EXHIBIT 13 - REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1996
SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the last five
years.
Year Ended December 31,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
INCOME STATEMENT SUMMARY:
Total Interest Income $ 28,585,965 $ 28,017,478 $ 24,860,866 $ 23,997,016 $ 25,096,841
Total Interest Expense 8,491,955 8,898,700 6,174,676 5,868,266 7,881,478
------------ ------------ ------------ ------------ ------------
Net Interest Income 20,094,010 19,118,778 18,686,190 18,128,750 17,215,363
Provision for Loan Losses -- -- -- 175,000 600,000
Income Before Cumulative Effect
of Accounting Change 6,891,340 6,208,492 6,027,648 5,547,941 4,955,156
Net Income 6,891,340 6,208,492 6,027,648 6,197,941 4,955,156
PER SHARE DATA: (Note 1)
Income Before Cumulative Effect
of Accounting Change $ 3.23 $ 2.91 $ 2.83 $ 2.59 $ 2.33
Cumulative Effect of Accounting
Change -- -- -- .30 --
Net Income 3.23 2.91 2.83 2.89 2.33
Cash Dividends Declared .64 .56 .51 .46 .42
STOCK DIVIDENDS DECLARED
(Note 1) -- 50% -- -- --
BALANCE SHEET ITEMS AT PERIOD END:
Total Assets $440,895,348 $425,654,548 $396,054,889 $381,160,535 $366,809,476
Total Loans 153,522,136 146,670,041 144,472,344 136,989,446 131,089,659
Allowance for Loan Losses 3,600,366 3,600,030 3,600,162 3,589,639 3,502,518
Total Deposits 384,361,036 373,954,707 351,526,475 339,873,630 331,013,323
Stockholders' Equity (Note 2) 54,168,925 49,340,664 42,607,605 39,402,925 34,447,298
AVERAGE BALANCE SHEET ITEMS:
Total Assets $436,659,000 $411,717,000 $390,543,000 $375,171,000 $355,372,000
Total Loans 150,090,000 143,677,000 141,399,000 132,480,000 126,048,000
Allowance for Loan Losses 3,606,000 3,607,000 3,602,000 3,554,000 3,242,000
Total Deposits 383,091,000 363,676,000 347,674,000 336,289,000 321,303,000
Stockholders' Equity (Note 2) 51,229,000 45,908,000 41,005,000 37,078,000 32,526,000
FINANCIAL RATIOS:
Return on Average Total Assets
Before Cumulative Effect
of Accounting Change 1.58% 1.51% 1.54% 1.48% 1.39%
Return on Average Total Assets 1.58 1.51 1.54 1.65 1.39
Return on Average Stockholders'
Equity Before Cumulative Effect
of Accounting Change (Note 2) 13.45 13.52 14.70 15.16 15.23
Return on Average
Stockholders' Equity (Note 2) 13.45 13.52 14.70 16.72 15.23
Average Equity to Average Assets 11.73 11.15 10.50 9.88 9.15
Book Value (Notes 1, 3) $ 25.93 $ 23.54 $ 20.28 $ 18.67 $ 16.31
<FN>
Note 1--Per share and book value amounts have been adjusted to reflect
stock dividend declared in 1995.
Note 2--Includes unrealized appreciation/depreciation on investment
securities available for sale in 1996, 1995 and 1994.
Note 3--Book value represents stockholders' equity divided by shares
outstanding at end of period.
</FN>
STOCK PRICES
Shares of the Corporation's Common Stock are traded in the over-the-counter
market and are quoted in the NASDAQ System. The high and low bid prices as
quoted for the years ended December 31, 1996 and 1995 were:
1996 1995
Quarter High Low High Low
---------- ------ ------ ------ ---
First 30 1/2 28 1/2 28 1/4 25
Second 33 7/8 30 1/4 28 1/4 28
Third 33 1/2 33 1/4 28 3/4 28
Fourth 33 1/2 33 1/2 29 28 1/2
At December 31, 1996, there were 791 stockholders of record of the
Corporation's Common Stock (the number of stockholders of record includes banks
and brokers who act as nominees, each of whom may represent more than one
stockholder). All prices have been adjusted to reflect a 3 for 2 stock split
declared in 1995 and paid by means of a 50% stock dividend.
CONTENTS
Selected Financial Data .................................................................... (i)
Letter to Shareholders ..................................................................... 2
Management's Discussion and Analysis of Financial Condition and Results of Operations ...... 4
Management's Responsibility for Financial Reporting ........................................ 12
Consolidated Financial Statements and Notes ................................................ 14
Report of Independent Public Accountants ................................................... 33
Directors--The First of Long Island Corporation, The First National Bank of Long Island .... 34
Officers--The First of Long Island Corporation, The First National Bank of Long Island ..... 35
BUSINESS OF THE CORPORATION
The First of Long Island Corporation ("Corporation") is a one-bank holding
company organized under the laws of the State of New York. Its primary business
is the operation of its sole subsidiary, The First National Bank of Long Island
("Bank").
The Bank was organized in 1927 under national banking laws and became the
sole subsidiary of the Corporation under a plan of reorganization effected April
30, 1984.
The Bank is a full service commercial bank which provides a broad range of
financial services to individual, professional, corporate, institutional, and
government customers through its fifteen branch system on Long Island.
The First of Long Island Agency, Inc. was organized in 1994 under the laws of
the State of New York, as a subsidiary of the Bank to conduct business as a
licensed insurance agency engaged in the sale of insurance, primarily fixed
annuity products.
The Bank is subject to regulation and supervision of the Federal Reserve
Board, the Comptroller of the Currency, and the Federal Deposit Insurance
Corporation which also insures its deposits. The Comptroller of the Currency is
the primary banking agency responsible for regulating the subsidiary Bank. In
addition, the Corporation is subject to the regulations and supervision of the
Federal Reserve Board and the Securities and Exchange Commission.
ANNUAL MEETING NOTICE
The Annual Meeting of the stockholders will be held at the Old Brookville office
of The First National Bank of Long Island, 209 Glen Head Road, Glen Head, New
York 11545 on Tuesday, April 15, 1997 at 3:30 P.M.
Executive Office
The First of Long Island Corporation
10 Glen Head Road
Glen Head, New York 11545
(516) 671-4900
Transfer Agent and Registrar
The First National Bank of Long Island
10 Glen Head Road
Glen Head, New York 11545
(516) 671-4900
[Photo]
Alex Nichols
President & CEO
Alex Nichols Agency
Airline Container Leasing, Inc.
"The First National Bank of Long Island assisted and guided me in the
growth of my businesses. Little did I realize back in the early 1960's, when I
opened my first business account, how my relationship with the Bank would grow.
In 1989, I expanded my business from horse transportation to providing
equipment for the air cargo industry, which developed into four rapidly
growing companies.
Most impressive to me is the personal attention provided by everyone
within the Bank. It is refreshing to always be greeted in a warm, pleasant,
helpful atmosphere."
TO OUR SHAREHOLDERS
The First of Long Island experienced a good year in 1996. Earnings per
share increased 11% to $3.23. This is compared to $2.91 per share that was
recorded in 1995. Net income for 1996 was $6,891,300 versus $6,208,500 in 1995.
Cash dividends were up significantly as 34 cents was paid in January 1997, an
increase of 16% over the amount paid in January of the prior year. Overall cash
dividends declared in 1996 were 64 cents per share, up 14% from the prior year.
This is the 18th consecutive year that cash dividends have increased.
We are pleased by the results of this past year. As we reported in our
quarterly messages, the three most important reasons for the increase were the
growth in checking balances, the near absence of FDIC insurance premiums and a
significant increase in service charge income. The solicitation of commercial
checking accounts is our foremost marketing strategy. Although we are pleased
with the results of our solicitation efforts, the growth in checking deposits
was less
EARNINGS PER SHARE
[Bar Graph]
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993* 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
.34 .37 .46 .58 .86 1.31 1.53 1.64 1.87 1.93 2.05 1.94 2.33 2.59 2.83 2.91 3.23
(Adjusted for 50% stock dividend declared 12/95)
* Before cumulative effect of accounting change
CASH DIVIDENDS DECLARED PER SHARE
[Bar Graph}
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
.04 .05 .08 .10 .12 .18 .23 .25 .28 .29 .35 .38 .42 .46 .51 .56 .64
(Adjusted for 50% stock dividend declared 12/95)
than the amount solicited as commercial customers appear to have maintained
less on deposit than in the prior year. The increase in service charge income
was principally the result of pricing adjustments that mostly became effective
in October 1995.
Return on assets was especially strong in 1996 as The First of Long Island
earned 1.58%. This was the third consecutive year our return on assets has been
1.50% or higher. Loan growth was mixed in 1996, with commercial mortgage
outstandings continuing to trail the prior year. On average, this category
declined approximately 2%. All other categories of loans, however, showed
reasonable growth. Consumer loans, over half of which are outstandings on equity
lines of credit, increased an average of 13%. On average, residential mortgages
increased 8% while commercial loans grew by 5%.
We continued to work against a decline in our net interest margin. This is
the fourth year in a row that the interest rate market has worked in our
disfavor and we expect to be similarly challenged in 1997. We also have seen
increasing downward pressure on our loan margins, while longer term securities
have been maturing with higher interest rates than they can be replaced with new
issues. However, as of this writing, we are hopeful that the latter might not be
the case in 1997.
We were happy to welcome to the Board of Directors Walter C. Teagle III in
July. His name is presented to you in the proxy statement for a full two-year
term at the upcoming annual meeting. "Teague" has extensive experience in
investment management and is currently President of Metro Design Systems Inc., a
firm specializing in engineering design services for the telecommunications
industry.
The end of January marked the retirement of William J. White as our Chief
Financial Officer. After almost sixteen years of service Bill decided to take
retirement. It is difficult for me to adequately express our appreciation to
Bill for the job he has done. He is a gentleman of exceptional integrity and
intelligence who possesses the finest work ethic one could imagine. We will
greatly miss him and extend our best wishes.
Mark D. Curtis has joined us as Chief Financial Officer. Mark is a
Certified Public Accountant having been associated with KPMG Peat Marwick and
more recently as Executive Vice President and Chief Financial Officer at Gateway
State Bank. He has extensive banking and accounting experience and we look
forward to working with him in the years to come.
As previously reported we opened our fifteenth banking office in Great Neck
last year. It continues to be our intention to seek additional locations most
particularly of the commercial banking unit configuration. We sincerely believe
there is a significant difference in the way a customer is treated at The First
of Long Island as opposed to most of our competition. Our product -- money --
couldn't be more generic and the quality of the service we render is one of the
most important ingredients in differentiating us from other banks. In all due
respect to the "mega" banks who operate on Long Island, it is much harder for
them to consistently provide the level of personal service one finds at all
First of Long Island branches and departments. We are also especially proud of
our Trust and Investment Services Department where customers are treated to
sophisticated investment management provided on an individual account basis
where their long-term investments are not pooled into a common mutual fund or
commingled account. The importance of this quality investment service is
particularly important in these times where many believe there is a much greater
than average downside risk in the stock markets.
As mentioned in our shareholder newsletter, The First Takes Stock, in July
of last year we began an extensive advertising campaign on the Cablevision
service that covers our market areas. We expect that this advertising will
increase the market's awareness of The First of Long Island and the type of
service we provide. We would appreciate our Long Island shareholders'
perceptions on the effectiveness of these campaigns.
As we have so often said, we will continue our pursuit of "excellence" in
everything we do -- from the quality of our service, people, communications and
properties to continuing our goal to reduce and minimize our costs in all areas
of the Bank.
/s/ J. WILLIAM JOHNSON
J. William Johnson
Chairman and Chief Executive Officer
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to provide a better
understanding of the Corporation's financial performance. It is best understood
when reviewed along with the financial statements and supplementary data
appearing elsewhere in this annual report.
FINANCIAL CONDITION
Total assets at year end December 31, 1996 were $440.9 million compared to
$425.7 million in 1995, an increase of $15.2 million or 3.6%. On an average
balance basis, total assets rose from $411.7 million in 1995 to $436.7 million
in 1996, an increase of 6.1%. The following table, along with the succeeding
narrative, presents the average daily balances of the Corporation's assets,
liabilities, and equity and how these "sources and uses of funds" were managed
during the periods presented.
1996 1995 1994
------------------------------------ ----------------------------------- --------
AVERAGE INCREASE/(DECREASE) Average Increase/(Decrease) Average
-------------------- --------------------
SOURCES AND USES OF FUNDS BALANCE AMOUNT % Balance Amount % Balance
-------- ------- ------ --------- -------- ------ ---------
(In thousands of dollars)
FUNDING SOURCES:
Demand Deposits ...................... $123,832 $ 8,822 7.7 $115,010 $10,681 10.2 $104,329
Savings and
Money Market Deposits .............. 222,319 9,069 4.3 213,250 (2,793) (1.3) 216,043
Time Deposits ........................ 36,940 1,524 4.3 35,416 8,114 29.7 27,302
Other Liabilities .................... 2,339 206 9.7 2,133 269 14.4 1,864
Stockholders' Equity ................. 51,229 5,321 11.6 45,908 4,903 12.0 41,005
-------- ------- --------- -------- ---------
TOTAL SOURCES..................... $436,659 $24,942 6.1 $411,717 $21,174 5.4 $390,543
======== ======= ========= ======== =========
FUNDING USES:
Cash and Due From Banks .............. $ 19,853 $ 556 2.9 $ 19,297 $ 2,007 11.6 $ 17,290
Federal Funds Sold ................... 36,460 3,320 10.0 33,140 19,410 141.4 13,730
Taxable Investment Securities ........ 180,574 12,411 7.4 168,163 (2,805) (1.6) 170,968
Municipal Securities ................. 41,763 1,525 3.8 40,238 (141) (0.3) 40,379
Loans, Net ........................... 146,484 6,414 4.6 140,070 2,273 1.6 137,797
Premises and Equipment ............... 5,050 43 .9 5,007 (121) (2.4) 5,128
Other Assets ......................... 6,475 673 11.6 5,802 551 10.5 5,251
-------- ------- --------- -------- ---------
TOTAL USES........................ $436,659 $24,942 6.1 $411,717 $21,174 5.4 $390,543
======== ======= ========= ======== =========
DEPOSITS
Deposits continue to be the Corporation's primary source of funds. While year
end figures showed a growth of $10 million during 1996, average total deposits
showed positive results of $19.4 million in 1996 and $16.0 million in 1995 or
5.3% and 4.6%, respectively.
Demand deposits, furthermore, are considered the most important historical
source of income for the Corporation, and a good growth was experienced during
1996. Growth in demand deposits is a constant major goal of management, and the
current results were largely the product of marketing solicitation. Management
is pleased with the results attained. Demand deposit averages rose by $8,822,000
or 7.7% over 1995, accounting for a large part of the total deposit growth. The
ability of the Corporation to hold and increase its demand deposit base has
contributed substantially to its profitability over the years. For the years
1996, 1995, and 1994, average demand deposits ran at approximately 28% of
average assets. Savings, money market, and other time deposits, in aggregate,
also showed growth at year end as well as in average balances. At year end,
savings, money market, and other time deposits were $261.2 million compared with
last year's $250.3 million. Average balances for 1996 were $259.3 million
compared with $248.7 million for 1995, a growth of $10.6 million or 4.3%. The
largest increase in this second major category was in the Diamond Savings
accounts which grew on average by $14,000,000 or 31.6% over 1995. The
composition of the various deposit categories is detailed in the Consolidated
Balance Sheets and in Note F to Consolidated Financial Statements.
Also contributing as a source of funds was the retention of earnings, which
is reflected in the average increase of stockholders' equity. The current
comparison shows an increase over the previous year of $5.3 million or 11.6%.
A substantial deposit base along with increased capital resources has allowed
the Corporation to continue its long-standing position of not having to rely on
purchased funds or borrowed money as funding sources. Further, brokered deposits
are neither maintained nor solicited.
There are no demand deposits on which interest is paid. Interest is paid,
however, on Advantage Accounts, which are negotiable orders of withdrawal. These
accounts are carried in the Savings and Money Market category of deposits and
perform a similar function to checking accounts.
INVESTMENT SECURITIES
Investment securities are the Corporation's primary use of funds and
represented 50% of total assets at year end.
Investment securities balances, on average, increased $13.9 million or 6.7%
during 1996. U.S. Treasuries comprise the bulk of taxable securities, followed
by U.S. Government Agencies, and collateralized mortgage obligations. U.S.
Government Agencies consisted solely of modified pass-through, mortgage-backed
securities of federal agencies at year end 1996. Collateralized mortgage
obligations, commonly referred to as CMO's or REMIC's, are backed by federal
agency pass-throughs, virtually all from the Government National Mortgage
Association. The Corporation does not own any "interest only, principal only, or
high risk mortgage-backed securities" as defined in the 1991 Federal Financial
Institutions Examination Council Supervisory Policy Statement on Securities
Activities. Municipal securities are primarily comprised of various
"bank-qualified" issues.
The investment securities portfolio is further categorized internally into
two segments -- short term and intermediate term. The short terms are those
purchased to mature approximately within one year. The intermediate term
securities, except for municipals, are usually purchased with a maturity of
about five years or less for U.S. Treasuries and a maximum expected average life
for mortgage-backed securities of about six years. Municipals, in almost all
cases, are purchased with maturities not exceeding twelve years. Both the short
term and the intermediate term segments generally consist of the categories
mentioned above, with short term investments including overnight federal funds
sold, commercial paper and, occasionally, bankers acceptances. During the
current year, overnight federal funds sold averaged $36.5 million. Levels of
short term investments are maintained relative to operational needs and interest
rate sensitivity. For 1996, average balances of short term investments were $58
million, nearly paralleling figures reported for 1995. Further details of the
investment securities portfolio can be found in Note B to Consolidated Financial
Statements.
The yields on investment securities originally purchased for intermediate
terms reflected an average tax-equivalent yield of 6.53% for 1996 compared to
6.77% for 1995. The decline of 24 basis points can be attributed to securities
maturing with higher yields than securities available for replacement. In
general during 1996, investment yields in the market increased with regard to
the entire yield curve from levels available in 1995. In maintaining its
intermediate investment portfolio, the Corporation generally adheres to a
"laddered structure." A brief discussion of rate changes is included in the
Liquidity/Sensitivity Analysis/Interest Rate Risk section.
The aggregate market value of the investment securities portfolio at December
31, 1996 was $222,512,000 or 0.3% above the amortized cost. Of this amount,
$1,867,000 represented gross unrealized gains while $1,169,000 represented gross
unrealized losses. A year earlier, the market value was $218,911,000 or 1.2%
above the amortized cost.
In adhering to its long-standing policy, the Corporation has neither
maintained nor has any present intention of maintaining a trading account.
Further, the Corporation does not purchase any noninvestment grade securities
other than occasionally from local municipal issuers.
LOANS
Loans are the second major use of funds by the Corporation and represented
approximately 35% of total assets at year end. Loans are granted to diverse
borrowers within the Corporation's market area. Overall growth during the year,
while less than anticipated, did encompass increases in the commercial loan and
residential mortgage areas. A lack of demand for commercial mortgages, however,
coupled with payments on outstandings, had a depressant effect on the real
estate category. Average total outstanding loans as well as year end
outstandings paralleled each other, reflecting a modest growth over 1995 of
approximately $6.4 million or 4.6%. Changes at year end were comprised of the
following: commercial loans increased $1,840,000 or 8.4%; real estate loans
increased by $5,684,000 or 4.9%; and installment loans showed a decrease of
$672,000 or 6.9%. Real estate loans continue to comprise mortgage loans and
equity lines of credit, with commercial mortgages accounting for the largest
part. Commercial mortgages account for approximately 15% of total assets. For
the years 1996, 1995, and 1994, average net loans approximated 39% of average
total deposits.
The primary market for commercial loans is to privately owned businesses and
professionals in Nassau and Suffolk Counties. As has been its policy, the
Corporation refrains from participation in any high yield financings or foreign
loans. There are no significant loan concentrations in specific industries. The
Corporation does not engage in transactions commonly known as leveraged buy-outs
of publicly held companies. In 1997, the Corporation's strategy will continue to
be directed to the solicitation of residential and commercial mortgages, as well
as equity lines of credit.
In May 1993, the Financial Accounting Standards Board issued Statement No.
114, "Accounting by Creditors for Impairment of a Loan" (SFAS No. 114). In
October 1994, this
Statement was amended by Statement No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures" (SFAS
No. 118). As described in Note A to Consolidated Financial Statements, both
pronouncements were adopted by the Corporation on January 1, 1995. In
management's opinion, the adoption of both pronouncements was immaterial.
Nothing from the composition of the portfolio would cause the Corporation to
take any action with regard to SFAS No. 114 as amended by SFAS No. 118. There
has been no adverse effect on the Corporation's financial position or results of
operations.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained through provisions based on
management's evaluation of risks inherent in its loan portfolio. Because of the
current level of the allowance, as well as current satisfactory credit quality
and low levels of nonperforming and charged-off loans, the Corporation deemed
that no provision was necessary during 1996. In addition, no provisions have
been made for the prior two years.
The evaluation of allowance levels is a continual process. In making its
determinations, management gives consideration to recent loan charge-offs,
concerns for any loans requiring special attention (whether or not such other
loans were 90 days past due, nonaccrual, or restructured), and the review of
information available through which potential losses are estimated. In fully
evaluating the allowance account, management considers numerous factors:
historical losses; a borrower's ability to repay; the value of any related
collateral; levels of and trends in delinquencies and nonaccruals; 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. Further, in
evaluating real estate mortgage collateral, principally for classified loans,
the Corporation considers present real estate values, the condition of the real
estate, and the possibility of such real estate being affected by environmental
contamination on or near the mortgaged property. Since 1987, environmental
audits have been instituted, and the scope of these audits has been increased
over the succeeding years. Under the Corporation's current policy, an
environmental audit is required on practically all commercial-type properties
that are considered for a mortgage loan. In addition, the Corporation continues
to monitor the level of real estate prices and the possible effects of
environmental contamination on the collateral value of its commercial mortgage
portfolio. At the present time, the Corporation is not aware of any existing
loans in the portfolio where there is environmental pollution originating on the
mortgaged properties that would materially affect the value of the portfolio.
At December 31, 1996, the allowance for loan losses account was approximately
$3,600,000 compared to similar amounts for both 1995 and 1994. The ratios
between the allowance for loan losses and total outstanding loans at those same
periods were 2.35%, 2.45%, and 2.49%, respectively. For the year just ended, the
Corporation recorded a nearly level position between charge-offs and recoveries.
For 1995, net charge-offs exceeded recoveries by a very nominal $132, and for
1994 net recoveries were $10,523. At year end there was no other real estate
owned (OREO) on the books of the Corporation. Nonaccrual loans at year end 1996
were $658,727 which is 0.4% of total loans; nonaccrual loans at year end 1995
were $842,991 which was 0.6% of total loans. Note C to Consolidated Financial
Statements provides, among other things, additional disclosure concerning 90
days past due, nonaccrual, and restructured loans.
Management is not aware of any loans classified for regulatory purposes that
presently represent or result from trends or uncertainties which management
reasonably expects will materially alter future operating results, liquidity, or
capital resources. Management, however, always maintains caution over general
economic conditions. Because of economic uncertainties which could occur and
result in adverse loan quality, delinquencies and losses in the loan portfolio
could possibly surface, requiring future provisions and, consequently, adversely
affecting results of operations.
RESULTS OF OPERATIONS
The Corporation's net income for 1996 was $6,891,340 or $3.23 per share, an
increase of 11% over net income of $6,208,492 and $2.91 per share reported for
1995. Net income for 1994 was $6,027,648 or $2.83 per share.
The major factors influencing the favorable performance for 1996 were
increases in checking deposit balances and service charge income, and a
near-absence of Federal Deposit Insurance Corporation (FDIC) premiums. The table
below presents the major components of net income, along with period-to-period
comparisons:
Increase (Decrease)
----------------------------
1996 1995
Year Ended December 31, Compared Compared
1996 1995 1994 to 1995 to 1994
------- ------- ------- --------- --------
(In thousands of dollars)
Net Interest Income..................... $20,094 $19,119 $18,686 5.1% 2.3%
Provision for Loan Losses............... - - -
------- ------- -------
Net Interest Income After Provision
for Loan Losses....................... 20,094 19,119 18,686 5.1 2.3
Other Income............................ 3,905 3,655 3,122 6.8 17.1
Other Expenses.......................... 13,499 13,321 12,818 1.3 3.9
------- ------- -------
Income Before Taxes..................... 10,500 9,453 8,990 11.1 5.2
Provision for Income Taxes.............. 3,609 3,245 2,962 11.2 9.6
------- ------- -------
NET INCOME.......................... $ 6,891 $ 6,208 $ 6,028 11.0 3.0
======= ======= =======
During the year, net earning assets grew on average by $23.7 million or 6.2%
to $405.3 million from the $381.6 million reported for 1995. The funding for
this asset growth was in large part the result of an $8.8 million increase in
average checking deposits which, in effect, benefited net interest income. Net
interest income is the most significant contributing factor to operating
results. It is the difference between interest and origination fees collected on
interest earning assets less interest paid on interest bearing liabilities, and
is affected mostly by the volume and mix of those assets and liabilities along
with the respective yields and rates paid. Net interest income for 1996 totaled
$20.1 million which was an increase of 5.1% over 1995. The following table
presents the components of net interest income for the years 1996, 1995, and
1994:
Increase (Decrease)
1996 1995
Year Ended December 31, Compared Compared
1996 1995 1994 to 1995 to 1994
-------- -------- -------- --------- ---------
(In thousands of dollars)
INTEREST INCOME
Loans................................. $13,354 $13,132 $11,603 1.7% 13.2%
Federal Funds Sold.................... 1,923 1,927 601 (0.2) 220.6
Investment Securities................. 13,309 12,959 12,657 2.7 2.4
-------- -------- --------
TOTAL INTEREST INCOME............... 28,586 28,018 24,861 2.0 12.7
INTEREST EXPENSE
Savings and Money Market
Deposits............................ 6,788 7,171 5,237 (5.3) 36.9
Time Deposits......................... 1,704 1,728 938 (1.4) 84.2
-------- -------- --------
TOTAL INTEREST EXPENSE.............. 8,492 8,899 6,175 (4.6) 44.1
-------- -------- --------
NET INTEREST INCOME................. $20,094 $19,119 $18,686 5.1 2.3
======== ======== ========
The net interest margin for 1996 was 5.12% compared with 5.18% in 1995. The
net interest margin is net interest income expressed as a percentage of total
average earning assets. The reduced rate persisted throughout 1996 as interest
rates on earning assets were below levels of the prior year.
As mentioned previously, no provision for loan losses has been made for the
past three years.
Various ratios are used to measure the results of operations. Two highly
recognized ratios are the return on average assets (ROA) and the return on
average stockholders' equity (ROE). Return on average assets was 1.58% in 1996,
1.51% in 1995, and 1.54% in 1994. Return on average stockholders' equity was
13.45% in 1996, 13.52% in 1995, and 14.70% in 1994.
Other income consists of noninterest income and gains and losses on
securities transactions. This category reflected an overall net increase of
$250,539 or 6.9% in 1996. A significant component of the change was an increase
in service charges on deposit accounts of $390,654 or 19.4%, due to price
changes implemented toward the end of 1995, along with increased activity
relative to deposit accounts for 1996. Net investment securities losses were
$148,168 for 1996. The gross proceeds recorded from the sales prior to maturity
of investment securities during 1996 totaled approximately $8,588,000 with
resultant gross losses of $148,168. Programs were effectuated during the year
whereby securities were sold in the investment portfolio and others purchased in
their place. A purpose of these programs was to realign maturities, and on the
securities purchased, the incremental interest income will be in excess of the
related losses. All investment securities sold transactions were from the
available for sale category and were accounted for in accordance with Statement
of Financial Accounting Standards No. 115. In 1995, net gains of $3,765 were
recorded, and for 1994, net losses of $290,056 were recorded.
Other expenses, which consist of noninterest expenses, showed an increase of
$179,000. The largest components of this net change from 1995 was an increase in
salaries and employee benefits of approximately $306,000 or 3.7%, and a decrease
in FDIC insurance expense of nearly $400,000. There were no other significant
changes within the components of this category.
Income tax expense as a percentage of pretax income (the effective rate)
was 34.4% in 1996 as compared with 34.3% in 1995 and 32.9% in 1994.
CAPITAL RESOURCES
Total stockholders' equity at year end 1996 was $54,168,925 compared with
$49,340,664 at year end 1995, an increase of $4,828,261 or 9.8%. Most of the
increase was accounted for through net earnings retained. Also included in the
net change were: the declaration of cash dividends totaling $1,337,737;
repurchases and retirement of Corporate common stock totaling $730,134; the
exercise of employee stock options totaling $287,044; and the resultant
after-tax effect of a decrease in the market value in the securities available
for sale portfolio of $282,252. This latter factor is the result of decreases in
the market value of securities available for sale which resulted from the
general increase in interest rates in the financial markets. The inclusion of
such market changes was mandated under the required adoption of SFAS No. 115
explained more fully in Note A to Consolidated Financial Statements. Despite the
positive effects of increasing equity by including the appreciation in the
investment securities available for sale portfolio, the capital position of the
Corporation remained strong. Net unrealized appreciation or depreciation of
securities available for sale will continue to be subject to change in future
periods due to fluctuations in market value.
As announced in the 1995 Annual Report, the Board of Directors of the
Corporation, at its December 1995 meeting, declared a three for two stock split
which was to be paid by means of a 50% stock dividend to shareholders of record
on January 8, 1996. As stated, the dividend was paid on February 2, 1996. All
applicable shares and per share amounts have been retroactively adjusted to
reflect the effect of such dividend.
Increases in capital have been accomplished through retained earnings without
recourse to debt creation or issuance of additional stock. Total stockholders'
equity represented 12.3% of total assets at year end 1996 versus 11.6% at year
end 1995. (The ratio for 1996 includes the net after-tax appreciation of
$302,980 on the Corporation's $80,417,000 available for sale investment
securities portfolio.) In June 1996, a 30 cent dividend was declared, and in
December 1996, a 34 cent dividend was declared representing an increase of 13%
in the semiannual dividend. Cash dividends have been paid, and increased, over
the past eighteen consecutive years. Total cash dividends of 64 cents per share
declared in 1996 represented an increase of 14% over total cash dividends of 56
cents per share declared in 1995.
The following table compares average asset growth to average equity growth
over the past three years:
1996 1995 1994
---- ---- ----
Growth in Average Assets .......... 6% 5% 4%
Growth in Average Equity .......... 12% 12% 11%
Standards established by the regulatory authorities for measuring capital
adequacy require banks and bank holding companies to maintain capital based on
risk-adjusted assets. Under these requirements, categories of assets with
potentially higher credit risk require more capital backing than assets with
lower risk. Further, banks must maintain an adequate ratio of total capital to
total assets which is referred to as the leverage ratio. Failure to maintain
these requirements can result in severe penalties. The Corporation and the Bank
substantially exceed the capital adequacy ratio levels required by the
regulatory authorities.
The Federal Deposit Insurance Corporation Improvement Act ("Act") was enacted
in 1991. The Act affects all federally insured depository institutions. The Act
contains a $70 billion recapitalization of the Bank Insurance Fund ("BIF") by
significantly increasing the amount that the FDIC can borrow from the Treasury.
The FDIC must assess premiums that are sufficient to give the BIF reserves of
$1.25 for each $100 of insured deposits. Additional significant provisions of
the Act include: requiring prompt corrective action by regulators if minimum
capital standards are not met; establishing early intervention procedures for
"significantly" undercapitalized institutions; limiting FDIC reimbursement of
uninsured deposits when large banks fail; requiring an annual regulatory
examination; and imposing new auditing and accounting requirements, effective
for fiscal years beginning on or after January 1, 1993, including management and
auditor reporting on internal controls over financial reporting and on
compliance with laws and regulations.
Effective for fiscal years beginning on or after January 1, 1993, the Act
requires federally insured depository institutions with assets in excess of $500
million to file an "annual report" with the federal regulatory agencies that
will be available for public inspection. This requirement can be satisfied for
subsidiaries of a bank holding company by an audit of the consolidated financial
statements of the holding company. In addition, the Act requires that the annual
report must include an auditor's report on management's assertions regarding the
effectiveness of internal controls pertaining to financial reporting and on
agreed upon procedures concerning compliance with specific laws and regulations
designated by federal regulatory agencies.
During 1995, the Federal Deposit Insurance Corporation reached its
full-funded status. As a result of this occurrence, the rate of insurance for
the Corporation was reduced from twenty-three cents to four cents per hundred
dollars of deposits commencing June 1, 1995 through December 31, 1995. For
calendar year 1996, the Corporation's assessment amounted to the minimum amount
of $2,000.
There are many other accounting and auditing provisions and various other
provisions of the Act that are not discussed above. The costs that are incurred
by the Corporation to comply with the insurance, regulatory reporting and other
provisions of the Act are difficult to estimate; however, they are not expected
to have a material adverse impact on liquidity, capital and operations.
LIQUIDITY/SENSITIVITY ANALYSIS/INTEREST RATE RISK
Liquidity is the ability of the Corporation to generate and maintain
sufficient cash flows promptly to fund operations and to meet financial
obligations to its customers. The principal sources of liquidity are cash and
short term money market investments. Management believes that its current
policies of controlling liquidity, sensitivity analysis, and interest rate risk
are adequate to carry out the needs, objectives, and goals in this area for the
coming year. At year end 1996, total short term and intermediate term
investments that are expected to mature within one year is approximately
$83,641,000 or 19.0% of total assets. The overall liquidity of the Corporation
is further enhanced by its historically stable deposit base. These core
deposits, excluding large certificates of deposit, averaged $375,944,000 for the
year 1996 which is 86% of total average assets. At December 31, 1996, the total
excess of interest bearing liabilities over interest earning assets (based on
assets and liabilities adjusting within a one year time period) was $13,571,000
or 7.15% of such earning assets.
The following table, also referred to as the gap report, sets forth, as of
the dates shown, information regarding the interest sensitive assets and
interest sensitive liabilities of the Corporation:
(In thousands of dollars)
OVER OVER
THREE THREE SIX TOTAL OVER
MONTHS MONTHS MONTHS SENSITIVE ONE YEAR OVER
OR THROUGH THROUGH (WITHIN THROUGH FIVE
LESS SIX MONTHS ONE YEAR ONE YEAR) FIVE YEARS YEARS TOTAL
-------------------------------------------------------------------------------------------
INTEREST EARNING ASSETS:
Federal funds sold .............. $ 38,500 $ 38,500 $ 38,500
Investment securities (NOTE 1)... 13,787 $ 12,716 $ 18,638 45,141 $146,724 $ 29,964 221,829
Total loans ..................... 58,990 14,483 32,594 106,067 32,782 14,673 153,522
TOTAL INTEREST EARNING
-------------------------------------------------------------------------------------------
ASSETS ...................... $111,277 $ 27,199 $ 51,232 $189,708 $179,506 $ 44,637 $413,851
INTEREST BEARING LIABILITIES:
Savings accounts ................ $ 6,999 $ 4,066 $ 8,132 $ 19,197 $ 11,292 $ 22,041 $ 52,530
Money Market accounts ........... 145,552 1,861 1,861 149,274 9,924 11,164 170,362
Other time ...................... 18,724 10,623 5,461 34,808 3,465 36 38,309
TOTAL INTEREST BEARING -------------------------------------------------------------------------------------------
LIABILITIES ................. $171,275 $ 16,550 $ 15,454 $203,279 $ 24,681 $ 33,241 $261,201
GAP................................ $ (59,998) $ 10,649 $ 35,778 $ (13,571) $154,825 $ 11,396 $152,650
CUMULATIVE GAP..................... $(59,998) $(49,349) $(13,571) $ (13,571) $141,254 $152,650 $152,650
CUMULATIVE DIFFERENCE AS
A PERCENT OF TOTAL
EARNING ASSETS................... (7.15)%
<FN>
NOTE 1--EXCLUDES UNREALIZED NET APPRECIATION ON INVESTMENT SECURITIES AVAILABLE
FOR SALE OF $452,000.
</FN>
With reference to the above table, sensitive assets and sensitive liabilities
include those assets and liabilities which may be repriced as to rate within one
year. For purposes of the table, $19,197,000 of all savings accounts were
assumed to reprice within one year, $11,292,000 within five years, and the
remaining savings accounts after five years. Also for purposes of this table,
$3,700,000 of all Advantage Accounts are assumed to reprice within one year,
$9,900,000 within five years, and the remaining Advantage Accounts after five
years.
Although the gap report details the repricing differences for assets and
liabilities for given periods, it has some limitations in that the report is
static by nature. Because of this limitation, and to further aid in quantifying
and controlling the earnings that may be at risk as a result of interest rate
fluctuations, the Corporation has enhanced its interest rate risk management
program by the adoption of simulation modeling. Under this process various
growth and interest rate scenarios can be run as a matter of test.
Because of the Corporation's significant base of demand deposits, equity, and
Advantage Accounts, sustained higher interest rates should have a beneficial
effect on earnings by increasing the net interest margin while sustained lower
rates should have the opposite effect. However, in the short run, an increase in
interest rates may adversely affect the Corporation's net interest income and a
decrease may have the opposite effect because, as shown in the above table, the
volume of interest-bearing liabilities repricable within a three month time
period ($171,275,000) significantly exceeds the volume of interest-earning
assets repricable within that same time period ($111,277,000).
The Corporation regularly monitors the relationship between interest
sensitive assets and interest sensitive liabilities in order to lessen the
effect of interest rate fluctuations and to meet cash flow requirements. As a
further measure to mitigate potential impact on earnings caused by changes in
interest rates, the Corporation has imposed upon itself, as a general rule, a
cumulative asset or liability gap out to one year that should remain within 15%
of earning assets.
Funding of the Corporation, as mentioned earlier but relative also to this
area of discussion, continues to be through its deposits and, to a lesser
degree, through its retained earnings with no recourse to purchased funds,
borrowed money, nor brokered deposits transactions.
STOCK REPURCHASE PLANS
In February of 1988, the Board of Directors approved a stock repurchase plan
which authorized the Corporation to repurchase shares of its own common stock in
market or private transactions. Since that time, ten such plans have been
initiated involving the repurchase of 20,000 to 25,000 shares per plan. The
tenth plan, which is also the most current one, was approved in November 1995
for 25,000 shares (adjusted to 37,500 shares). Under this plan, the
authorization approximates one and three quarters percent of the Corporation's
then outstanding shares of 1,397,495 (adjusted to 2,096,242 shares). At year end
1996, 32,829 shares could still be repurchased under the current plan. It is the
Corporation's belief that the repurchase of shares will better maximize
shareholder value. The stock purchases are financed through available Corporate
cash. The Board of Directors, at their regularly scheduled meeting of December
17, 1996, reaffirmed the current Share Repurchase Program.
OTHER INFORMATION
The Corporation opened one new commercial banking office in Great Neck during
January 1996 (as referenced in the 1995 Annual Report). Plans to open future
such offices, as well as full service offices, are being further considered by
management.
Capital expenditures for the year 1996 amounted to $506,051. This amount
included renovations and expansions to present banking facilities and normal
replacement costs. Long range plans could include expenditures, beyond normal
replacement costs, involved in the continued establishment of new branch
offices.
The Corporation is not involved in any acquisitions or mergers.
At their regularly scheduled meeting on July 16, 1996, the Board of Directors
of The First of Long Island Corporation adopted a Shareholder Protection Rights
Plan and declared a dividend of one Right on each outstanding share of Common
Stock. The dividend was paid on July 31, 1996 to shareholders of record on July
31, 1996. The Rights Plan was not adopted in response to any specific effort to
acquire control of The First of Long Island Corporation. Rather, it was adopted
to deter abusive takeover tactics that can be used to deprive shareholders of
the full value of their investment. The Rights Plan was filed with the
Securities and Exchange Commission under Form 8-A on July 30, 1996. Further,
announcement was made of the Rights Plan in the September 30, 1996 filing of
Form 10-Q with the Securities and Exchange Commission.
The subsidiary Bank underwent a routine safety and soundness and Bank
Information Systems (BIS) examination during the third quarter of 1996 by the
Office of the Comptroller of the Currency. The same regulatory agency conducted
its separately scheduled examination of the subsidiary Bank's Trust and
Investment Services Department during the second quarter of 1996. The
Corporation was examined by the Federal Reserve Bank of New York examiners
during the second quarter of 1996. Management is not aware, nor has it been
apprised, of any recommendations by regulatory authorities which if they were
implemented would have a material effect on the Corporation's liquidity, capital
resources, or operations.
The Corporation's primary marketing strategies continue to be the
solicitation of commercial checking accounts and commercial mortgages. The
Corporation, however, regularly markets and seeks to develop other loan products
as well. While the local economy continued to show improvement during 1996, the
growth was not vibrant. Management maintains its belief that the strength of the
Corporation's liquidity and capital resources are more than adequate to meet
reasonably foreseeable events.
MANAGEMENT'S RESPONSIBILITY FOR
FINANCIAL REPORTING
The management of The First of Long Island Corporation is responsible for the
preparation of the financial statements, related financial data and other
information in this annual report. The financial statements are prepared in
accordance with generally accepted accounting principles and include amounts
based on management's estimates and judgment where appropriate. Financial
information appearing throughout this annual report is consistent with the
financial statements.
In meeting its responsibility both for the reliability and integrity of these
statements and information, management depends on its accounting system and
related internal control structures. These systems and controls have been
designed to provide reasonable assurances that assets are safeguarded and that
transactions are authorized and recorded in accordance with established
procedures and that reliable records are maintained. As an integral part of the
internal control structure, the Corporation maintains a professional staff of
internal auditors who monitor compliance with and assess the effectiveness of
the internal control structure and coordinate audit coverage with the
independent auditors.
The Corporation's Examining Committee of the Board of Directors, composed
solely of outside directors, meets regularly with the Corporation's management,
internal auditors, independent auditors and regulatory examiners to review
matters relating to financial reporting, internal control structure and the
nature, extent and results of the audit effort. The independent auditors,
internal auditors and banking regulators have direct access to the Examining
Committee with or without management present.
The financial statements for each of the three years in the period ended
December 31, 1996, have been audited by Arthur Andersen LLP, independent public
accountants, who render an independent professional opinion on management's
financial statements. Their appointment was approved by the Board of Directors.
The examinations provide an objective assessment of the degree to which the
Corporation's management meets its responsibility for financial reporting. Their
opinions on the financial statements are based on auditing procedures which
include reviewing internal control structures and performing selected tests of
transactions and records as deemed appropriate. These auditing procedures are
designed to provide a reasonable level of assurance that the financial
statements are fairly presented in all material respects.
[PHOTO]
Vic and Sandy Triolo
Owners
First Impressions Lithographic Co., Inc.
"First Impressions is a family business.
The First National Bank of Long Island understands that better than any
other bank we have done business with in our 31 years.
The decision making process for us isn't very cluttered. When we see an
opportunity, we move quickly. The First National Bank of Long Island moves right
along with us - sometimes a step ahead. They're a real bank with real people. We
like that."
CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES
CONSOLIDATED BALANCE SHEETS
December 31,
1996 1995
------------- -------------
ASSETS
Cash and Due from Banks ..................................................... $ 19,350,653 $ 22,884,445
Federal Funds Sold .......................................................... 38,500,000 31,400,000
Investment Securities--Note B:
Available for Sale, at market value ......................................... 80,416,693 57,556,137
Held to Maturity (Market value $142,095,000 in 1996 and $161,355,000 in 1995) 141,850,117 159,677,530
------------- -------------
TOTAL INVESTMENT SECURITIES (Market value $222,512,000 in 1996 and
$218,911,000 in 1995) ....................................................... 222,266,810 217,233,667
Loans--Note C:
Commercial .................................................................. 23,740,695 21,900,667
Real Estate ................................................................. 120,782,264 115,098,688
Installment ................................................................. 8,999,177 9,670,686
------------- -------------
Total Loans ................................................................. 153,522,136 146,670,041
Less: Unearned Income ....................................................... (840,224) (795,925)
Allowance for Loan Losses--Note D ........................................... (3,600,366) (3,600,030)
------------- -------------
NET LOANS ................................................................... 149,081,546 142,274,086
Premises and Equipment, Net--Note E ......................................... 5,043,679 5,092,380
Other Assets ................................................................ 6,652,660 6,769,970
------------- -------------
TOTAL ASSETS ................................................................ $ 440,895,348 $ 425,654,548
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits--Note F:
Demand ...................................................................... $ 123,160,092 $ 123,640,360
Savings and Money Market .................................................... 222,891,498 215,536,599
Time ........................................................................ 38,309,446 34,777,748
------------- -------------
TOTAL DEPOSITS .............................................................. 384,361,036 373,954,707
Accrued Taxes, Expenses and Other Liabilities ............................... 2,365,387 2,359,177
------------- -------------
TOTAL LIABILITIES ........................................................... 386,726,423 376,313,884
STOCKHOLDERS' EQUITY--Note I:
Common Stock, $.10 Par Value; 5,000,000 Shares Authorized;
Shares Issued and Outstanding:
1996-2,088,784, 1995-2,096,467 .............................................. 208,878 209,647
Surplus ..................................................................... 6,924,164 7,366,485
Retained Earnings ........................................................... 46,732,903 41,179,300
Unrealized Appreciation on Securities Available for Sale, Net ............... 302,980 585,232
------------- -------------
TOTAL STOCKHOLDERS' EQUITY .................................................. 54,168,925 49,340,664
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................. $ 440,895,348 $ 425,654,548
============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1996 1995 1994
------------ ----------- ------------
INTEREST INCOME
Loans, Including Fees on Loans ...................... $ 13,354,269 $13,132,054 $ 11,603,481
Federal Funds Sold .................................. 1,923,245 1,926,537 600,942
Investment Securities:
Available for Sale .................................. 4,314,366 2,947,569 2,987,725
Held to Maturity .................................... 8,994,085 10,011,318 9,668,718
------------ ----------- ------------
TOTAL INTEREST INCOME ............................... 28,585,965 28,017,478 24,860,866
INTEREST EXPENSE
Savings and Money Market Deposits ................... 6,787,790 7,170,866 5,236,729
Time Deposits ....................................... 1,704,165 1,727,834 937,947
------------ ----------- ------------
TOTAL INTEREST EXPENSE .............................. 8,491,955 8,898,700 6,174,676
------------ ----------- ------------
NET INTEREST INCOME ................................. 20,094,010 19,118,778 18,686,190
Provision for Loan Losses
------------ ----------- ------------
Net Interest Income After Provision for Loan Losses . 20,094,010 19,118,778 18,686,190
NONINTEREST INCOME
Trust Department Income ............................. 1,213,277 1,126,763 1,068,156
Service Charges on Deposit Accounts ................. 2,406,767 2,016,113 1,873,614
Net Securities (Losses) Gains ....................... (148,168) 3,765 (290,056)
Other Income ........................................ 433,867 508,563 470,148
------------ ----------- ------------
TOTAL NONINTEREST INCOME ............................ 3,905,743 3,655,204 3,121,862
OTHER OPERATING EXPENSES
Salaries ............................................ 6,294,874 6,038,394 5,580,713
Employee Benefits ................................... 2,281,756 2,232,556 1,994,839
Net Occupancy Expense ............................... 1,161,440 1,053,096 1,024,798
Equipment Expense ................................... 701,414 680,477 730,560
Other Expenses ...................................... 3,059,829 3,316,167 3,487,694
------------ ----------- ------------
TOTAL OTHER OPERATING EXPENSES ...................... 13,499,313 13,320,690 12,818,604
------------ ----------- ------------
Income Before Income Taxes .......................... 10,500,440 9,453,292 8,989,448
Provision for Income Taxes--Note H .................. 3,609,100 3,244,800 2,961,800
------------ ----------- ------------
NET INCOME .......................................... $ 6,891,340 $ 6,208,492 $ 6,027,648
============ =========== ============
NET INCOME PER SHARE ................................ $ 3.23 $ 2.91 $ 2.83
============ =========== ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Unrealized
Appreciation/
(Depreciation)
Common Stock on Securities
---------------------- Retained Available
Shares Amount Surplus Earnings for Sale, Net Total
--------- --------- ----------- ------------ ------------ -------------
Balance January 1, 1994.............. 1,406,701 $140,670 $8,012,403 $31,249,852 $39,402,925
Net Income......................... 6,027,648 6,027,648
Change in Accounting for
Investments Effective
January 1, 1994............. $ 835,000 835,000
Repurchase and Retirement
of Common Stock................. (19,401) (1,940) (685,357) (687,297)
Exercise of Stock Options ......... 13,084 1,308 292,677 293,985
Unrealized Depreciation
on Securities Available
for Sale, Net............... (2,201,569) (2,201,569)
Cash Dividends Declared,
$.24 per share.............. (502,934) (502,934)
$.27 per share.............. (560,153) (560,153)
---------- --------- ----------- ------------ ----------- -----------
Balance December 31, 1994............ 1,400,384 140,038 7,619,723 36,214,413 (1,366,569) 42,607,605
Net Income......................... 6,208,492 6,208,492
Repurchase and Retirement
of Common Stock............. (10,000) (1,000) (419,503) (420,503)
Exercise of Stock Options.......... 7,261 727 166,265 166,992
Unrealized Appreciation
on Securities Available
for Sale, Net............... 1,951,801 1,951,801
Effect of Stock Split (in the form
of a 50% stock dividend).... 698,822 69,882 (69,882)
Cash Dividends Declared,
$.27 per share.............. (558,759) (558,759)
$.29 per share.............. (614,964) (614,964)
---------- --------- ----------- ------------ ----------- -----------
Balance December 31, 1995............ 2,096,467 209,647 7,366,485 41,179,300 585,232 49,340,664
Net Income......................... 6,891,340 6,891,340
Repurchase and Retirement
of Common Stock............. (22,327) (2,233) (727,901) (730,134)
Exercise of Stock Options.......... 14,644 1,464 285,580 287,044
Unrealized Depreciation
on Securities Available
for Sale, Net............... (282,252) (282,252)
Cash Dividends Declared,
$.30 per share.............. (627,551) (627,551)
$.34 per share.............. (710,186) (710,186)
---------- --------- ----------- ------------ ----------- -----------
Balance December 31, 1996............ 2,088,784 $208,878 $6,924,164 $46,732,903 $ 302,980 $54,168,925
========== ========= =========== ============ =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
------------ ------------ -------------
OPERATING ACTIVITIES
Net Income ......................................................... $ 6,891,340 $ 6,208,492 $ 6,027,648
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization ........................ 546,726 535,873 609,214
(Accretion) amortization of investment securities, net ............. (1,324,827) (1,639,272) (973,403)
Deferred income taxes (credit) ..................................... 571,747 (4,990) (66,789)
Gain on sale of equipment .......................................... (974)
Realized losses (gains) on investment securities ................... 148,168 (3,765) 290,056
(Increase) decrease in other assets ................................ (617,151) 744,047 (472,403)
(Decrease) increase in accrued taxes, expenses,
and other liabilities .............................................. (660,759) 388,547 49,863
------------ ------------ -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................... 5,554,270 6,228,932 5,464,186
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale .... 8,588,359 265,000 4,424,453
Proceeds from maturities of investment securities held to maturity . 62,312,034 65,995,001 156,983,472
Proceeds from maturities of investment securities available for sale 7,250,000 8,015,000 6,085,850
Purchase of investment securities available for sale ............... (40,287,717) (19,689,531) (12,202,918)
Purchase of investment securities held to maturity ................. (41,266,951) (56,670,815) (151,862,489)
Net increase in loans .............................................. (6,807,460) (2,260,961) (7,425,477)
Purchases of premises and equipment ................................ (506,051) (666,705) (301,523)
Proceeds from sale of equipment .................................... 9,000
------------ ------------ -------------
NET CASH USED IN INVESTING ACTIVITIES .............................. (10,708,786) (5,013,011) (4,298,632)
FINANCING ACTIVITIES
Net increase in total deposits ..................................... 10,406,329 22,428,231 11,652,845
Cash dividends paid ................................................ (1,242,515) (1,118,912) (1,009,332)
Repurchase of common stock ......................................... (730,134) (420,503) (687,297)
Proceeds from exercise of stock options ............................ 287,044 166,992 293,985
------------ ------------ -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......................... 8,720,724 21,055,808 10,250,201
INCREASE IN CASH AND CASH EQUIVALENTS .............................. 3,566,208 22,271,729 11,415,755
Cash and cash equivalents at beginning of year ..................... 54,284,445 32,012,716 20,596,961
------------ ------------ -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........................... $ 57,850,653 $ 54,284,445 $ 32,012,716
============ ============ =============
The Corporation made interest payments of $8,475,687, $8,878,558, and
$6,136,118, in 1996, 1995, and 1994, respectively, and tax payments of
$3,664,108, $3,037,033, and $3,082,509, in 1996, 1995, and 1994, respectively.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ACCOUNTING POLICIES
The accounting and reporting policies of the Corporation and its subsidiary
Bank conform to general practices within the banking industry. The following
footnotes describe the most significant of these policies.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported assets and liabilities
as of the date of the consolidated balance sheets. The same is true of revenues
and expenses reported for the period. Actual results could differ significantly
from those estimates.
PRINCIPLES OF CONSOLIDATION
The Corporation and its subsidiary Bank provide banking
services to domestic markets. The consolidated financial statements include the
accounts of the Corporation and the Bank. All intercompany balances and
transactions have been eliminated.
CASH FLOWS INFORMATION
For purposes of the statement of cash flows, the Corporation considers cash
and due from banks and federal funds sold as cash and cash equivalents.
INVESTMENT SECURITIES
Available for Sale--Effective January 1, 1994, the Corporation adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115). In connection with
the adoption of this pronouncement, securities used as part of the Corporation's
asset/liability management that may be sold in response to changes in interest
rates, prepayments, and other factors have been classified as available for
sale. Such securities are reported at fair value, with unrealized gains and
losses excluded from earnings and reported in a separate component of
stockholders' equity (on an after tax basis). Gains and losses on the
disposition of securities are recognized on the specific identification method
in the period in which they occur.
Held to Maturity--Held to maturity investment securities are
stated at cost adjusted for accretion of discount or amortization of premium.
The Corporation feels confident that it has the ability to hold such securities
until maturity.
REVENUE RECOGNITION ON LOANS
Interest on loans is credited to income based on the principal amount
outstanding. Loan fees and related direct costs of originating loans are
deferred and amortized by the interest method over the estimated average life of
the loans.
The accrual of interest income is generally discontinued when a loan becomes
90 days past due as to principal or interest. When interest accruals are
discontinued, interest credited to income in the current year is reversed, and
interest accrued in the prior year is charged to the allowance for loan losses.
Effective January 1, 1995, the Corporation adopted the accounting and
disclosure guidance in Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan", as amended by Statement No.
118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures." Both pronouncements establish the accounting by creditors for
impairment of certain loans with the latter adding as to how a creditor
recognizes interest income related to those impaired loans. Pursuant to this
accounting guidance, a valuation allowance is recorded on impaired loans to
reflect the difference, if any, between the loan face and the present value of
projected cash flows, observable fair value or collateral value. This valuation
allowance is reported within the overall allowance for loan losses. Such change
in accounting was not material to the consolidated financial statements.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is an amount estimated by management to provide
for potential loan losses. The allowance is increased by loan recoveries and
provisions charged to income and reduced by loan charge-offs. Management
believes that the allowance for loan losses is adequate. While management uses
available information to estimate potential losses on loans, the allowance may
have to be increased in future years because of changed conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Corporation's allowance for loan losses. Such agencies
can require the Corporation to recognize additions to the allowance based on
their judgments of information available to them at the time of their
examination.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization computed by using the straight line method (for assets acquired
prior to 1987) and 150% declining balance method (for assets acquired after
1986). Rates are based on the estimated useful lives of the related asset as
follows:
ASSET ESTIMATED
CLASSIFICATION USEFUL LIFE
- -------------------- ------------------------
Premises 5 to 50 years
Furniture & Equipment 3 to 7 years
Leasehold Improvements Amortized over the lease term or estimated
useful life of the improvements, whichever is
shorter.
INCOME TAXES
The Corporation accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). It requires the use of an asset and liability approach for financial
accounting and reporting for income taxes.
PER SHARE AMOUNTS/STOCKHOLDERS' EQUITY
Per share amounts are based on the weighted average number of common shares
outstanding (2,133,110 in 1996, 2,130,790 in 1995, and 2,126,572 in 1994) and
include common stock equivalents. Per share data for all years presented, on a
fully diluted basis, is the same as primary earnings per share.
All applicable shares and per share amounts have been retroactively adjusted
to reflect the effects of the three for two stock split (paid by means of a 50%
stock dividend) which was declared by the Board of Directors on December 19,
1995 to shareholders of record January 8, 1996 and payable on February 2, 1996.
SHAREHOLDER PROTECTION RIGHTS PLAN
On July 16, 1996, the Board of Directors of the Corporation (the "Board")
adopted a Shareholder Protection Rights Plan and declared a dividend of one
right ("Right") on each outstanding share of the Corporation's common stock (the
"Common Stock"). The dividend was paid on July 31, 1996 to shareholders of
record as of the same date.
In absence of an event of the type described below, the Rights will be
evidenced by and trade with the Common Stock and will not be exercisable.
However, the Rights will separate from the Common Stock and become exercisable
following the earlier of (1) the tenth business day, or such later date as the
Board may decide, after any person or persons (collectively referred to as
"person") commences a tender offer that would result in such person holding a
total of 20% or more of the outstanding Common Stock, or (2) ten business days
after, or such earlier or later date as the Board may decide, the announcement
by the Corporation that any person has acquired 20% or more of the outstanding
Common Stock.
When separated from the Common Stock, each Right will entitle the holder to
purchase one share of Common Stock for $125 (the "Exercise Price"). However, in
the event that the Corporation has announced that any person has acquired 20% or
more of the outstanding Common Stock, the Rights owned by that person will be
automatically void and each other Right will automatically become a right to
buy, for the Exercise Price, that number of shares of Common Stock having a
market value of twice the Exercise Price. Also, if any person acquires 20% or
more of the outstanding Common Stock, the Board can require that, in lieu of
exercise, each outstanding Right be exchanged for one share of Common Stock.
The Rights may be redeemed by action of the Board at a price of $.01 per
Right at any time prior to announcement by the Corporation that any person has
acquired 20% or more of the outstanding Common Stock. The Exercise Price and the
number of Rights outstanding are subject to adjustment to prevent dilution. The
Rights expire ten years from the date of their issuance.
MORTGAGE SERVICING RIGHTS
Effective January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" (SFAS
No. 122) which is an amendment to SFAS No. 65, "Accounting for Certain Mortgage
Banking Activities." This Statement requires the recognition as separate assets,
rights to service mortgage loans for others, however those servicing rights are
acquired. Such change in accounting was not material to the consolidated
financial statements.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123), encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Corporation has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Corporation's stock at the date of grant over the amount an employee must
pay to acquire the stock. Compensation costs for stock appreciation rights are
recorded annually based on the quoted market price of the Corporation's stock at
the end of the period. Refer to Note I.
NEW ACCOUNTING PRONOUNCEMENT
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities" (SFAS No. 125), which
supersedes SFAS No. 122. This Statement is effective for transfers and servicing
of financial assets and extinguishment of liabilities occurring after December
31, 1996. In management's opinion, when adopted, the aforementioned
pronouncement will not have a material effect on the Corporation's financial
position or results of operations.
NOTE B - INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities at
December 31, were as follows (in thousands of dollars):
1996
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------- ------ ----- --------
SECURITIES HELD TO MATURITY:
U.S. Treasury ..................... $ 72,512 $ 396 $(220) $ 72,688
U.S. Government Agencies .......... 29,811 296 (579) 29,528
State and Municipals .............. 32,527 465 (86) 32,906
Collateralized Mortgage Obligations 7,000 28 (55) 6,973
-------- ------ ----- --------
TOTALS ............................ $141,850 $1,185 $(940) $142,095
======== ====== ===== ========
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury ..................... $ 51,115 $ 445 $(133) $51,427
State and Municipals ....... 10,297 117 (12) 10,402
Collateralized Mortgage Obligations 18,425 120 (84) 18,461
Other ............................. 127 127
-------- ------ ----- --------
TOTALS ............................ $ 79,964 $ 682 $(229) $ 80,417
======== ====== ===== ========
1995
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------- ------ ----- --------
SECURITIES HELD TO MATURITY:
U.S. Treasury ..................... $ 80,861 $1,201 $ (49) $ 82,013
U.S. Government Agencies .......... 36,238 405 (396) 36,247
State and Municipals .............. 33,975 564 (91) 34,448
Collateralized Mortgage Obligations 8,604 78 (35) 8,647
-------- ------ ----- --------
TOTALS ............................ $159,678 $2,248 $(571) $161,355
======== ====== ===== ========
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury ..................... $ 38,495 $ 821 $ (23) $39,293
State and Municipals ...... 6,779 92 (7) 6,864
Collateralized Mortgage Obligations 11,281 33 (42) 11,272
Other ............................. 127 127
-------- ------ ----- --------
TOTALS ............................ $ 56,682 $ 946 $ (72) $ 57,556
======== ====== ===== ========
At December 31, 1996 and 1995, investment securities carried at
approximately $47,276,000 and $44,236,000 respectively, were pledged as
collateral to secure public deposits and for other purposes.
The amortized cost and estimated market values of debt securities at
December 31, 1996 are shown below by contractual maturity. Expected maturities
are sometimes earlier than contractual maturities because borrowers may have the
right to prepay obligations.
Amortized Cost
------------------------------------------
U.S. State and Percentages of
Government Municipals Amortized Cost
SECURITIES HELD TO MATURITY: and its and Market at December 31,
Maturities Agencies Other Total Value 1996
- ------------------------------------------- ----------- ------- -------- -------- -----
(In thousands of dollars)
Within 1 year.............................. $ 25,727 $ 4,032 $ 29,759 $ 29,862 21.0
Over 1 year to 2 years..................... 21,099 2,092 23,191 23,266 16.3
2 years to 5 years.................... 34,930 13,090 48,020 48,038 33.9
Over 5 years to 10 years................... 7,381 13,313 20,694 21,040 14.6
Over 10 years.............................. 13,186 13,186 12,916 9.3
--------- -------- --------- ---------
102,323 32,527 134,850 135,122
Collateralized Mortgage Obligations........ 7,000 6,973 4.9
--------- --------- -----
TOTALS................................... $141,850 $142,095 100.0
========= ========= =====
Amortized Cost
------------------------------------------
U.S. State and Percentages of
Government Municipals Amortized Cost
SECURITIES AVAILABLE FOR SALE: and its and Market at December 31,
Maturities Agencies Other Total Value 1996
- ------------------------------------------- ----------- ------- -------- -------- -----
(In thousands of dollars)
Within 1 year.............................. $ 5,559 $ 363 $ 5,922 $ 5,965 7.4
Over 1 year to 2 years..................... 3,542 840 4,382 4,361 5.5
Over 2 years to 5 years.................... 42,014 2,771 44,785 45,100 56.0
Over 5 years to 10 years................... 5,738 5,738 5,813 7.2
Over 10 years.............................. 712 712 717 .9
--------- ------- -------- --------
51,115 10,424 61,539 61,956
Collateralized Mortgage Obligations........ 18,425 18,461 23.0
-------- -------- -----
TOTALS................................... $79,964 $80,417 100.0
======== ======== =====
Proceeds from sales of investment securities available for sale during 1996
were $8,588,359. Gross losses of $148,168 were realized on these sales.
Proceeds from sales of investment securities available for sale during 1995
were $265,000. Gross gains of $3,765 were realized on these sales.
Proceeds from sales of investment securities available for sale during 1994
were $4,424,453. Gross gains of $2,009 and gross losses of $292,065 were
realized on these sales.
NOTE C - LOANS
The following is a summary of loans at December 31:
1996 1995
------------- -------------
Commercial, financial and agricultural ...... $ 23,345,014 $ 21,707,709
Real Estate-mortgage ........................ 120,782,264 115,098,688
Installment ................................. 8,999,177 9,670,686
All other loans (including overdrafts) ...... 395,681 192,958
------------- -------------
153,522,136 146,670,041
Less: Unearned income ....................... (840,224) (795,925)
Allowance for loan losses ................... (3,600,366) (3,600,030)
------------- -------------
$ 149,081,546 $ 142,274,086
============= =============
Certain directors, including their immediate families and companies in which
they are principal owners, were loan customers of the Bank during 1996 and 1995.
Such loans are in the ordinary course of business at normal credit terms,
including interest rate and security, and do not represent more than a normal
risk of collection. The aggregate amount of these loans was approximately
$1,555,000 and $1,540,000 at December 31, 1996 and 1995, respectively. During
1996, $233,000 of new loans to such persons were made and repayments totaled
$218,000.
Nonaccrual loans are loans on which either principal or interest payments are
past due 90 days or more. Restructured loans have been restructured to provide a
reduction or deferral of interest or principal for reasons related to the
debtors' financial difficulties. Accruing loans which are past due 90 days or
more amounted to $31,378 and $3,961 at December 31, 1996 and 1995, respectively.
Information concerning nonaccrual and restructured loans, both of which are
included in loans, at December 31, is as follows:
RESTRUCTURED NONACCRUAL
-------- -------- -------- --------
1996 1995 1996 1995
-------- -------- -------- --------
Amount outstanding .................................... $875,796 $815,864 $658,727 $842,991
Gross interest income which would have been
recorded during the year under original terms ......... 100,268 96,316 60,427 96,500
Gross interest income recorded during the year ........ 87,187 81,676 11,098 36,215
Commitments for additional funds ...................... NONE None NONE None
The Corporation adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (SFAS No. 114), and Statement
of Financial Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" (SFAS No. 118) as of
January 1, 1995. Both pronouncements require that certain impaired loans be
measured based on the present value of expected future cash flows discounted at
the loan's original effective interest rate. As a practical expedient,
impairment may be measured based on the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. When the
measure of the impaired loan is less than the recorded investment in the loan,
the impairment is recorded through a valuation allowance.
The Corporation previously measured the allowance for credit losses on
impaired loans using methods similar to those prescribed in SFAS No. 114 and
SFAS No. 118. As a result of adopting these statements, no additional allowance
for loan losses was required as of January 1, 1995.
As of December 31, 1996, the Corporation did not have any impaired loans in
accordance with SFAS No. 114 and SFAS No. 118 except for the restructured and
nonaccural loans noted above.
NOTE D - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31,
were as follows:
1996 1995 1994
----------- ----------- -----------
Balance at January 1 ......... $ 3,600,030 $ 3,600,162 $ 3,589,639
Loans charged off ............ (35,001) (24,650) (47,869)
Recoveries ................... 35,337 24,518 58,392
----------- ----------- -----------
Net .......................... 336 (132) 10,523
Provision
----------- ----------- -----------
Balance at December 31 ....... $ 3,600,366 $ 3,600,030 $ 3,600,162
=========== =========== ===========
NOTE E - PREMISES AND EQUIPMENT
The following is a summary of the Corporation's premises and equipment at
December 31:
1996 1995
------------ ------------
Land ............................................. $ 1,274,349 $ 1,274,349
Premises ......................................... 4,483,037 4,422,165
Leasehold improvements ........................... 751,346 724,981
Furniture and equipment .......................... 6,635,747 6,249,928
------------ ------------
13,144,479 12,671,423
Accumulated depreciation and amortization ........ (8,100,800) (7,579,043)
------------ ------------
$ 5,043,679 $ 5,092,380
============ ============
NOTE F - DEPOSITS
The detail of deposits at December 31, is as follows:
1996
----------------------------------------
(in thousands of dollars)
DEMAND SAVINGS TIME TOTAL
-------- -------- ------- --------
Deposits of individuals, partnerships, and corporations:
Individuals and nonprofit organizations .................... $ 33,620 $168,481 $32,957 $235,058
Corporations and other profit organizations ................ 83,054 42,762 5,341 131,157
-------- -------- ------- --------
TOTAL ...................................................... 116,674 211,243 38,298 366,215
Deposits of:
U.S. Government ............................................ 478 478
States and political subdivisions .......................... 1,191 11,649 11 12,851
Official checks ............................................ 4,817 4,817
-------- -------- ------- --------
TOTAL DEPOSITS ............................................. $123,160 $222,892 $38,309 $384,361
======== ======== ======= ========
1995
----------------------------------------
(in thousands of dollars)
DEMAND SAVINGS TIME TOTAL
-------- -------- ------- --------
Deposits of individuals, partnerships, and corporations:
Individuals and nonprofit organizations .................... $ 34,010 $158,966 $30,840 $223,816
Corporations and other profit organizations ................ 84,102 37,636 3,767 125,505
-------- -------- ------- --------
TOTAL ...................................................... 118,112 196,602 34,607 349,321
Deposits of:
U.S. Government ............................................ 1,068 1,068
States and political subdivisions .......................... 851 18,935 171 19,957
Official checks ............................................ 3,609 3,609
-------- -------- ------- --------
TOTAL DEPOSITS ............................................. $123,640 $215,537 $34,778 $373,955
======== ======== ======= ========
Time deposits include $11,799,886 and $7,965,000 of certificates of deposit of
$100,000 or more at December 31, 1996 and 1995, respectively.
NOTE G - PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The Corporation is a participant in the New York State Bankers Retirement
System ("Plan"). Employees who are over 21 years of age and have been employed
for over one year are eligible to be covered. The Corporation's policy is to
fund pension costs accrued. Employees also make contributions of 2% of their
compensation. Assets of the Plan are invested in various debt and equity
securities.
Costs of the Corporation's Plan are accounted for in accordance with FASB
Statement No. 87, "Employers' Accounting for Pensions." The following table sets
forth the Plan's funded status and amounts recognized in the consolidated
statements of income at October 1 (the dates of the most recent actuarial
valuations):
Actuarial present value of benefit obligations: 1996 1995
---------- ----------
Accumulated benefit obligation, including vested benefits
of $3,112,785 in 1996 and $2,715,056 in 1995 ........................ $3,157,660 $2,743,144
========== ==========
Projected benefit obligation for service rendered to date ............. $4,094,012 $3,623,573
Plan assets at fair value, primarily marketable securities .............. 5,307,993 4,778,508
---------- ----------
Plan assets in excess of projected benefit obligation ................... 1,213,981 1,154,935
Unrecognized net loss from past experience different from that
assumed and effects of changes in assumptions ......................... (364,448) (178,929)
Prior service cost not yet recognized in net periodic pension cost ...... (45,837) (49,546)
Unrecognized net asset at October 1 ..................................... (288,454) (328,790)
---------- ----------
Prepaid pension cost .................................................... $ 515,242 $ 597,670
========== ==========
Net pension cost included the following components: 1996 1995 1994
---------- ---------- ---------
Service cost benefits earned during the period .......................... $ 247,492 $213,240 $ 249,847
Interest cost on projected benefit obligation ........................... 311,318 250,170 235,130
Actual return on Plan assets ............................................ (423,617) (340,695) (326,671)
Net amortization and deferral ........................................... (44,045) (44,045) (31,220)
---------- ---------- ---------
Net periodic pension cost ............................................... $ 91,148 $ 78,670 $ 127,086
========== ========== =========
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.75% and 5.0%, respectively, per annum at
December 31, 1996 and 1995. The expected long term rate of return on Plan assets
was 8.0% in 1996, and 8.5% in 1995 and 1994.
The Corporation also has a trusteed contributory profit sharing plan.
Employees become eligible for participation after reaching age 21 and completing
one year of service. Contributions are fixed annually by the Board of Directors
and totaled $387,115, $361,669, and $338,193 in 1996, 1995, and 1994,
respectively.
The Profit Sharing Plan allows additional contributions under a "401(k)"
arrangement. Salary reduction contributions are matched by the Corporation
according to the Plan limitations. The Plan expense was approximately $96,000,
$82,000, and $81,000 in 1996, 1995, and 1994, respectively.
The Corporation provides postretirement benefits, including health care and
life insurance, which is primarily limited to current retirees, in accordance
with FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." This method of accounting for postretirement benefits
accrues the actuarially determined costs ratably to the date an employee becomes
eligible for such benefits. The Corporation has previously charged to expense
these costs as cash payments were made. The effect of this Statement for the
years ended December 31, 1996, 1995, and 1994 was not material.
On August 3, 1995, the Corporation adopted The First National Bank of Long
Island Supplemental Executive Retirement Program (SERP). The SERP provides
benefits to certain employees, designated by the Compensation Committee of the
Board of Directors, whose benefits under the pension plan and profit sharing
plan are limited by the applicable provisions of the Internal Revenue Code. The
benefit under the SERP is equal to the excess of the amount to which the
employee would be entitled under the pension and profit sharing plans in the
absence of such Internal Revenue Code limitations. The effective date of the
SERP, which superseded the Corporation's previous supplemental retirement
benefit plan, was January 1, 1994. Plan expenses were $150,000 and $101,249 in
1996 and 1995, respectively.
On June 18, 1991, the Corporation adopted a retirement plan for Directors. In
order to be eligible to receive benefits under the Retirement Plan, a retired
director must meet certain age and length of service requirements. The benefits
paid under this plan were $30,825 in 1996 and in 1995, and $24,750 in 1994.
NOTE H - INCOME TAXES
Federal and state income taxes payable (receivable) as of December 31 were as
follows:
1996 1995
--------- ---------
Current ........................... $(5,853) $189,155
Deferred .......................... (891,804) (892,785)
--------- ---------
$(897,657) $(703,630)
========= =========
The components of the net deferred tax asset as of December 31 are as
follows:
1996 1995
----------- -----------
Gross deferred tax asset .......... $(1,525,572) $(1,455,480)
Valuation allowance ...............
----------- -----------
(1,525,572) (1,455,480)
Gross deferred tax liability ...... 633,768 562,695
----------- -----------
$ (891,804) $ (892,785)
=========== ===========
The components of the provision for income taxes for the years ended December
31 are as follows:
1996 1995 1994
----------- ----------- -----------
Current:
Federal ........................................ $2,247,866 $2,375,248 $2,149,174
State .......................................... 789,487 874,542 879,415
----------- ----------- -----------
3,037,353 3,249,790 3,028,589
Deferred:
Federal ........................................ 426,434 (5,548) (46,274)
State .......................................... 145,313 558 (20,515)
----------- ----------- -----------
571,747 (4,990) (66,789)
----------- ----------- -----------
$3,609,100 $3,244,800 $2,961,800
=========== =========== ===========
A reconciliation of the amount computed by applying the statutory Federal
income tax rate (34%) to income before income taxes to the recorded provision
for income taxes for the years ended December 31 is as follows:
1996 1995 1994
----------- ----------- ----------
Tax at statutory rate on income ................ $3,570,150 $3,214,119 $3,056,412
State income taxes, net of Federal tax benefit . 521,061 576,829 567,234
Tax exempt investment income ................... (609,827) (638,064) (710,166)
Other .......................................... 33,194 19,709 2,474
Nondeductible interest expense ................. 94,522 72,207 45,846
----------- ----------- -----------
$3,609,100 $3,244,800 $2,961,800
=========== =========== ===========
Deferred tax asset is included in other assets in the accompanying
consolidated financial statements. Income taxes are deferred as a result of
differences in the timing of the recognition of certain income and expenses for
income tax and financial reporting purposes. The primary sources of these
differences are bad debt deductions, unrealized appreciation on securities
available for sale, compensation, and depreciation.
NOTE I - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK, CONCENTRATIONS
OF CREDIT RISK, AND OTHER MATTERS
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Corporation 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. The Corporation uses the same credit policies in making commitments
as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. At December 31, 1996, the Corporation's total
commitments to extend credit were $22,944,000. Outstanding standby and
commercial letters of credit for which the Corporation is contingently liable
amounted to $1,602,000 at December 31, 1996 and $1,893,000 at December 31, 1995.
In addition, there were $22,000 of Acceptances outstanding as of December 31,
1996. The Corporation evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained by the Corporation upon
extension of credit is based on management's credit evaluation of the
counterparty. Collateral held varies but generally includes residential and
income-producing properties.
CONCENTRATIONS OF CREDIT RISK
Virtually all of the Corporation's loans, personal and commercial, are to
borrowers who are domiciled on Long Island. The income of many of those
customers is dependent on the Long Island economy. In addition, virtually all of
the Corporation's real estate loans involve mortgages on Long Island properties.
Thus, the Corporation's loan portfolio is susceptible to the economy of Long
Island which is its market place.
OTHER MATTERS
The Corporation is required to maintain average reserve balances with the
Federal Reserve Bank. The average amount of those reserve balances for the year
ended December 31, 1996 was approximately $6,891,000.
At December 31, 1996, $13,218,000 of undistributed earnings of the Bank,
included in consolidated retained earnings, was available for distribution to
the Corporation as dividends without prior regulatory approval.
The fair values for the Corporation's off-balance sheet financial instruments
at December 31, are as follows:
Fair Value
---------------------
1996 1995
-------- --------
Commitments to
Extend Credit................... NONE None
Standby and Commercial
Letters of Credit............... $7,000 $8,000
Under national banking laws and related statutes, the Bank also is limited as
to the amount it may loan to the Corporation, unless such loans are
collateralized by specified obligations. At December 31, 1996, the maximum
amount available for transfer from the Bank to the Corporation in the form of
loans approximated $7,790,000.
Other Expenses
Other expenses which exceed one percent of aggregate interest and other
income are as follows for the years ended December 31:
1996 1995 1994
-------- -------- --------
FDIC Insurance......... $ 2,000 $400,700 $745,100
Computer Services...... 418,200 397,700 375,700
Insurance.............. 423,600 400,800 404,000
Marketing............... 303,300 245,500 293,900
Lease Commitments
The Corporation leases the premises for its Woodbury, Lake Success, Rockville
Centre, New Hyde Park, Locust Valley, Valley Stream, and Great Neck offices.
Minimum annual rental payments, exclusive of real estate taxes, under
noncancellable operating leases are summarized as follows:
Minimum
Year Ended December 31, Rentals
- -------------------------------------------------------------
1997 $ 230,707
1998 217,899
1999 196,276
2000 164,929
2001 125,526
Thereafter 268,850
__________
$1,204,187
==========
In addition, the Corporation has various renewal options on the above leases.
Rental expense charged to operations amounted to $247,000, $220,000, and
$221,000 in 1996, 1995, and 1994, respectively.
STOCK-BASED COMPENSATION PLANS
The Corporation has two stock options plans, The First of Long Island
Corporation Stock Option Plan (the "1986 Plan"), and a Stock Option and
Appreciation Rights Plan (the "1996 Plan"). The Corporation accounts for these
plans under APB No. 25, under which no compensation cost has been recognized for
stock options granted. Had compensation cost for these stock options been
determined consistent with SFAS No. 123, the Corporation's net income and
earnings per share would have been reduced to the following pro forma amounts:
1996 1995
------------- -------------
Net Income:
As Reported ............... $ 6,891,340 $ 6,208,492
Pro Forma ................. 6,776,636 6,060,598
Primary Earnings Per Share:
As Reported ............... $ 3.23 $ 2.91
Pro Forma ................. 3.18 2.84
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated.
The 1986 Plan (as amended) was approved and adopted on January 21, 1986, and
subsequently approved by the stockholders. Pursuant to the 1986 Plan, a total of
258,450 shares of Common Stock were made available for grant of stock options
and stock appreciation rights to certain officers of the Corporation and its
subsidiary over the ten year period ending January 21, 1996. In conjunction with
the amendment to the 1986 Plan, on May 17, 1988 and December 31, 1989, the
Corporation issued stock appreciation rights to certain officers. Total
compensation costs recognized, as prescribed by APB No. 25, for stock
appreciation rights were $72,061 and $68,425 for the years ended December 31,
1996 and 1995, respectively. At December 31, 1996, 8,662 Rights were
exercisable. Under the Corporation's 1986 Plan, options have been granted to key
personnel for terms of up to ten years at not less than the fair value of the
shares at the dates of grant and are exercisable in whole or in part at stated
times commencing six months after the date of grant. No further grants will be
issued under the 1986 Plan. At December 31, 1996, options to purchase 103,535
shares of Common Stock were exercisable with respect to the 1986 Plan.
The 1996 Plan was approved and adopted on January 16, 1996, and subsequently
approved by the stockholders. A total of 240,000 shares of Common Stock were
made available for grant of stock options and stock appreciation rights to
certain officers of the Corporation and its subsidiary over the ten year period
ending January 15, 2006. The other terms of the 1996 Plan are substantially the
same as the terms of the 1986 Plan. At December 31, 1996, options to purchase
250 shares of Common Stock were exercisable with respect to the 1996 Plan.
Option activity during 1996, 1995 and 1994 is summarized as follows:
1996 1995 1994
--------------------------- -------------------------- --------------------------
WEIGHTED Weighted Weighted
AVERAGE Average Average
EXERCISE Exercise Exercise
SHARES PRICE Shares Price Shares Price
--------------------------- -------------------------- --------------------------
Outstanding at beginning of year.... 100,957 $19.49 90,624 $17.37 95,127 $15.75
Granted............................. 17,550 29.83 21,225 26.80 15,525 23.83
Exercised........................... (14,644) 19.60 (10,892) 15.33 (19,626) 14.98
Forfeited........................... (78) 26.08 (402) 23.83
-------- ------- ------
Outstanding at end of year.......... 103,785 21.21 100,957 19.49 90,624 17.37
Exercisable at end of year.......... 103,785 21.21 100,957 19.49 90,624 17.37
Weighted average fair value
of options granted................ $6.54 $7.55
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1995, respectively: risk-free interest
rates of 5.61% and 7.40% for the 1986 Plan options and 5.93% for the 1996 Plan
options; expected dividend yields of 2%; expected lives of 7 years; expected
volatility of 11.22% and 10.72% for the 1986 Plan options and 11.14% for the
1996 Plan options.
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------- --------------------------------------------
Range of Number Weighted Average
Exercise Outstanding at Remaining Weighted Average Number Exercisable Weighted Average
Prices 12/31/96 Contractual Life In Years Exercise Price at 12/31/96 Exercise Price
- ------------------------------------------------------------------------------- --------------------------------------------
$10.01 to $15.00 18,292 3.48 $14.39 18,292 $14.39
$15.01 to $22.00 38,298 3.24 17.24 38,298 17.24
$22.01 to $30.00 47,195 8.16 27.08 47,195 27.08
------- -------
$10.01 to $30.00 103,785 5.52 21.21 103,785 21.21
======= =======
All figures in the narrative and tables under Stock-Based Compensation
Plans have been retroactively adjusted to reflect the 3 for 2 stock split paid
by means of a 50% stock dividend which was declared December 19, 1995.
NOTE J - REGULATORY MATTERS
The Corporation is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Corporation's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Corporation must meet specific capital guidelines that involve quantitative
measures of the Corporation's assets, liabilities, and certain off-balance sheet
items calculated under regulatory accounting practices. The Corporation's
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum ratios (set forth in the table
below) of total and Tier 1 Capital (as defined in the regulations) to risk
weighted assets (as defined), and of Tier 1 Capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the
Corporation meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Comptroller
of the Currency categorized the Corporation as well capitalized under the
regulatory framework for prompt corrective action. The Corporation must maintain
minimum total risk-based, Tier 1 risk-based, and leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the institution's category.
The Corporation's actual capital ratios are presented in the following
table:
Corporation's Corporation's
Minimum Ratio at Ratio at
Required Ratio 12/31/96 12/31/95
-------------- ----------- ------------
Total Risk-Based Capital Ratio............... 8.00% 33.43% 31.50%
Tier I Risk-Based Capital Ratio.............. 4.00 32.17 30.24
Leverage Capital Ratio....................... 4.00 12.29 11.59
NOTE K- FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About the
Fair Value of Financial Instruments" ("SFAS No. 107"), requires that the
Corporation disclose estimated fair values for financial instruments. Fair value
estimates, methods, and assumptions are set forth below.
Fair Value Estimates
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Corporation's entire holdings of a particular financial
instrument. The fair value estimates of a significant portion of the
Corporation's financial instruments were based on judgments regarding future
expected net cash flow, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in the estimate of fair value
under SFAS No. 107.
Fair Values Methods and Assumptions
Cash and cash equivalents --The carrying amounts reported in the balance
sheet for cash and short term instruments approximate those assets' fair values.
Investment securities (including collateralized mortgage obligations)
Fair values for investment securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Loans--For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for certain mortgage loans (e.g., fixed rate one-to-four family
residential), credit card loans, and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair value
for other loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. The carrying amount of accrued interest approximates
its fair value.
Off-balance sheet instruments--Fair values for the Corporation's off-balance
sheet instruments, as reflected in Note I, are based on fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
Deposits--The fair values disclosed for demand deposits, savings accounts,
and certain types of money market accounts, are equal to their carrying amounts
at the reporting date. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
1996 1995
----------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------- ------------- -------------
Cash and Due From Banks.............................. $ 19,350,653 $ 19,350,653 $ 22,884,445 $ 22,884,445
Federal Funds Sold................................... 38,500,000 38,500,000 31,400,000 31,400,000
Investment Securities:
Available for Sale................................. 80,416,693 80,416,693 57,556,137 57,556,137
Held to Maturity................................... 141,850,117 142,095,000 159,677,530 161,355,000
Loans:
Commercial......................................... 23,063,576 23,062,395 21,196,017 21,159,251
Real Estate........................................ 117,213,415 117,998,204 111,657,204 112,110,335
Installment........................................ 8,804,555 8,805,392 9,420,865 9,405,611
Accrued Interest Receivable.......................... 4,688,211 4,688,211 4,616,849 4,616,849
Demand Deposits...................................... 123,160,092 123,160,092 123,640,360 123,640,360
Savings and Money Market............................. 222,891,498 222,891,498 215,536,599 215,536,599
Time Deposits........................................ 38,309,446 38,350,010 34,777,748 34,859,809
Accrued Interest Payable............................. 147,407 147,407 131,139 131,139
Note L- The First of Long Island Corporation (Parent Company Only)
Financial Information (In thousands of dollars)
December 31,
1996 1995
------- --------
ASSETS
Cash..................................................... $ 3,120 $ 2,658
Investment in Subsidiary Bank............................ 51,882 47,460
Other Assets............................................. 50 50
-------- --------
TOTAL ASSETS........................................... $55,052 $50,168
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends Payable........................................ $ 710 $ 615
Other Liabilities........................................ 173 212
Common Stock............................................. 209 210
Surplus.................................................. 6,924 7,367
Retained Earnings........................................ 46,733 41,179
Unrealized Appreciation on Securities
Available for Sale of Subsidiary Bank, Net......... 303 585
-------- --------
TOTAL STOCKHOLDERS' EQUITY............................. 54,169 49,341
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $55,052 $50,168
======== ========
Year Ended December 31,
1996 1995 1994
-------- -------- --------
INCOME
Dividends From Subsidiary Bank...........................$ 2,200 $ 1,950 $ 1,800
Interest on Deposits with Subsidiary Bank................ 86 73 34
-------- -------- --------
2,286 2,023 1,834
EXPENSES................................................... 100 95 49
-------- -------- --------
Income Before Income Taxes and Equity in Undistributed
Net Income of Subsidiary Bank.......................... 2,186 1,928 1,785
Equity in Undistributed Net Income of Subsidiary Bank ... 4,705 4,280 4,243
-------- -------- --------
NET INCOME............................................. $ 6,891 $ 6,208 $ 6,028
======== ======== ========
Year Ended December 31,
1996 1995 1994
-------- -------- --------
OPERATING ACTIVITIES
Net Income...............................................$ 6,891 $ 6,208 $ 6,028
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed Earnings of Subsidiary Bank............ (4,705) (4,280) (4,243)
Decrease in Other Assets............................. 77
(Decrease) Increase in Other Liabilities............. (39) 69 19
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 2,147 1,997 1,881
FINANCING ACTIVITIES
Repurchased Common Stock................................. (730) (421) (687)
Proceeds from Exercise of Stock Options.................. 287 167 294
Dividends Paid........................................... (1,242) (1,119) (1,009)
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES................ (1,685) (1,373) (1,402)
-------- -------- --------
INCREASE IN CASH..................................... 462 624 479
Cash at beginning of year................................ 2,658 2,034 1,555
-------- -------- --------
CASH AT END OF YEAR..................................$ 3,120 $ 2,658 $ 2,034
======== ======== ========
Note M - Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1996 and 1995.
Three Months Ended
March 31 June 30 September 30 December 31
--------- -------- ------------- ------------
(In thousands of dollars, except per share data)
1996
Interest Income............................................. $7,023 $7,108 $7,241 $7,214
Interest Expense............................................ 2,096 2,103 2,165 2,128
Net Interest Income......................................... 4,927 5,005 5,076 5,086
Provision for Loan Losses................................... -- -- -- --
Other Income................................................ 962 971 1,010 1,111
Net Securities Gains (Losses)............................... -- -- -- (148)
Other Expenses.............................................. 3,399 3,460 3,338 3,302
Income Before Income Taxes.................................. 2,490 2,516 2,748 2,747
Income Taxes................................................ 831 847 942 989
Net Income.................................................. 1,659 1,669 1,806 1,758
Net Income per Share........................................ .78 .78 .85 .82
1995
Interest Income............................................. $6,803 $6,986 $7,101 $7,128
Interest Expense............................................ 2,100 2,282 2,279 2,238
Net Interest Income......................................... 4,703 4,704 4,822 4,890
Provision for Loan Losses................................... -- -- -- --
Other Income................................................ 823 860 958 1,010
Net Securities Gains (Losses)............................... 4 -- -- --
Other Expenses.............................................. 3,518 3,447 3,275 3,081
Income Before Income Taxes.................................. 2,012 2,117 2,505 2,819
Income Taxes................................................ 652 700 854 1,039
Net Income.................................................. 1,360 1,417 1,651 1,780
Net Income per Share........................................ .64 .66 .77 .84
REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS
Stockholders and Board of Directors of
The First of Long Island Corporation:
We have audited the accompanying consolidated balance sheets of The First
of Long Island Corporation and subsidiary as of December 31, 1996 and 1995 and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First of Long Island
Corporation and subsidiary as of December 31, 1996 and 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
New York, New York
January 16, 1997
/s/ ARTHUR ANDERSEN LLP
DIRECTORS
The First of Long Island Corporation
The First National Bank of Long Island
[PHOTO]
J. WILLIAM JOHNSON
Chairman and Chief Executive Officer
[PHOTO]
JOHN R. MILLER III
President and Publisher,
Equal Opportunity Publications, Inc.
(publishing)
[PHOTO]
HOWARD THOMAS HOGAN, JR.
Partner, Hogan & Hogan
(lawyer, private practice)
[PHOTO]
BEVERLY ANN GEHLMEYER
Tax Manager and Principal,
Gehlmeyer & Gehlmeyer, P.C.
(certified public accounting firm)
[PHOTO]
PAUL T. CANARICK
President and Principal,
Paul Todd, Inc.
(construction company)
[PHOTO]
DR. WILLIAM J. CATACOSINOS
Chairman, President, and
Chief Executive Officer,
Long Island Lighting Company, Inc.
(gas and electric utility)
[PHOTO]
J. DOUGLAS MAXWELL, JR.
Chairman and Chief Executive Officer,
Empower, Inc.
(medical imaging distributor)
[PHOTO]
WALTER C. TEAGLE III
President and Chief Executive Officer,
Metro Design Systems, Inc.
(engineering design services)
OFFICERS
The First of Long Island Corporation
J. William Johnson
Chairman and Chief Executive Officer
Arthur J. Lupinacci, Jr.
Senior Vice President and Secretary
Mark D. Curtis
Vice President and Treasurer
Richard Kick
Vice President
Donald L. Manfredonia
Vice President
Joseph G. Perri
Vice President
John C. Sansone
Vice President
Wayne B. Drake
Assistant Treasurer
EXECUTIVE OFFICERS
The First National Bank of Long Island
Chairman and Chief Executive Officer
J. William Johnson
Executive Vice President
Arthur J. Lupinacci, Jr.
Senior Operating Officer
Senior Vice Presidents
Mark D. Curtis
Chief Financial Officer and Cashier
Richard Kick
Senior Operations and Senior Retail Loan Officer
Donald L. Manfredonia
Senior Lending Officer
Joseph G. Perri
Senior Commercial Marketing Officer
John C. Sansone
Senior Trust Officer
BUSINESS DEVELOPMENT BOARD
[PHOTO]
Kenneth R. Latham
Chairman of the Board
Latham Brothers Lumber Company, Inc.
[PHOTO]
Herbert Haber, CPA
Certified Public Accountant
[PHOTO]
Thomas N. Dufek, CPA, Partner
Kilgannon, Furey, Dufek & Company
[PHOTO]
Robert L. Israeloff, CPA
Chairman of the Board
Israeloff, Trattner & Co., CPA's, P.C.
[PHOTO]
Herbert Kotler, Esq., Partner
Sobel, Kelly and Kotler, P.C.
[PHOTO]
Harold Goldman
Chief Executive Officer
Dryolin Corporation
[PHOTO]
Dunlap Fulton, President
Huntington Pennysaver, Inc.
[PHOTO]
Arthur C. Schupbach, Esq., Partner
Schupbach, Williams & Pavone LLP
[PHOTO]
H. Craig Treiber, President/CEO
The Treiber Group
[PHOTO]
David Black, CPA
David Black & Associates, Inc.
[PHOTO]
Lawrence F. Steiner, President
Universal Unlimited, Inc.
[PHOTO]
Robert A. Goodwin, Esq., Partner
Goodwin, Schult & Goodwin
[PHOTO]
Zachary Levy, Esq.
Attorney
[PHOTO]
Bernard Esquenet
Chief Executive Officer, The Ruhof Corp.
[PHOTO]
Quentin Sammis, President
Coldwell Banker Sammis
[PHOTO]
William L. Edwards
Real Estate Investor
[PHOTO]
Howard S. Cohen, President
Mount Carmel Cemetery Assoc.
[PHOTO]
Arthur Ventura, President
Badge Agency
[PHOTO]
Mark Wurzel, President
Calico Cottage Candies, Inc.
[PHOTO]
John A. Burns, Jr., Partner
Fletcher, Sibell, Migatz,
Burns & Mulry, P.C.
Official Staff
VICE PRESIDENTS
Albert Arena
Commercial Banking
Archie J. Arrington
Manager, Roslyn Heights
Lester J. Bach
Manager, Great Neck
Jonathan P. Bostwick
Finance Department
James Clavell
Branch Administration
Paul J. Daley
Commercial Banking
Joseph Dioguardi
Manager, Old Brookville
Wayne B. Drake
Controller, Finance Department
John G. Fitzpatrick
Loan Center
Compliance - CRA Officer
Thomas N. Gilmartin
Commercial Banking
Betsy Gustafson
Deposit Operations
Charles E. Haberkorn, Jr.
Commercial Banking
Peter J. Hoey
Data Center
George P. Knott
Manager, Woodbury
Henry A. Kramer
Commercial Banking
Concepcion L. Larrea
Manager, Greenvale
Edward V. Mirabella
Commercial Banking
John J. Mulder, Jr.
Manager, Glen Head
Patrick J. Mulligan
Trust and Investment Services
John T. Noonan
Manager, Locust Valley
William Pyszczymuka
Manager, Huntington
Debbie J. Sorace
Marketing Department
Henry C. Suhr
Manager, Northport
Barbara Whitebook
Human Resources
ASSISTANT VICE PRESIDENTS
Peter J. Arebalo
Manager, Valley Stream
Marion M. Bornkamp
Auditing Department
Milady B. Godwin
Human Resources
David Lippa
Glen Head
Dorothy Miller
Manager, Hicksville
Lee Nunez
Manager, Lake Success
Ronald Pimental
Manager, Rockville Centre
Frank Plesche
Huntington
Cheryl C. Regan
Manager, New Hyde Park
Frederick G. Ruff
General Services Department
Carole Ann Snayd
Roslyn Heights
Michael J. Spolarich
Commercial Banking
Tina A. Sweeney
Loan Center
Ann Marie Tarantino
Compliance and Procedures
Herta Tscherne
Manager, Mineola
TRUST OFFICERS
Susan P. Contino
Trust and Investment Services
Andrew G. Drenick
Trust and Investment Services
Susan J. Hempton
Trust and Investment Services
Senior Mortgage Advisor
John F. Darcy
Loan Center
ASSISTANT CASHIERS
Monica T. Baker
Branch Administration
Pari Glazer
Lake Success
Arlyne H. Kramer
Hicksville
Miriam J. Klein
Old Brookville
Mary Lou Martin
Locust Valley
Caroline V. McIntyre
Greenvale
Gretchen B. Nesky
Commercial Banking
June E. Pipito
Woodbury
Elissa Toussaint
Northport
ASSISTANT AUDITOR
Kevin W. Long
Auditing Department
ASSISTANT MANAGERS
Ann J. Cristodero
Loan Center
Robert B. Jacobs
Loan Center
Diane C. Pohlmann
Compliance and Procedures
Laura Tuomey
Branch Administration
Cathy A. Vanatta
Marketing Department
Alison A. Zabielski
Deposit Operations
ADMINISTRATIVE ASSISTANTS, EXECUTIVE ASSISTANTS, AND SERVICE ASSISTANTS
Elaine Ballinger
Glen Head
Lorraine Fogarty
Branch Administration
Andrea L. Glaviano
Roslyn Heights
Betty Hebron
Locust Valley
Marguerite F. Hirschman
Trust and Investment Services
Catherine Irvin
Finance Department
Rosemary Kerrane
Mineola
Carmela Lalonde
Deposit Operations
Conrad A. Lissade
Data Center
Francine McDonald
Trust and Investment Services
Constance Miller
Administration
Colleen M. Murphy
Human Resources
Eveline Ratte
Loan Center
Cheryl A. Romanski
Finance Department
Lori A. Ruggiero
Data Center
Lisa L. Samuel
Woodbury
Allison C. Tuma
Northport
Nimesh V. Udeshi
Finance Department
Anne J. Virgadamo
Huntington
Anne T. Woods
Deposit Operations
Maureen Zebrowski
Commercial Banking
COUNSEL
SCHUPBACH, WILLIAMS &
PAVONE
INDEPENDENT AUDITORS
ARTHUR ANDERSEN LLP
FORM 10-K REPORT
A copy of the Corporation's annual report on Form 10-K for 1996, filed with the
Securities and Exchange Commission, may be obtained without charge upon written
request to Mark D. Curtis, Vice President and Treasurer, The First of Long
Island Corporation, 10 Glen Head Road, PO Box 67, Glen Head, New York
11545-0067.
We remain steadfast
in our commitment
to "excellence" and to
our focus on
privately owned businesses,
service conscious consumers
and professionals.
FULL SERVICE OFFICES
10 Glen Head Road 108 Forest Avenue 130 Mineola Avenue
Glen Head, NY 11545 Locust Valley, NY 11560 Roslyn Heights, NY 11577
(516) 671-4900 (516)671-2299 (516)621-1900
7 Glen Cove Road 711 Fort Salonga Road 800 Woodbury Road
Greenvale, NY 11548 Northport, NY 11768 Woodbury, NY 11797
(516)621-8811 (516)261-4000 (516)364-3434
253 New York Avenue 209 Glen Head Road
Huntington, NY 11743 Old Brookville, NY 11545
(516) 427-4143 (516)759-9002
COMMERCIAL BANKING OFFICES
536 Northern Boulevard 3000 Marcus Avenue 100 Merrick Road
Great Neck, NY 11021 Lake Success, NY 11042 Rockville Centre NY 11570
(516)482-6666 (516)775-3133 (516)763-5533
106 Old Country Road 194 First Street 133 E. Merrick Road
Hicksville, NY 11801 Mineola, NY 11501 Valley Stream, NY 11580
(516)932-7150 (516)742-1144 (516)825-0202
200 Jericho Turnpike
New Hyde Park, NY 11040
(516)328-3100
TRUST AND INVESTMENT SERVICES
800 Woodbury Road
Woodbury, NY 11797
(516)364-3436