The Corporation’s 1996 Plan permitted the granting of stock options, with or without stock appreciation rights attached, and stand alone stock appreciation rights to employees and non-employee directors for up to 1,080,000 shares of common stock. The number of stock options and stock appreciation rights that could have been granted under the 1996 Plan to any one person in any one fiscal year was limited to 50,000. Each option granted under the 1996 Plan was 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 under the 1996 Plan on or before December 31, 2000 became 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 under the 1996 Plan in January 2005 became exercisable in whole or in part commencing ninety days from the date of grant and ending ten years after the date of grant. By the terms of their grant, all other options under the 1996 Plan were granted with a three year vesting period and a ten year expiration date. However, vesting is subject to acceleration in the event of a change in control, retirement, death, disability, and certain other limited circumstances.
Expected volatility was based on historical volatility for the expected term of the options. The Corporation used historical data to estimate the expected term of options granted. The risk-free interest rate is the implied yield at the time of grant on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the options.
A summary of options outstanding under the Corporation’s Stock Compensation Plans as of December 31, 2007 and changes during the year then ended is presented below.
The total intrinsic value of options exercised in 2007, 2006, and 2005 was $371,000, $233,000 and $1,155,000, respectively. The total fair value of options vested during the years ended December 31, 2007, 2006, and 2005 was $251,000, $102,000 and $1,096,000, respectively.
Restricted Stock Activity. On January 18, 2007, the Corporation’s Board of Directors granted 18,871 RSUs under the 2006 Plan. The Corporation’s financial performance for 2009 will determine the number of shares of common stock, if any, into which the RSUs will ultimately be converted. The maximum number of shares that could be issued upon conversion of the RSUs is reflected as granted shares in the table that follows.
| | | | | | | |
| | Number of
Shares | | Weighted-
Average
Grant-Date
Fair Value | |
| |
| |
| |
Nonvested at January 1, 2007 | | | — | | $ | — | |
Granted | | | 28,306 | | | 21.06 | |
Vested | | | — | | | — | |
Forfeited | | | — | | | — | |
| |
|
| |
|
| |
Nonvested at December 31, 2007 | | | 28,306 | | $ | 21.06 | |
| |
|
| |
|
| |
Unrecognized Compensation Cost. As of December 31, 2007, there was $601,000 of total unrecognized compensation cost related to nonvested equity awards. The cost is expected to be recognized over a weighted-average period of 1.47 years.
Cash Received and Tax Benefits Realized. Cash received from option exercises in 2007, 2006, and 2005 was $694,000, $402,000 and $1,502,000, respectively. The actual tax benefit realized for the tax deductions from option exercises in 2007, 2006, and 2005 was $76,000, $17,000 and $220,000, respectively.
Other. No cash was used to settle stock options in 2007 or 2006. The Corporation uses newly issued shares to settle stock option exercises and currently plans to use newly issued shares upon the conversion of restricted stock units.
NOTE K – RETIREMENT PLANS
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. Based on a recent competitive review of the Bank’s overall retirement program versus that of its peers, the Compensation Committee of the Board of Directors (the “Compensation Committee”) decided to discontinue profit sharing contributions and increase 401(k) matching (Additional) contributions beginning in 2007. In determining an appropriate profit sharing contribution percentage for 2006 and prior years, the Compensation Committee considered the Bank’s actual performance against targeted earnings goals. 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, if any, made by the Bank. Additional contributions were $279,000, $179,000, and $166,000 for 2007, 2006, and 2005, respectively. Profit sharing contributions were $524,000 and $664,000 for 2006 and 2005, respectively.
The Bank’s Supplemental Executive Retirement Program (“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. SERP expense attributable to current service was $72,000, $113,000, and $196,000 in 2007, 2006, and 2005, respectively.
The Bank has a defined benefit pension plan (the “Pension Plan” or the “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. The Retirement System is overseen by a Board of Trustees (the “Trustees”) who meet quarterly and, among other things, set the investment policy guidelines. 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
64
various debt and equity securities, the major categories of which are set forth in the table that follows. The Pension Plan has a September 30 year-end and therefore the Company uses September 30 as the measurement date for this Plan. Starting in 2008, plan assets and obligations will be measured as of December 31 as required by Statement of Financial Accounting Standard No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132R.”
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 frozen actuarial liability actuarial cost 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).
Major Categories of Plan Assets. The following table sets forth the major categories of Plan assets as of the last two Plan year ends and the percentage of the total value of Plan assets accounted for by each.
| | | | | | | |
| | Percentage of Fair Value
of Total Plan Assets at: | |
| |
| |
| | 12/31/07 | | 12/31/06 | |
| |
| |
| |
Equity Securities | | | 58 | % | | 60 | % |
Debt Securities | | | 40 | | | 40 | |
All Other Assets | | | 2 | | | — | |
| |
|
| |
|
| |
| | | 100 | % | | 100 | % |
| |
|
| |
|
| |
The Retirement System uses two investment management firms, with one firm investing approximately 70% and the other firm investing approximately 30% of the total portfolio. The Retirement System investment objective is to exceed the investment benchmark in each asset category. Each firm operates under a separate written investment policy approved by the Trustees. The mix of equity and debt securities is determined from time to time by the Trustees based on a review of the Retirement System’s requirements.
The current target allocation percentage for equity securities is 60% but may vary from 50% to 70% based on the investment managers’ discretion. The equity portfolio includes, among other things, international securities and equities in a separately managed large cap core equity fund that is permitted to invest in a diversified range of securities in the US equity markets.
The current target allocation percentage for debt securities is 40% but may vary from 30% to 50% at the investment manager’s discretion. Fixed income investments include various debt securities included in a fixed income portfolio and a core bond fixed income fund. The fixed income portfolio operates with guidelines relating to types of debt securities, quality ratings, maturities, and single company and sector allocation limits. The portfolio investments in the core bond fixed income fund are limited to US Dollar denominated, fixed income securities and selective derivatives designed to have attributes similar to such fixed income securities.
Net Pension Cost. The following table sets forth the components of net periodic pension cost.
| | | | | | | | | | |
| | 2007 | | 2006 | | 2005 | |
| |
| |
| |
| |
| | (in thousands) | |
Service cost, net of plan participant contributions | | $ | 870 | | $ | 785 | | $ | 761 | |
Interest cost | | | 829 | | | 743 | | | 690 | |
Expected return on plan assets | | | (1,159 | ) | | (1,001 | ) | | (839 | ) |
Amortization of prior service cost | | | 20 | | | 20 | | | 20 | |
Amortization of net actuarial loss | | | — | | | 27 | | | 58 | |
| |
|
| |
|
| |
|
| |
Net pension cost | | $ | 560 | | $ | 574 | | $ | 690 | |
| |
|
| |
|
| |
|
| |
It is estimated that $20,000 of prior service costs and no net loss will be amortized for the defined benefit pension plan from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year.
65
Significant Actuarial Assumptions. The following tables set forth the significant actuarial assumptions used to determine the benefit obligation as of September 30, 2007, 2006, and 2005 and the benefit cost for each of the Plan years then ended.
| | | | | | | | | | | | | | | | |
Weighted average assumptions used to determine the benefit obligation at September 30 | | 2007 | | 2006 | | 2005 | |
| |
| |
| |
| |
Discount rate | | | | 5.75 | % | | | | 5.75 | % | | | | 5.50 | % | |
Rate of increase in compensation levels | | | | 5.00 | % | | | | 5.00 | % | | | | 5.00 | % | |
Expected long-term rate of return on plan assets | | | | 7.00 | % | | | | 7.00 | % | | | | 7.00 | % | |
| | | | | | | | | | | | | | | | |
Weighted average assumptions used to determine pension cost for the year ended September 30 | | 2007 | | 2006 | | 2005 | |
| |
| |
| |
| |
Discount rate | | | | 5.75 | % | | | | 5.50 | % | | | | 5.75 | % | |
Rate of increase in compensation levels | | | | 5.00 | % | | | | 5.00 | % | | | | 5.00 | % | |
Expected long-term rate of return on plan assets | | | | 7.00 | % | | | | 7.00 | % | | | | 7.00 | % | |
The expected long-term rate-of-return on plan assets reflects long-term earnings expectations on the total assets currently in the Retirement System and contributions expected to be received by the Retirement System during the current plan year. In estimating the rate, appropriate consideration is given to historical returns earned by the Retirement System assets and the rates of return expected to be available for reinvestment. Average rates of return over the past 1, 3, 5 and 10 year periods were determined and subsequently adjusted to reflect current capital market assumptions and changes in investment allocations.
Funded Status of The Plan. The following table sets forth the change in the projected benefit obligation and Plan assets for each Plan year and, as of the end of each Plan year, the funded status of the Plan, net amount recognized, and accumulated benefit obligation.
| | | | | | | | | | |
| | Year Ended September 30, | |
| |
| |
| | 2007 | | 2006 | | 2005 | |
| |
| |
| |
| |
Change in projected benefit obligation | | (in thousands) | |
Projected benefit obligation at beginning of year | | $ | 14,727 | | $ | 13,794 | | $ | 12,197 | |
Service cost before plan participant contributions | | | 1,053 | | | 941 | | | 933 | |
Plan participant contributions | | | (183 | ) | | (156 | ) | | (172 | ) |
Expenses | | | (146 | ) | | (105 | ) | | (92 | ) |
Interest cost | | | 829 | | | 743 | | | 690 | |
Benefits paid | | | (503 | ) | | (577 | ) | | (411 | ) |
Assumption changes and other | | | 362 | | | 87 | | | 649 | |
| |
|
| |
|
| |
|
| |
Projected benefit obligation at end of year | | | 16,139 | | | 14,727 | | | 13,794 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Change in plan assets | | | | | | | | | | |
Fair value of plan assets at beginning of year | | | 16,772 | | | 14,501 | | | 12,108 | |
Actual return on plan assets | | | 2,558 | | | 1,710 | | | 1,441 | |
Employer contributions | | | 1,000 | | | 1,087 | | | 1,284 | |
Plan participant contributions | | | 183 | | | 156 | | | 171 | |
Benefits paid | | | (503 | ) | | (577 | ) | | (411 | ) |
Expenses | | | (146 | ) | | (105 | ) | | (92 | ) |
| |
|
| |
|
| |
|
| |
Fair value of plan assets at end of year | | | 19,864 | | | 16,772 | | | 14,501 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Funded status | | | 3,725 | | | 2,045 | | | 707 | |
Unrecognized net actuarial loss | | | — | | | — | | | 1,807 | |
Unrecognized prior service cost | | | — | | | — | | | 196 | |
| |
|
| |
|
| |
|
| |
Net amount recognized | | $ | 3,725 | | $ | 2,045 | | $ | 2,710 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Accumulated Benefit Obligation | | $ | 12,944 | | $ | 11,779 | | $ | 11,165 | |
| |
|
| |
|
| |
|
| |
The net amounts recognized in the balance sheet as of December 31, 2007 and 2006 differ from the amounts presented in the above table due to an accrual of three additional months of pension expense. The Bank has no minimum required contribution to the Pension Plan for the Plan year ending September 30, 2008, and its maximum tax deductible
66
contribution is approximately $2,427,000. The Bank expects to make a contribution within that range by September 30, 2008, but the amount of such contribution has not yet been determined.
The net actuarial gain (loss) and prior service cost included in accumulated other comprehensive income as of December 31 consist of the following:
| | | | | | | | | |
| | | 2007 | | 2006 | | |
| | |
| |
| | |
| | | (in thousands) | | |
| Net actuarial gain (loss) | | $ | 219 | | $ | (1,001 | ) | |
| Prior service cost | | | (157 | ) | | (177 | ) | |
| | |
|
| |
|
| | |
| | | $ | 62 | | $ | (1,178 | ) | |
| | |
|
| |
|
| | |
| | | | | | | | | |
Estimated Future Benefit Payments. The following benefit payments, which reflect expected future service, as appropriate, are expected to be made by the Plan.
| | | | | | |
| Year | | Amount | | |
|
| |
| | |
| | | (in thousands) | | |
| 2008 | | $ | 636 | | |
| 2009 | | | 664 | | |
| 2010 | | | 688 | | |
| 2011 | | | 695 | | |
| 2012 | | | 739 | | |
| 2013-2017 | | | 5,432 | | |
NOTE L – OTHER OPERATING EXPENSES
Expenses included in other operating expenses which exceed one percent of the aggregate of total interest income and noninterest income in one or more of the years shown are as follows:
| | | | | | | | | | | | |
| | | 2007 | | 2006 | | 2005 | | |
| | |
| |
| |
| | |
| | | (in thousands) | | |
| Computer services | | $ | 1,171 | | $ | 1,102 | | $ | 840 | | |
| Property and liability insurance | | | 492 | | | 633 | | | 738 | | |
| Marketing | | | 490 | | | 434 | | | 492 | | |
NOTE M – 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 to extend credit and generally uses the same credit policies for letters of credit as it does for on-balance-sheet instruments. At December 31, financial instruments whose contract amounts represent credit risk are as follows:
| | | | | | | | | | | | | | | |
| | | 2007 | | 2006 | | |
| | |
| |
| | |
| | | Fixed
Rate | | Variable
Rate | | Fixed
Rate | | Variable
Rate | | |
| | |
| |
| |
| |
| | |
| | | (in thousands) | | |
| Commitments to extend credit | | $ | 6,461 | | $ | 70,563 | | $ | 7,194 | | $ | 70,995 | | |
| Standby letters of credit | | | 5,375 | | | — | | | 3,256 | | | — | | |
| Commercial letters of credit | | | 382 | | | — | | | 557 | | | — | | |
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. Since some of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Unused home equity lines,
67
which comprise a substantial portion of the variable rate commitments, generally expire ten years from their date of origination. Other real estate loan commitments generally expire within 60 days and commercial loan commitments generally expire within one year. The fixed rate loan commitments shown in the table are to make loans with interest rates ranging from 5.50% to 6.50% and maturities ranging from 9 years to 30 years. 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 mortgages on commercial and residential real estate, security interests in business assets, 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 31, 2008. However, most are effectively automatically renewable by the beneficiary. 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, 2007 varied from 0% to 100%, and averaged 61%. Standby letters of credit are considered financial guarantees and are recorded at fair value.
Commercial letters of credit are conditional commitments issued by the Bank to assure the payment by a customer to a supplier. 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. There is only one commercial letter of credit outstanding as of December 31, 2007. It matures June 2008 and is fully collateralized by a certificate of deposit.
Concentrations of Credit Risk. Most of the Bank’s loans, personal and commercial, are to borrowers who are domiciled on Long Island and in New York City, and most of the Bank’s real estate loans involve mortgages on Long Island and New York City properties. As a result, the income of many of the Bank’s borrowers and the value of the collateral securing a majority of the Bank’s mortgage loans is dependent on the Long Island economy.
Lease Commitments. At December 31, 2007, minimum annual rental commitments under noncancelable operating leases are as follows:
| | | | |
Year | | Amount | |
| |
| |
| | | (in thousands) | |
2008 | | $ | 1,087 | |
2009 | | | 1,125 | |
2010 | | | 1,092 | |
2011 | | | 1,035 | |
2012 | | | 1,004 | |
Thereafter | | | 4,299 | |
| |
|
| |
| | $ | 9,642 | |
| |
|
| |
The Bank has various renewal options on the above leases. Rent expense was $1,006,000, $896,000, and $765,000 in 2007, 2006, and 2005, respectively.
Employment Contracts. Currently, all of the Bank’s executive officers have employment contracts with the Corporation under which they are entitled to severance compensation in the event of an involuntary termination of employment or resignation of employment following a change in control. The terms of these contracts currently range from one to three years and, unless the Corporation gives written notice of non-extension within the time frames set forth in the contracts, are automatically extended at the expiration of each year for an additional period of one year, thus resulting in new terms of between one and three years. The current aggregate annual salaries provided for in these contracts is approximately $1,791,000.
68
NOTE N – 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, 2007 and 2006.
| | | | | | | | | | | | | |
| | 2007 | | 2006 | |
| |
| |
| |
| | Carrying/
Contract
Amount | | Fair Value | | Carrying/
Contract
Amount | | Fair Value | |
| |
| |
| |
| |
| |
| | (in thousands) | |
Financial Assets: | | | | | | | | | | | | | |
Cash and due from banks | | $ | 25,729 | | $ | 25,729 | | $ | 23,790 | | $ | 23,790 | |
Federal funds sold and overnight investments | | | 21,768 | | | 21,768 | | | — | | | — | |
Held-to-maturity securities | | | 193,234 | | | 193,890 | | | 218,330 | | | 216,845 | |
Available-for-sale securities | | | 273,080 | | | 273,080 | | | 236,521 | | | 236,521 | |
Loans | | | 521,086 | | | 528,482 | | | 445,574 | | | 444,338 | |
Restricted stocks (included in other assets) | | | 1,652 | | | 1,652 | | | 1,587 | | | 1,587 | |
Accrued interest receivable | | | 5,472 | | | 5,472 | | | 5,304 | | | 5,304 | |
| | | | | | | | | | | | | |
Financial Liabilities: | | | | | | | | | | | | | |
Checking deposits | | | 318,322 | | | 318,322 | | | 321,524 | | | 321,524 | |
Savings and money market deposits | | | 302,158 | | | 302,158 | | | 318,494 | | | 318,494 | |
Time deposits | | | 248,558 | | | 248,867 | | | 184,779 | | | 184,726 | |
Securities sold under repurchase agreements | | | 92,110 | | | 94,647 | | | 28,143 | | | 28,143 | |
Accrued interest payable | | | 1,466 | | | 1,466 | | | 787 | | | 787 | |
NOTE O – 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, | |
| |
| |
| | 2007 | | 2006 | |
| |
| |
| |
| | (in thousands) | |
Assets: | | | | | | | |
Cash and due from banks | | $ | 2,775 | | $ | 2,925 | |
Investment in subsidiary bank, at equity | | | 100,317 | | | 94,556 | |
Prepaid income taxes | | | 160 | | | 99 | |
Deferred income tax benefits | | | 255 | | | 68 | |
Other assets | | | 2 | | | — | |
| |
|
| |
|
| |
| | $ | 103,509 | | $ | 97,648 | |
| |
|
| |
|
| |
Liabilities: | | | | | | | |
Cash dividends payable | | $ | 1,125 | | $ | 2,087 | |
| |
|
| |
|
| |
Stockholders’ equity: | | | | | | | |
Common stock | | | 745 | | | 379 | |
Surplus | | | 96 | | | 525 | |
Retained earnings | | | 99,844 | | | 95,122 | |
| |
|
| |
|
| |
| | | 100,685 | | | 96,026 | |
Accumulated other comprehensive income (loss) net of tax | | | 1,699 | | | (465 | ) |
| |
|
| |
|
| |
| | | 102,384 | | | 95,561 | |
| |
|
| |
|
| |
| | $ | 103,509 | | $ | 97,648 | |
| |
|
| |
|
| |
69
| | | | | | | | | | |
CONDENSED STATEMENTS OF INCOME
| | Year ended December 31, | |
| |
| |
| | 2007 | | 2006 | | 2005 | |
| |
| |
| |
| |
| | (in thousands) | |
Income: | | | | | | | | | | |
Dividends from subsidiary bank | | $ | 8,300 | | $ | 5,590 | | $ | 10,700 | |
Interest on deposits with subsidiary bank | | | 118 | | | 26 | | | 12 | |
Other | | | 5 | | | 3 | | | 2 | |
| |
|
| |
|
| |
|
| |
| | | 8,423 | | | 5,619 | | | 10,714 | |
| |
|
| |
|
| |
|
| |
Expenses: | | | | | | | | | | |
Stock-based compensation expense | | | 506 | | | 210 | | | — | |
Other operating expenses | | | 303 | | | 236 | | | 200 | |
| |
|
| |
|
| |
|
| |
| | | 809 | | | 446 | | | 200 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
Income before income taxes | | | 7,614 | | | 5,173 | | | 10,514 | |
Income tax benefit | | | (271 | ) | | (151 | ) | | (74 | ) |
| |
|
| |
|
| |
|
| |
Income before undistributed earnings of subsidiary bank | | | 7,885 | | | 5,324 | | | 10,588 | |
Equity in undistributed earnings | | | 3,597 | | | 5,903 | | | 1,689 | |
| |
|
| |
|
| |
|
| |
Net income | | $ | 11,482 | | $ | 11,227 | | $ | 12,277 | |
| |
|
| |
|
| |
|
| |
| | | | | | | | | | |
CONDENSED STATEMENTS OF CASH FLOWS
| | Year ended December 31, | |
| |
| |
| | 2007 | | 2006 | | 2005 | |
| |
| |
| |
| |
| | (in thousands) | |
Cash Flows From Operating Activities: | | | | | | | | | | |
Net income | | $ | 11,482 | | $ | 11,227 | | $ | 12,277 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | |
Undistributed earnings of subsidiary bank | | | (3,597 | ) | | (5,903 | ) | | (1,689 | ) |
Deferred income tax credit | | | (187 | ) | | (68 | ) | | — | |
Stock-based compensation expense | | | 506 | | | 210 | | | — | |
Decrease (increase) in prepaid income taxes | | | (61 | ) | | 196 | | | 79 | |
Increase in other assets | | | (2 | ) | | — | | | — | |
| |
|
| |
|
| |
|
| |
Net cash provided by operating activities | | | 8,141 | | | 5,662 | | | 10,667 | |
| |
|
| |
|
| |
|
| |
Cash Flows From Financing Activities: | | | | | | | | | | |
Repurchase and retirement of common stock | | | (3,719 | ) | | (2,927 | ) | | (8,052 | ) |
Proceeds from exercise of stock options | | | 694 | | | 402 | | | 1,502 | |
Tax benefit of stock options | | | 76 | | | 17 | | | — | |
Cash dividends paid | | | (5,342 | ) | | (3,450 | ) | | (3,315 | ) |
| |
|
| |
|
| |
|
| |
Net cash used in financing activities | | | (8,291 | ) | | (5,958 | ) | | (9,865 | ) |
| |
|
| |
|
| |
|
| |
Net increase (decrease) in cash and cash equivalents* | | | (150 | ) | | (296 | ) | | 802 | |
Cash and cash equivalents, beginning of year | | | 2,925 | | | 3,221 | | | 2,419 | |
| |
|
| |
|
| |
|
| |
Cash and cash equivalents, end of year | | $ | 2,775 | | $ | 2,925 | | $ | 3,221 | |
| |
|
| |
|
| |
|
| |
Supplemental Schedule of Noncash Financing Activities: | | | | | | | | | | |
Cash dividends payable | | $ | 1,125 | | $ | 2,087 | | $ | 1,731 | |
* Cash and cash equivalents is defined as cash and due from banks and includes the checking and money market accounts with the Corporation’s wholly-owned bank subsidiary.
70
NOTE P – QUARTERLY FINANCIAL DATA (Unaudited)
| | | | | | | | | | | | | | | | |
| | First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter | | Total | |
| |
| |
| |
| |
| |
| |
| | (in thousands, except per share data) | |
2007 | | | | | | | | | | | | | | | | |
Interest income | | $ | 12,647 | | $ | 12,846 | | $ | 13,298 | | $ | 14,232 | | $ | 53,023 | |
Interest expense | | | 3,849 | | | 3,758 | | | 4,069 | | | 4,593 | | | 16,269 | |
Net interest income | | | 8,798 | | | 9,088 | | | 9,229 | | | 9,639 | | | 36,754 | |
Provision for loan losses | | | 122 | | | 81 | | | 173 | | | 199 | | | 575 | |
Noninterest income before net securities gains (losses) | | | 1,442 | | | 1,461 | | | 1,454 | | | 1,459 | | | 5,816 | |
Net gains (losses) on sales of securities | | | 17 | | | — | | | — | | | (251 | ) | | (234 | ) |
Noninterest expense | | | 6,921 | | | 6,912 | | | 6,792 | | | 6,759 | | | 27,384 | |
Income before income taxes | | | 3,214 | | | 3,556 | | | 3,718 | | | 3,889 | | | 14,377 | |
Income taxes | | | 586 | | | 716 | | | 742 | | | 851 | | | 2,895 | |
Net income | | | 2,628 | | | 2,840 | | | 2,976 | | | 3,038 | | | 11,482 | |
Earnings per share: | | | | | | | | | | | | | | | | |
Basic | | | .35 | | | .37 | | | .40 | | | .40 | | | 1.52 | |
Diluted | | | .34 | | | .37 | | | .39 | | | .40 | | | 1.51 | |
Comprehensive income | | | 2,835 | | | 1,470 | | | 4,355 | | | 4,241 | | | 12,901 | |
| | | | | | | | | | | | | | | | |
2006 | | | | | | | | | | | | | | | | |
Interest income | | $ | 11,447 | | $ | 12,195 | | $ | 12,642 | | $ | 12,716 | | $ | 49,000 | |
Interest expense | | | 2,651 | | | 3,126 | | | 3,500 | | | 3,672 | | | 12,949 | |
Net interest income | | | 8,796 | | | 9,069 | | | 9,142 | | | 9,044 | | | 36,051 | |
Provision for loan losses | | | 236 | | | 149 | | | 89 | | | 196 | | | 670 | |
Noninterest income before net securities losses | | | 1,585 | | | 1,438 | | | 1,475 | | | 1,435 | | | 5,933 | |
Net losses on sales of securities | | | — | | | (30 | ) | | — | | | (605 | ) | | (635 | ) |
Noninterest expense | | | 6,512 | | | 6,759 | | | 6,996 | | | 6,400 | | | 26,667 | |
Income before income taxes | | | 3,633 | | | 3,569 | | | 3,532 | | | 3,278 | | | 14,012 | |
Income taxes | | | 826 | | | 775 | | | 653 | | | 531 | | | 2,785 | |
Net income | | | 2,807 | | | 2,794 | | | 2,879 | | | 2,747 | | | 11,227 | |
Earnings per share: | | | | | | | | | | | | | | | | |
Basic | | | .37 | | | .36 | | | .38 | | | .36 | | | 1.47 | |
Diluted | | | .36 | | | .36 | | | .37 | | | .36 | | | 1.45 | |
Comprehensive income | | | 1,791 | | | 1,995 | | | 4,904 | | | 2,984 | | | 11,674 | |
71
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
The First of Long Island Corporation
Glen Head, New York
We have audited the accompanying consolidated balance sheets of The First of Long Island Corporation as of December 31, 2007 and 2006, and the related statements of income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2007. We also have audited The First of Long Island Corporation’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The First of Long Island Corporation’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The First of Long Island Corporation as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. In our opinion, The First of Long Island Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
| |
| /s/Crowe Chizek and Company LLC |
|
|
| Crowe Chizek and Company LLC |
| |
Livingston, New Jersey | |
February 29, 2008 | |
72
|
Officers |
The First of Long Island Corporation |
|
Michael N. Vittorio |
President & Chief Executive Officer |
|
Sallyanne K. Ballweg |
Senior Vice President |
|
Mark D. Curtis |
Senior Vice President & Treasurer |
|
John Grasso |
Senior Vice President |
|
Brian J. Keeney |
Senior Vice President |
|
Richard Kick |
Senior Vice President |
|
Donald L. Manfredonia |
Senior Vice President |
|
Joseph G. Perri |
Senior Vice President & Secretary |
|
Wayne B. Drake |
Assistant Treasurer |
|
Kitty W. Craig |
Chief Auditor |
|
Official Staff |
The First National Bank of Long Island |
|
ADMINISTRATION |
|
Michael N. Vittorio |
President & Chief Executive Officer |
|
Sallyanne K. Ballweg |
Senior Executive Vice President |
|
AUDITING |
|
Kitty W. Craig |
Vice President & Chief Auditor |
|
BRANCH ADMINISTRATION |
|
John Grasso |
Executive Vice President |
|
James Clavell |
Senior Vice President |
|
Richard P. Perro |
Vice President |
|
COMMERCIAL BANKING |
|
Joseph G. Perri |
Executive Vice President |
73
|
Daniel B. Casey |
Vice President |
|
Patricia A. DeMasi |
Vice President |
|
Albert T. Ghelarducci |
Vice President |
|
Dolly S. Hershman |
Vice President |
|
Robert A. Pizza |
Vice President |
|
Alessandro Scichilone |
Vice President |
|
NASSAU COUNTY REGIONAL OFFICE |
(Commercial Banking) |
|
Kim M. Carbone |
Senior Vice President |
|
Deborah A. Cassidy |
Vice President |
|
Dante D. Mancini |
Vice President |
|
Jane F. Reed |
Vice President |
|
SUFFOLK COUNTY REGIONAL OFFICE |
(Commercial Banking) |
|
James P. Johnis |
Senior Vice President |
|
Margaret M. Curran-Rusch |
Vice President |
|
Stephen Durso |
Vice President |
|
Richard B. Smith |
Vice President |
|
COMMERCIAL LENDING |
|
Donald L. Manfredonia |
Executive Vice President |
|
Paul J. Daley |
Senior Vice President |
|
Albert Arena |
Vice President |
|
John J. Reilly |
Vice President |
74
|
Kevin J. Talty |
Vice President |
|
COMPLIANCE AND PROCEDURES |
|
Louis A. Antoniello |
Vice President |
|
CREDIT DEPARTMENT |
|
Anne Marie Stefanucci |
Vice President |
|
DATA PROCESSING |
|
Jose Diaz |
Vice President |
|
DEPOSIT OPERATIONS |
|
Carmela Lalonde |
Assistant Cashier |
|
FINANCE |
|
Mark D. Curtis |
Executive Vice President |
|
Wayne B. Drake |
Senior Vice President & Senior Investment Officer |
|
Howard F. Hoeberlein |
Senior Vice President & Controller |
|
Matthew J. Mankowski |
Vice President |
|
GENERAL SERVICES |
|
Daniel Sapanara |
Assistant Vice President |
|
HUMAN RESOURCES |
|
Debbie L. Ryan |
Senior Vice President |
|
Susan J. Hempton |
Vice President |
|
INFORMATION TECHNOLOGY SERVICES |
|
Conrad Lissade |
Assistant Vice President |
|
INVESTMENT MANAGEMENT DIVISION |
|
Brian J. Keeney |
Executive Vice President |
|
Josephine Buckley |
Vice President & Trust Officer |
|
Jane Carmody |
Vice President |
75
|
Sharon E. Pazienza |
Vice President & Trust Officer |
|
LOAN CENTER |
|
Robert B. Jacobs |
Vice President |
|
Frederick T. Hughes |
Vice President |
|
MARKETING |
|
Laura C. Ierulli |
Vice President & Director |
|
OPERATIONS ADMINISTRATION |
|
Richard Kick |
Executive Vice President |
|
Betsy Gustafson |
Senior Vice President |
|
COUNSEL |
Schupbach, Williams & Pavone LLP |
|
INDEPENDENT AUDITORS |
Crowe Chizek and Company LLC |
|
ANNUAL REPORT ON FORM 10-K
|
A copy of the Corporation’s annual report on Form 10-K for 2007, 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. |
|
EXECUTIVE OFFICE
|
The First of Long Island Corporation |
10 Glen Head Road |
Glen Head, New York 11545 |
(516) 671-4900 |
www.fnbli.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 Westbury Manor, 1100 Jericho Turnpike, Westbury, N.Y. on Monday, April 21, 2008 at 3:30 P.M. |
76
|
Business Advisory Board |
|
[PHOTO OMITTED] |
Howard Annenberg |
President & CEO |
Shannen Promotions, Inc. |
|
[PHOTO OMITTED] |
Nicola Arena |
Chairman & CEO |
Mediterranean Shipping Co. (USA), Inc. |
|
[PHOTO OMITTED] |
Richard Arote Sr. |
President |
A.D.E. Systems, Inc./Air Distribution Enterprises, Inc. |
|
[PHOTO OMITTED] |
Beverly J. Bell, Esq. |
Humes & Wagner, LLP |
|
[PHOTO OMITTED] |
Thomas Burke |
Chief Executive Officer |
Ophthalmic Consultants of Long Island |
|
[PHOTO OMITTED] |
Emil V. Cianciulli, Esq. |
Partner |
Cianciulli, Meng & Panos, P.C. |
|
[PHOTO OMITTED] |
Michael DeVivo |
Vice President |
MRZ Trucking Corp. |
|
[PHOTO OMITTED] |
Thomas N. Dufek, CPA |
President |
Dufek & Associates |
|
[PHOTO OMITTED] |
Bernard Esquenet |
Chief Executive Officer |
The Ruhof Corp. |
|
[PHOTO OMITTED] |
Robert Giambalvo, CPA |
President |
Giambalvo, Giammarese & Stalzer, CPAs, P.C. |
|
[PHOTO OMITTED] |
Kevin J. Harding, Esq. |
Partner |
Harding and Harding |
|
[PHOTO OMITTED] |
Herbert Kotler, Esq. |
77
|
[PHOTO OMITTED] |
Melvin F. Lazar, CPA |
Founder |
Lazar Levine & Felix LLP |
|
[PHOTO OMITTED] |
Wallace Leinheardt, Esq. |
Jaspan Schlesinger Hoffman LLP |
|
[PHOTO OMITTED] |
Linda Levy, CPA |
Tax Consultant |
|
[PHOTO OMITTED] |
James Lynch, Esq. |
|
[PHOTO OMITTED] |
John I. Martinelli |
Principal |
Owen Petersen & Co., LLP |
|
[PHOTO OMITTED] |
Susan Hirschfeld Mohr |
President |
J. W. Hirschfeld Agency, Inc. |
|
[PHOTO OMITTED] |
Richard E. Nussbaum, CPA |
Nussbaum Yates Berg Klein & Wolpow, LLP |
|
[PHOTO OMITTED] |
James Panos, Esq. |
Partner |
Cianciulli, Meng & Panos, P.C. |
|
[PHOTO OMITTED] |
Jay Pitti |
President |
Merrick House & Gardens |
|
[PHOTO OMITTED] |
Stephen Ruchman |
Ruchman Associates |
|
[PHOTO OMITTED] |
Scott Sammis |
President |
USI Sammis, Inc. |
|
[PHOTO OMITTED] |
Melvin Schreiber, CPA |
Moses & Schreiber |
|
[PHOTO OMITTED] |
Arthur C. Schupbach, Esq. |
Partner |
Schupbach, Williams & Pavone, LLP |
78
|
[PHOTO OMITTED] |
Shaw Shahery |
President & CEO |
Convermat Corporation |
|
[PHOTO OMITTED] |
J. Stanley Shaw |
Senior Member |
Shaw, Licitra, Gulotta, Esernio & Henry, P.C. |
|
[PHOTO OMITTED] |
H. Craig Treiber |
Chairman & CEO |
The Treiber Insurance Group |
|
[PHOTO OMITTED] |
Sal Turano |
President |
Abstracts Incorporated |
|
[PHOTO OMITTED] |
Arthur Ventura |
President |
Badge Agency, Inc. |
|
[PHOTO OMITTED] |
George J. Walsh, Esq. |
Thompson Hine LLP |
|
[PHOTO OMITTED] |
Robert A. Wilkie, Esq. |
Wilkie & Wilkie |
|
[PHOTO OMITTED] |
Mark Wurzel |
President |
Calico Cottage, Inc. |
|
Photos not available: |
|
Christopher T. McGrath, Esq. |
Partner |
Sullivan, Papain, Block, McGrath & Cannavo, P.C. |
|
John G. Passarelli, M.D., F.A.A.O. |
Medical Director |
Long Island Eye Surgery Center |
Long Island Eye Surgical Care, P.C. |
|
Owen T. Smith |
Milleridge Inn |
Former Chief Deputy County Executive of Nassau County |
|
The First National Bank of Long Island |
Where Everyone Knows Your Name |
|
Long Island (516) 671-4900 |
Manhattan (212) 566-1500 |
www.fnbli.com |
79
