components of the increase in other operating expenses are an increase in general insurance expense, due primarily to conditions in the insurance marketplace and increased levels of liability coverages, and an increase in marketing expense, a substantial portion of which is attributable to the Bank's free checking campaign and the New York City branches. Income tax expense as a percentage of book income ("effective tax rate") was 25.0% for the first nine months of 2003 as compared to 26.3% for the same period last year. These percentages vary from the statutory Federal income tax rate of 34% primarily because of state income taxes and tax-exempt interest on municipal securities. The decrease in the Bank's effective tax rate is largely attributable to the fact that income on tax-exempt securities became a larger component of the Bank's income. Results of Operations - Three Months Ended September 30, 2003 Versus September 30, 2002 Net income for the third quarter of 2003 was $2,884,000, or $.70 per share, as compared to $2,994,000, or $.71 per share, earned for the same quarter last year. The decrease in net income is attributable to an increase in noninterest expense of $473,000 and an increase in the provision for loan losses of $285,000. The increase in noninterest expense is attributable to increases in salaries, occupancy and equipment expense, and other operating expenses. The reasons for the increases in salaries and occupancy and equipment expense are the same as those discussed above with respect to the nine month periods. The largest component of the increase in other operating expenses is an increase in insurance related expense, which includes increased premiums and meeting an insurance policy deductible. 13 Employee benefits expense is down for the third quarter primarily because of decreases in profit sharing and retirement plan expense. 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 27.74%, 26.98% and 9.69%, respectively, at September 30, 2003 substantially exceed the requirements for a well-capitalized bank. Total stockholders' equity increased by $2,929,000, or from $85,442,000 at December 31, 2002 to $88,371,000 at September 30, 2003. Net income for the first nine months of 2003 was the largest contributor to the growth in stockholders' equity. However, amounts expended for share repurchases and cash dividends largely offset the contribution made by net income. 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. During the first nine months of 2003, the Corporation purchased 131,808 shares under plans approved by the Board of Directors in 2002 and during the first quarter of 2003. Including a 50,000 share plan approved in April 2003, the Corporation is currently authorized to purchase 68,302 shares. The stock repurchase program has been used by management to enhance earnings per share. When comparing the first nine months of 2003 to the same period last year, earnings per share are up 1 cent. Without the impact of the shares purchased in 2002 and thus far this year, earnings would have been down approximately 2 cents. Market Liquidity. Trading in the Corporation's common stock is limited. The total trading volume for the twelve months ended September 30, 2003 as reported by Nasdaq was 1,153,990 shares, with an average daily volume of 4,579 shares. During this same twelve month period, the Corporation purchased 151,441 shares under its share repurchase program, 123,900 of which were purchased in market transactions. These market purchases represent approximately 11% of the total trading volume reported by Nasdaq. Although the Corporation has had a stock repurchase program since 1988, if the Company reduces or 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. Russell 3000(R) and 2000(R) Indices. Frank Russell Company ("Russell") currently maintains 21 U.S. common stock indices. The indices are reconstituted each July 1st using objective criteria, primarily market capitalization, and do not reflect subjective opinions. All indices are subsets of the Russell 3000(R) Index which represents most of the investable U. S. equity market. The broad market Russell 3000(R) Index includes the largest 3,000 companies in terms of market capitalization and the small cap Russell 2000(R) Index is comprised of the smallest 2,000 companies in the Russell 3000(R) Index. The Corporation's capitalization, 14 as computed by Russell, would place it at the low end of the range for both the Russell 3000(R) and 2000(R) Indices. Effective July 1, 2002, and for the first time, the Corporation's common stock was included in the Russell 3000(R) and 2000(R) Indices. At the July 1, 2003 reconstitution date, the Corporation's common stock was once again included in the Russell Indices. The Corporation believes that inclusion in the Russell Indices has positively impacted the price of its common stock and has increased the stock's trading volume and liquidity. Conversely, if the Corporation's market capitalization falls below the minimum necessary to be included in the Indices at any future reconstitution date, the Corporation believes that this could adversely affect the price, volume and liquidity of its common stock. Cash Flows and Liquidity Cash Flows. During the first nine months of 2003, cash and cash equivalents increased by $5,340,000. This occurred primarily because the cash provided from maturities and pay downs of investment securities, checking growth, money market type deposit growth, borrowings under repurchase agreements, and operations exceeded the cash used for loan and securities portfolio growth, share repurchases, and cash dividends. 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 approximately two years; maturities and monthly payments on the balance of the investment securities portfolio and the loan portfolio; and longer-term investment securities designated as available-for-sale. In addition, the Corporation has the ability to borrow on a secured and/or an unsecured basis to meet liquidity needs. At September 30, 2003, the Corporation had $39,500,000 in federal funds sold, a short-term securities portfolio not subject to pledge agreements of $130,229,000, and longer-term available-for-sale securities not subject to pledge agreements of $180,270,000. The Corporation's liquidity is enhanced by its stable deposit base which primarily consists of checking, savings, and money market accounts. Such accounts comprised 95.6% of total deposits at September 30, 2003, while time deposits of $100,000 and over and other time deposits comprised only 2.1% and 2.3%, respectively. The Bank attracts all of its deposits through its banking offices primarily from the communities in which those banking offices are located and does not rely on brokered deposits. Recently the Bank began using short-term borrowings with the intent that these borrowings could be repaid using proceeds from the maturity and amortization of securities which will be received in the next three to six months. Legislation Commercial checking deposits currently account for approximately 28% of the Bank's total deposits. Congress is considering legislation that would allow corporate 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. 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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 (present value of expected future cash flows from assets less the present value of expected future cash flows from liabilities) will change when interest rates change. The principal objective of the Bank's asset/liability management activities is to maximize net interest income while at the same time maintaining acceptable levels of interest rate and liquidity risk and facilitating the funding needs of the Bank. Because the Bank's loans and investment securities generally reprice slower than its interest-bearing deposit accounts, a decrease in interest rates uniformly across the yield curve 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. 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 at lower yields and loans are originated or repriced at lower yields, the impact on net interest income should be negative because 40% of the Bank's average interest-earning assets are funded by noninterest-bearing checking deposits and capital. Conversely, an immediate increase in interest rates uniformly across the yield curve should initially have a negative effect on net interest income. 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, the prime lending rate, and other short-term market rates, the magnitude of the negative impact will decline. 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. 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 net portfolio value at September 30, 2003 arrived at by discounting estimated future cash flows at current market rates and (2) an estimate of net interest income for the year ended September 30, 2004 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 net portfolio value at September 30, 2003 and net interest income for the year ended September 30, 2004 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 16 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.
Net Interest Income Net Portfolio Value Year Ended at September 30, 2003 September 30, 2004 --------------------- ----------------------- Percent Percent Change Change From From Rate Change Scenario Amount Base Case Amount Base Case - -------------------------------------------------- ------ --------- ------ --------- (dollars in thousands) + 200 basis point rate shock ..................... $ 56,081 (42.8)% $ 27,180 (17.0)% + 100 basis point rate shock ..................... 76,505 (22.0) 29,972 (8.5) Base case (no rate change) ..................... 98,053 -- 32,765 -- - - 100 basis point rate shock ..................... 120,838 23.2 33,902 3.5 - - 200 basis point rate shock ..................... 145,035 47.9 32,203 (1.7)
Forward Looking Statements "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures About Market Risk" contain various forward-looking statements with respect to financial performance and business matters. Such statements are generally contained in sentences including the words "expect" or "could" or "should" or "would" or "believe". 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. ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures The Company's Chief Executive Officer, Michael N. Vittorio, and Chief Financial Officer, Mark D. Curtis, have evaluated the Corporation's disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, they have concluded that the Corporation's disclosure controls and procedures are effective in ensuring that material information related to the Corporation is made known to them by others within the Corporation. (b) Changes in Internal Control Over Financial Reporting There have been no significant changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings From time to time the Corporation and the Bank may be involved in litigation that arises in the normal course of business. As of the date of this Form 10-Q, neither the Corporation nor the Bank is a party to any litigation that management believes could reasonably be expected to have a material adverse effect on the Corporation's or the Bank's financial position or results of operations for an annual period. Item 5. Other Information a) Stock Repurchase Program And Market Liquidity Trading in the Corporation's common stock is limited. The total trading volume for the twelve months ended September 30, 2003 as reported by Nasdaq was 1,153,990 shares, with an average daily volume of 4,579 shares. During this same twelve month period, the Corporation purchased 151,441 shares under its share repurchase program, 123,900 of which were purchased in market transactions. These market purchases represent approximately 11% of the total trading volume reported by Nasdaq. Although the Corporation has had a stock repurchase program since 1988, if the Company reduces or 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 "Capital" section of Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 6. Exhibits and Reports on Form 8-K a) The following exhibits are included herein. Exhibit No. Name - ----------- ---- 10.1 Amendment to Employment Agreement Between Registrant and J. William Johnson 31 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act) 32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) b) Reports on Form 8-K During the quarter ended September 30, 2003 (and thereafter to the date hereof) the Corporation filed the following reports on Form 8-K with the Securities and Exchange Commission: 1) The Corporation filed a Form 8-K dated July 23, 2003 to report that it had: (1) issued a press release disclosing material non-public information regarding the Corporation's financial condition and results of operations as of and for the six and three month periods ended June 30, 2003, and (2) mailed a quarterly report to shareholders disclosing substantially similar non-public information regarding the Corporation's financial condition and results of operations. The 18 press release was furnished as Exhibit 99.1 to the Form 8-K filing and the quarterly report to shareholders was furnished as Exhibit 99.2 to the Form 8-K filing. 2) The Corporation filed a Form 8-K dated November 4, 2003 to report that it had: (1) issued a press release disclosing material non-public information regarding the Corporation's financial condition and results of operations as of and for the nine and three month periods ended September 30, 2003, and (2) mailed a quarterly report to shareholders disclosing substantially similar non-public information regarding the Corporation's financial condition and results of operations. The press release was furnished as Exhibit 99.1 to the Form 8-K filing and the quarterly report to shareholders was furnished as Exhibit 99.2 to the Form 8-K filing. 3) The Corporation filed a Form 8-K dated October 24, 2003 to report that the Audit Committee of the Board of Directors approved the dismissal of the Company's independent public accountant, Grant Thornton LLP, and selected and engaged Crowe Chizek and Company LLC as its new independent public accountant. Crowe Chizek and Company LLC will audit the Company's financial statements for the fiscal year ended December 31, 2003. 19 SIGNATURES Pursuant To The Requirements Of The Securities Exchange Act Of 1934, The Registrant Has Duly Caused This Report To Be Signed On Its Behalf By The Undersigned Thereunto Duly Authorized. THE FIRST OF LONG ISLAND CORPORATION (Registrant) Date: November 4, 2003 By /s/ MICHAEL N. VITTORIO -------------------------------------------- MICHAEL N. VITTORIO, CHIEF EXECUTIVE OFFICER (principal executive officer) By /s/ MARK D. CURTIS -------------------------------------------- MARK D. CURTIS SENIOR VICE PRESIDENT AND TREASURER (principal financial and accounting officer) 20 EXHIBIT INDEX EXHIBIT BEGINS ON SEQUENTIAL EXHIBIT DESCRIPTION PAGE NO. - -------- ----------- -------------- 10.1 Amendment To Employment Agreement between Registrant 22 and J. William Johnson 31 Certification by Chief Executive Officer and Chief 24 Financial Officer In Accordance With Section 302 Of The Sarbanes-Oxley Act of 2002 32 Certification by Chief Executive Officer and Chief 26 Financial Officer In Accordance With Section 906 Of The Sarbanes-Oxley Act of 2002 21 EX-10.1 3 d57350_ex10-1.txt AMENDMENT TO EMPLOYMENT AGREEMENT EXHIBIT 10.1 [THE FIRST OF LONG ISLAND LETTERHEAD] August 31, 2003 Mr. J. William Johnson Dear Mr. Johnson: I refer to the letter employment agreement dated January 31, 1996 (the "Agreement) which, as heretofore amended, sets forth 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"). This will serve to confirm that the parties have agreed to amend the Agreement, effective as of the date hereof, as follows: 1. Compensation. The Base Annual Salary, payable in accordance with Section 3(a) of the Agreement, shall be One Hundred Ninety One Thousand Five Hundred Dollars ($191,500.00) per annum. 2. Capacity. The text of Section "2" of the Agreement ("Capacity") is hereby deleted in its entirety and replaced by the following: "(a) You shall be employed as an officer of FLIC, in the capacity of Chairman of the Board of Directors of FLIC. You also agree to serve as officer and Chairman of the Board of Directors of the Bank upon your election as such. You shall be proposed for election to the Boards of Directors of the Bank and FLIC at each annual meeting of shareholders of the Bank and of FLIC, respectively, at which you must stand for election in order to continue as a director. You shall report directly to the Boards of Directors of the Bank and FLIC. (b) Your responsibilities shall consist of the normal and customary duties of a board chairman and shall also include the following: (i) Advising and consulting with the Chief Executive Officer of the Bank and FLIC with regard to matters relating to the management of the Bank and FLIC; (ii) Advising and consulting with senior officers of the Bank with regard to strategic planning and initiatives; 22 Mr. J. William Johnson Page Two August 31, 2003 (iii) Advising and consulting with the Chief Financial Officer and other senior officers of the Bank and FLIC with regard to financial and investment matters; (iv) Managing all matters relating to legislative issues affecting the business of FLIC and the Bank; (v) Developing and enhancing customer relationships and good will. (c) You shall serve on such board committees of FLIC and the Bank as you deem appropriate, except for the Audit and Compensation and Stock Option Committees. You shall also chair such committees as you deem appropriate. (d) You agree to devote reasonable time to the faithful and diligent performance of your duties to FLIC and the Bank, it being understood that such duties will not require your full time and attention. You shall serve and further the best interests and enhance the reputation of FLIC and the Bank to the best of your ability." All other terms and conditions set forth in the Agreement, as heretofore amended, including, but not limited to, the term of the Agreement and renewal terms thereof, shall remain in full force and effect. This letter reflects the entire understanding with respect to the subject of modification of the Agreement. If the foregoing accurately sets forth our agreement, please so indicate by signing and returning the enclosed copy of this letter. Very truly yours, THE FIRST OF LONG ISLAND CORPORATION By: /s/ J. Douglas Maxwell, Jr. ------------------------------------ J. Douglas Maxwell Jr., Director Accepted and Agreed this 31st day of August, 2003 /s/ J. William Johnson - ------------------------- J. William Johnson 23 EX-31 4 d57350_ex-31.txt SECTION 302 CERTIFICATION BY CEO NAD CFO EXHIBIT 31 CERTIFICATIONS I, Michael N. Vittorio, certify that: 1. I have reviewed this Form 10-Q of The First of Long Island Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 4, 2003 By /s/ MICHAEL N. VITTORIO ----------------------- MICHAEL N. VITTORIO CHIEF EXECUTIVE OFFICER (principal executive officer) 24 I, Mark D. Curtis, certify that: 1. I have reviewed this Form 10-Q of The First of Long Island Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 4, 2003 By /s/ MARK D. CURTIS ------------------ MARK D. CURTIS SENIOR VICE PRESIDENT & TREASURER (principal financial and accounting officer) 25 EX-32 5 d57350_ex-32.txt SECTION 906 CERTIFICATION BY CEO NAD CFO EXHIBIT 32 CERTIFICATION The undersigned certify pursuant to 18 U.S.C. Section 1350, that: (1) The accompanying quarterly report on Form 10-Q for the period ended September 30, 2003, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the accompanying report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. Date: November 4, 2003 By /s/ MICHAEL N. VITTORIO - -------------------------- MICHAEL N. VITTORIO CHIEF EXECUTIVE OFFICER (principal executive officer) By /s/ MARK D. CURTIS - --------------------- MARK D. CURTIS SENIOR VICE PRESIDENT AND TREASURER (principal financial and accounting officer) 26 -----END PRIVACY-ENHANCED MESSAGE-----