SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 2001
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from ___________________to____________________________
Commission file number 0-12220
THE FIRST OF LONG ISLAND CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
NEW YORK 11-2672906
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
10 Glen Head Road, Glen Head, New York 11545
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 671-4900
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JULY 27, 2001
- ----- ----------------------------
Common stock, par value 2,845,149
$.10 per share
THE FIRST OF LONG ISLAND CORPORATION
JUNE 30, 2001
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
ITEM 1. CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND DECEMBER 31, 2000 1
CONSOLIDATED STATEMENTS OF INCOME
SIX AND THREE MONTHS ENDED
JUNE 30, 2001 AND 2000 2
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2001 AND 2000 3
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2000 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6-13
PART II. OTHER INFORMATION 14
SIGNATURES 15
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
------------- -------------
Assets:
Cash and due from banks ....................................................... $ 28,242,000 $ 23,872,000
Federal funds sold ............................................................ 108,800,000 87,800,000
------------- -------------
Cash and cash equivalents ................................................... 137,042,000 111,672,000
------------- -------------
Investment securities:
Held-to-maturity, at amortized cost (fair
value of $224,917,000 and $229,045,000) ............................. 220,548,000 226,361,000
Available-for-sale, at fair value (amortized cost
of $94,737,000 and $82,582,000) ..................................... 96,525,000 83,680,000
------------- -------------
317,073,000 310,041,000
------------- -------------
Loans:
Commercial and industrial .............................................. 36,931,000 30,514,000
Secured by real estate ................................................. 162,702,000 155,283,000
Consumer ............................................................... 7,851,000 7,504,000
Other .................................................................. 868,000 560,000
------------- -------------
208,352,000 193,861,000
Unearned income ........................................................ (986,000) (952,000)
------------- -------------
207,366,000 192,909,000
Allowance for loan losses .............................................. (1,951,000) (1,943,000)
------------- -------------
205,415,000 190,966,000
------------- -------------
Bank premises and equipment, net .............................................. 7,115,000 7,021,000
Other assets .................................................................. 6,457,000 6,292,000
------------- -------------
$ 673,102,000 $ 625,992,000
============= =============
Liabilities:
Deposits:
Checking ............................................................... $ 203,674,000 $ 195,617,000
Savings and money market ............................................... 353,563,000 310,681,000
Time, less than $100,000 ............................................... 25,378,000 24,255,000
Time, $100,000 and over ................................................ 13,049,000 19,919,000
------------- -------------
595,664,000 550,472,000
Accrued expenses and other liabilities ........................................ 3,371,000 4,137,000
Current income taxes payable .................................................. 268,000 91,000
Deferred income taxes payable ................................................. 666,000 426,000
------------- -------------
599,969,000 555,126,000
------------- -------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 2,845,149 and 2,892,549 shares .................... 284,000 289,000
Surplus ....................................................................... 646,000 1,188,000
Retained earnings ............................................................. 71,140,000 68,737,000
------------- -------------
72,070,000 70,214,000
Accumulated other comprehensive income, net of tax ............................ 1,063,000 652,000
------------- -------------
73,133,000 70,866,000
------------- -------------
$ 673,102,000 $ 625,992,000
============= =============
See notes to consolidated financial statements
1
CONSOLIDATED STATEMENTS OF INCOME
Six months ended June 30, Three months ended June 30,
---------------------------- ---------------------------
2001 2000 2001 2000
----------- ------------ ---------- ----------
Interest income:
Loans .......................................................... $ 8,476,000 $ 7,970,000 $4,193,000 $4,059,000
Investment securities:
Taxable .................................................... 6,221,000 6,149,000 3,163,000 3,062,000
Nontaxable ................................................. 2,569,000 2,151,000 1,325,000 1,095,000
Federal funds sold ............................................. 2,185,000 2,178,000 889,000 1,268,000
----------- ------------ ---------- ----------
19,451,000 18,448,000 9,570,000 9,484,000
----------- ------------ ---------- ----------
Interest expense:
Savings and money market deposits .............................. 4,690,000 5,062,000 2,089,000 2,679,000
Time deposits .................................................. 931,000 925,000 405,000 478,000
----------- ------------ ---------- ----------
5,621,000 5,987,000 2,494,000 3,157,000
----------- ------------ ---------- ----------
Net interest income ........................................ 13,830,000 12,461,000 7,076,000 6,327,000
Provision for loan losses (credit) ................................. -- (75,000) -- --
----------- ------------ ---------- ----------
Net interest income after provision for loan losses (credit) ....... 13,830,000 12,536,000 7,076,000 6,327,000
----------- ------------ ---------- ----------
Noninterest income:
Trust Department income ........................................ 579,000 575,000 263,000 281,000
Service charges on deposit accounts ............................ 1,764,000 1,388,000 911,000 691,000
Other .......................................................... 322,000 251,000 211,000 132,000
----------- ------------ ---------- ----------
2,665,000 2,214,000 1,385,000 1,104,000
----------- ------------ ---------- ----------
Noninterest expense:
Salaries ....................................................... 4,435,000 4,012,000 2,236,000 2,044,000
Employee benefits .............................................. 1,774,000 1,555,000 868,000 775,000
Occupancy and equipment expense ................................ 1,420,000 1,265,000 672,000 623,000
Other operating expenses ....................................... 2,102,000 1,888,000 1,060,000 966,000
----------- ------------ ---------- ----------
9,731,000 8,720,000 4,836,000 4,408,000
----------- ------------ ---------- ----------
Income before income taxes ................................. 6,764,000 6,030,000 3,625,000 3,023,000
Income tax expense ................................................. 1,779,000 1,649,000 975,000 815,000
----------- ------------ ---------- ----------
Net Income ................................................. $ 4,985,000 $ 4,381,000 $2,650,000 $2,208,000
=========== ============ ========== ==========
Weighted average:
Common shares .................................................. 2,874,821 2,943,752 2,861,282 2,936,064
Dilutive stock options ......................................... 41,239 36,839 39,882 36,639
----------- ------------ ---------- ----------
2,916,060 2,980,591 2,901,164 2,972,703
=========== ============ ========== ==========
Earnings per share:
Basic .......................................................... $ 1.73 $ 1.49 $ .93 $ .75
=========== ============ ========== ==========
Diluted ........................................................ $ 1.71 $ 1.47 $ .91 $ .74
=========== ============ ========== ==========
See notes to consolidated financial statements
2
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2001
------------------------------------------------------------------------------------------------
Accumulated
Other
Common Stock Compre- Compre-
------------------------- hensive Retained hensive
Shares Amount Surplus Income Earnings Income Total
----------- ----------- ----------- ----------- ----------- ---------- -----------
Balance, January 1, 2001 ......... 2,892,549 $ 289,000 $ 1,188,000 $68,737,000 $ 652,000 $70,866,000
Net Income .................... $ 4,985,000 4,985,000 4,985,000
Repurchase and retirement
of common stock ............. (58,830) (6,000) (2,299,000) (2,305,000)
Exercise of stock options ..... 11,430 1,000 226,000 227,000
Unrealized gains on available-
for-sale-securities, net of
income taxes ................ 411,000 411,000 411,000
-----------
Comprehensive income .......... $ 5,396,000
===========
Cash dividends declared -
$.38 per share .............. (1,082,000) (1,082,000)
Tax benefit of stock options .. 31,000 31,000
Transfer from retained earnings
to surplus .................... 1,500,000 (1,500,000) --
----------- ----------- ----------- ----------- ---------- -----------
Balance, June 30, 2001 ........... 2,845,149 $ 284,000 $ 646,000 $71,140,000 $1,063,000 $73,133,000
=========== =========== =========== =========== ========== ===========
-------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2000
-------------------------------------------------------------------------------------------------
Accumulated
Other
Compre-
Common Stock Compre- hensive
------------------------- hensive Retained Income
Shares Amount Surplus Income Earnings (Loss) Total
----------- ----------- ----------- ----------- ----------- ---------- -----------
Balance, January 1, 2000 ......... 2,962,803 $ 296,000 $ 2,258,000 $ 63,013,000 $(1,334,000) $64,233,000
Net Income .................... $ 4,381,000 4,381,000 4,381,000
Repurchase and retirement
of common stock ............. (44,868) (4,000) (1,413,000) (1,417,000)
Exercise of stock options ..... 3,038 46,000 46,000
Unrealized gains on available-
for-sale-securities, net of
income taxes ................ 317,000 317,000 317,000
-----------
Comprehensive income .......... $ 4,698,000
===========
Cash dividends declared -
$.34 per share .............. (993,000) (993,000)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 2000 ........... 2,920,973 $ 292,000 $ 891,000 $66,401,000 $(1,017,000) $66,567,000
=========== =========== =========== =========== =========== ===========
See notes to consolidated financial statements
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
----------------------------------
2001 2000
------------- -------------
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows From Operating Activities:
Net income ............................................................................ $ 4,985,000 $ 4,381,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses (credit) .................................................. -- (75,000)
Deferred income tax provision (credit) .............................................. (40,000) 47,000
Depreciation and amortization ....................................................... 593,000 546,000
Premium amortization (discount accretion) on investment securities, net ............. (50,000) 292,000
Increase in prepaid income taxes .................................................... -- (49,000)
Increase in other assets ............................................................ (165,000) (295,000)
Decrease in accrued expenses and other liabilities .................................. (749,000) (111,000)
Increase in income taxes payable .................................................... 208,000 --
------------- -------------
Net cash provided by operating activities ........................................ 4,782,000 4,736,000
------------- -------------
Cash Flows From Investing Activities:
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity .................................................................... 178,648,000 96,179,000
Available-for-sale .................................................................. 5,777,000 9,045,000
Purchase of investment securities:
Held-to-maturity .................................................................... (172,667,000) (106,721,000)
Available-for-sale .................................................................. (18,049,000) (7,365,000)
Net increase in loans to customers ....................................................... (14,449,000) (4,065,000)
Purchases of bank premises and equipment ................................................. (687,000) (483,000)
------------- -------------
Net cash used in investing activities .......................................... (21,427,000) (13,410,000)
------------- -------------
Cash Flows From Financing Activities:
Net increase in total deposits ........................................................ 45,192,000 44,801,000
Proceeds from exercise of stock options ............................................... 227,000 46,000
Repurchase and retirement of common stock ............................................. (2,305,000) (1,417,000)
Cash dividends paid ................................................................... (1,099,000) (1,007,000)
------------- -------------
Net cash provided by financing activities ...................................... 42,015,000 42,423,000
------------- -------------
Net increase in cash and cash equivalents ................................................ 25,370,000 33,749,000
Cash and cash equivalents, beginning of year ............................................. 111,672,000 85,174,000
------------- -------------
Cash and cash equivalents, end of period ................................................. $ 137,042,000 $ 118,923,000
============= =============
Supplemental Schedule of Noncash:
Investing Activities
Unrealized gains on available-for-sale securities ..................................... $ 690,000 $ 548,000
Transfer of available-for-sale securities to held-to-maturity category ................ -- 14,836,000
Financing Activities
Cash dividends payable ................................................................ $ 1,082,000 $ 993,000
Tax benefit from exercise of employee stock options ................................... 31,000 --
The Corporation made interest payments of $5,733,000 and $5,940,000 and income
tax payments of $1,611,000 and $1,650,000 during the six months ended June 30,
2001 and 2000, respectively.
See notes to consolidated financial statements
4
THE FIRST OF LONG ISLAND CORPORATION AND SUBSIDIARY
JUNE 30, 2001
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The First of
Long Island Corporation and its wholly-owned subsidiary, The First National Bank
of Long Island (collectively referred to as the "Corporation").
The consolidated financial information included herein as of and for the
periods ended June 30, 2001 and 2000 is unaudited; however, such information
reflects all adjustments which are, in the opinion of management, necessary for
a fair statement of results for the interim periods. The December 31, 2000
consolidated balance sheet was derived from the Company's December 31, 2000
audited consolidated financial statements.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors that have affected the Corporation's financial condition and
operating results during the periods included in the accompanying consolidated
financial statements, and should be read in conjunction with such financial
statements. The Corporation's financial condition and operating results
principally reflect those of its wholly-owned subsidiary, The First National
Bank of Long Island (the "Bank"). The Corporation's primary service area is
Nassau and Suffolk Counties, Long Island.
Overview
The Corporation earned $1.71 per share for the first half of 2001 as
compared to $1.47 for the same period last year, an increase of approximately
16%. Based on net income of $4,985,000, the Corporation returned 1.58% on
average total assets and 13.94% on average total equity. This compares to
returns on assets and equity of 1.51% and 13.52%, respectively, for the same
period last year. Total assets and deposits each grew by approximately 9% when
comparing balances at June 30, 2001 to those at June 30, 2000. In addition,
during this same time period and despite continued purchases under the
Corporation's stock repurchase program, total capital before unrealized gains
and losses on available-for-sale securities grew by approximately 7%. The
Corporation's capital ratios continue to substantially exceed the current
regulatory criteria for a well-capitalized bank.
The growth in earnings for the first half of 2001 when compared to the same
period last year was primarily attributable to increases in service charge
income, net interest margin, average checking balances, and average money market
type savings balances. The positive impact of these factors was partially offset
by an increase in noninterest expense, some of which is attributable to new
branch offices opened during the latter part of 2000 and the early part of 2001.
Net Interest Income
Average Balance Sheet; Interest Rates and Interest Differential. The
following table sets forth the average daily balances for each major category of
assets, liabilities and stockholders' equity as well as the amounts and average
rates earned or paid on each major category of interest-earning assets and
interest-bearing liabilities.
6
Six Months Ended June 30,
---------------------------------------------------------------------------
2001 2000
--------------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------- --------- ----------- -------- -------- -----------
(dollars in thousands)
Assets
Federal funds sold .............. $ 88,392 $ 2,185 4.98% $ 73,594 $ 2,178 5.95%
Investment Securities:
Taxable ....................... 204,327 6,221 6.14 200,734 6,149 6.16
Nontaxable (1) ................ 110,758 3,892 7.03 91,467 3,259 7.13
Loans (1)(2) .................... 197,523 8,495 8.67 183,494 7,997 8.76
--------- --------- ----------- -------- -------- -----------
Total interest-earning assets ... 601,000 20,793 6.96 549,289 19,583 7.16
--------- ----------- -------- -----------
Allowance for loan losses ....... (1,947) (1,980)
--------- --------
Net interest-earning assets ..... 599,053 547,309
Cash and due from banks ......... 23,228 21,158
Premises and equipment, net ..... 7,101 6,725
Other assets .................... 5,726 6,673
--------- --------
$ 635,108 $581,865
========= ========
Liabilities and
Stockholders' Equity
Savings and money market deposits $ 325,032 4,690 2.91 $294,516 5,062 3.46
Time deposits ................... 42,223 931 4.45 40,808 925 4.56
--------- --------- ----------- -------- -------- -----------
Total interest-bearing deposits . 367,255 5,621 3.09 335,324 5,987 3.59
--------- --------- ----------- -------- -------- -----------
Checking deposits (3) ........... 191,967 179,145
Other liabilities ............... 3,798 2,224
--------- --------
563,020 516,693
Stockholders' equity ............ 72,088 65,172
--------- --------
$635,108 $581,865
========= ========
Net interest income (1) ......... $ 15,172 $ 13,596
========= ========
Net interest spread (1) ......... 3.87% 3.57%
=========== ===========
Net interest yield (1) .......... 5.09% 4.98%
=========== ===========
(1) Tax-equivalent basis. Interest income on a tax-equivalent basis includes
the additional amount of interest income that would have been earned if the
Corporation's investment in tax-exempt loans and investment securities had
been made in loans and investment securities subject to Federal income
taxes yielding the same after-tax income. The tax-equivalent amount of
$1.00 of nontaxable income was $1.52 in each period presented, based on a
Federal income tax rate of 34%.
(2) For the purpose of these computations, nonaccruing loans are included in
the daily average loan amounts outstanding.
(3) Includes official check and treasury tax and loan balances.
7
Rate/Volume Analysis. The following table sets forth the effect of changes
in volumes, changes in rates, and changes in rate/volume on tax-equivalent
interest income, interest expense and net interest income.
Six Months Ended June 30,
-------------------------------------------------------
2001 Versus 2000
Increase (decrease) due to changes in:
-------------------------------------------------------
Rate/ Net
Volume Rate Volume (2) Change
----------- ----------- ----------- -----------
(in thousands)
Interest Income:
Federal funds sold ............... $ 437 $ (353) $ (77) $ 7
Investment securities:
Taxable ........................ 110 (20) (18) 72
Nontaxable (1) ................. 687 (45) (9) 633
Loans (1) ........................ 610 (84) (28) 498
----------- ----------- ----------- -----------
Total interest income ............ 1,844 (502) (132) 1,210
----------- ----------- ----------- -----------
Interest Expense:
Savings and money
market deposits ................ 523 (798) (97) (372)
Time deposits .................... 32 (23) (3) 6
----------- ----------- ----------- -----------
Total interest expense ........... 555 (821) (100) (366)
----------- ----------- ----------- -----------
Increase (decrease) in net
interest income ................ $ 1,289 $ 319 $ (32) $ 1,576
=========== =========== =========== ===========
(1) Tax-equivalent basis.
(2) Represents the change not solely attributable to change in rate or change
in volume but a combination of these two factors.
Net interest income on a tax-equivalent basis increased by $1,576,000, or
11.6%, from $13,596,000 for the first half of 2000 to $15,172,000 for the same
period this year. As can be seen from the above rate/volume analysis, the
increase is primarily comprised of a positive volume variance of $1,289,000 and
a positive rate variance of $319,000.
The positive volume variance was largely caused by: (1) growth in average
checking deposits and the use of such funds to purchase investment securities
and originate loans; and (2) growth in money market type deposits and the use of
such funds to increase the Bank's overnight position in federal funds sold and
to purchase securities and originate loans. When comparing the first half of
2001 to the same period last year, average checking deposits increased by
$12,822,000, or approximately 7.2%, and average savings and money market
deposits increased by $30,516,000, or 10.4%. Although the checking increase was
less than that experienced during the first half of recent prior years, it was
nevertheless a significant contributing factor with respect to the six months'
earnings growth.
Funding interest-earning asset growth with growth in checking deposits has
a greater impact on net interest income than funding such growth with
interest-bearing deposits because checking deposits, unlike interest-bearing
deposits, have no associated interest cost. This is the primary reason that the
growth of checking balances has historically been one of the Corporation's key
strategies for increasing earnings per share.
The Bank's new business program is a significant factor that favorably
impacted the growth in average checking balances noted when comparing the first
half of 2001 to the
8
same period last year, and competitive pricing is a significant contributing
factor with respect to the growth in average interest-bearing deposits noted
during the same period. In addition, the growth in both checking and
interest-bearing deposits is also believed to be attributable to the Bank's
attention to customer service and local economic conditions.
The Bank's net interest spread and yield increased from 3.57% and 4.98%,
respectively, for the first half of 2000 to 3.87% and 5.09%, respectively, for
the same period this year. It would appear that the principal cause of these
increases was the significant decline in short-term interest rates experienced
during the first half of 2001. During this period, both the federal funds target
rate and the Bank's prime lending rate decreased by 275 basis points. As more
fully discussed in the Market Risk section of this discussion and analysis of
financial condition and results of operations, a decline in interest rates
should initially have a positive impact on net interest income. However, over
the longer term, the impact should be negative.
Allowance and Provision For Loan Losses
The allowance for loan losses was virtually unchanged during the first half
of 2001, amounting to $1,951,000 at June 30, 2001 as compared to $1,943,000 at
December 31, 2000. The allowance represented approximately 1% of total loans at
each date. During the first half of 2001, the Bank recorded loan chargeoffs and
recoveries of $7,000 and $15,000, respectively.
The allowance for loan losses is an amount that management currently
believes will be adequate to absorb estimated inherent losses in the Bank's loan
portfolio. Because the process for estimating credit losses and determining the
allowance for loan losses as of any balance sheet date is subjective in nature
and requires material estimates, there is not an exact amount but rather a range
for what constitutes an appropriate allowance. In estimating a range the Bank
selectively reviews individual credits in its portfolio and, for those loans
deemed to be impaired, measures impairment losses based on either the fair value
of collateral or the discounted value of expected future cash flows. Losses for
loans that are not specifically reviewed are determined on a pooled basis taking
into account a variety of factors including historical losses; levels of and
trends in delinquencies and nonaccruing loans; trends in volume and terms of
loans; changes in lending policies and procedures; experience, ability and depth
of lending staff; national and local economic conditions; concentrations of
credit; and environmental risks. Management also considers relevant loan loss
statistics for the Bank's peer group.
The amount of future chargeoffs and provisions for loan losses will be
affected by, among other things, economic conditions on Long Island. Such
conditions affect the financial strength of the Bank's borrowers and the value
of real estate collateral securing the Bank's mortgage loans. In addition,
future provisions and chargeoffs could be affected by environmental impairment
of properties securing the Bank's mortgage loans. Loans secured by real estate
represent approximately 78% of total loans outstanding at June 30, 2001.
Environmental audits for commercial mortgages were instituted by the Bank in
1987. Under the Bank's current policy, an environmental audit is required on
practically all commercial-type properties that are considered for a mortgage
loan. At the present time, the Bank is not aware of any existing loans in the
portfolio where there is environmental pollution originating on the mortgaged
properties that would materially affect the value of the portfolio.
9
Asset Quality
The Corporation has identified certain assets as risk elements. These
assets include nonaccruing loans, foreclosed real estate, loans that are
contractually past due 90 days or more as to principal or interest payments and
still accruing and troubled debt restructurings. These assets present more than
the normal risk that the Corporation will be unable to eventually collect or
realize their full carrying value. The Corporation's risk elements at June 30,
2001 and December 31, 2000 are as follows:
June 30, December 31,
2001 2000
----------- -----------
(dollars in thousands)
Nonaccruing loans ................................. $ 121 $ --
Foreclosed real estate ............................ -- --
----------- -----------
Total nonperforming assets ...................... 121 --
Troubled debt restructurings ...................... -- --
Loans past due 90 days or more as to
principal or interest payments and still accruing 225 173
----------- -----------
Total risk elements ............................. $ 346 $ 173
=========== ===========
Nonaccruing loans as a percentage of total loans .. .06% .00%
=========== ===========
Nonperforming assets as a percentage of total loans
and foreclosed real estate ...................... .06% .00%
=========== ===========
Risk elements as a percentage of total loans and
foreclosed real estate .......................... .17% .09%
=========== ===========
Noninterest Income, Noninterest Expense, and Income Taxes
Noninterest income consists primarily of service charges on deposit
accounts and Trust Department income. Service charge income increased by
$376,000, or 27.1%, from $1,388,000 for the first half of 2000 to $1,764,000 for
the same period this year. The increase, which is largely comprised of increases
in overdraft check charges and maintenance/activity charges, is largely
attributable to revisions made to the Bank's service charge schedule in the
third quarter of 2000 and the implementation during the current period of more
stringent criteria with respect to fee waivers.
Noninterest expense is comprised of salaries, employee benefits, occupancy
and equipment expense and other operating expenses incurred in supporting the
various business activities of the Corporation. Noninterest expense increased by
$1,011,000, or 11.6%, from $8,720,000 for the first half of 2000 to $9,731,000
for the same period this year. The increase is comprised of an increase in
salaries of $423,000, or 10.5%, an increase in employee benefits expense of
$219,000, or 14.1%, an increase in occupancy and equipment expense of $155,000,
or 12.3%, and an increase in other operating expenses of $214,000, or 11.3%.
The increase in salaries is attributable to normal annual salary
adjustments, filling of staff, and additions to staff resulting from, among
other things, the opening of three new branch offices in the latter part of 2000
and one new branch office in the early part of 2001. The increase in employee
benefits expense is largely attributable to the increased number of employees
and revisions made to the Bank's incentive compensation program. Increases in
depreciation expense, maintenance costs, and computer processing costs, a
10
portion of which resulted from new branch openings and new technology, and
increased consulting expense are the larger items that account for the increases
in occupancy and equipment expense and other operating expenses.
Income tax expense as a percentage of book income was 26.3% for the first
half of 2001 as compared to 27.3% for the same period last year. These
percentages vary from the statutory Federal income tax rate of 34% primarily
because of state income taxes and tax-exempt interest on municipal securities.
The decrease in the percentage for 2001 is primarily attributable to an increase
in the amount of tax-exempt income on municipal securities and increased funding
by the Bank of its REIT (real estate investment trust) and investment
subsidiaries.
Results of Operations - Three Months Ended June 30, 2001 Versus June 30, 2000
Net income for the second quarter of 2001 was $2,650,000, or $.91 per
share, as compared to $2,208,000, or $.74 per share, earned for the same quarter
last year. The primary reasons for the 23% increase in earnings per share are
substantially the same as those discussed with respect to the six-month periods.
Although earnings increased in both the first and second quarters of 2001,
the second quarter increase was larger because, among other things, declining
interest rates had a greater positive impact on second quarter net interest
income. The second quarter not only benefited from the full impact of the rate
reductions which occurred in the first quarter, but also benefited from further
rate reductions made in the second quarter.
Capital
Under current regulatory capital standards, banks are classified as well
capitalized, adequately capitalized or undercapitalized. The Corporation's
capital management policy is designed to build and maintain capital levels that
exceed the minimum requirements for a well-capitalized bank. The following table
sets forth the Corporation's capital ratios at June 30, 2001 and the minimum
ratios necessary to be classified as well capitalized and adequately
capitalized. The Corporation's capital ratios at June 30, 2001 substantially
exceed the requirements for a well-capitalized bank.
Regulatory Standards
Corporation's --------------------------
Capital Ratios at Well Adequately
June 30, 2001 Capitalized Capitalized
------------- ------------ -----------
Total Risk-Based Capital Ratio ..... 27.05% 10.00% 8.00%
Tier 1 Risk-Based Capital Ratio ..... 26.34 6.00 4.00
Tier 1 Leverage Capital Ratio ....... 11.19 5.00 4.00
Total stockholders' equity increased by $2,267,000, or from $70,866,000 at
December 31, 2000 to $73,133,000 at June 30, 2001. The increase in stockholders'
equity is primarily attributable to the combined effect of net income of
$4,985,000, unrealized gains on available-for-sale securities of $411,000, stock
repurchases amounting to $2,305,000, and cash dividends of $1,082,000.
Stock Repurchase Program. Since 1988, the Corporation has had a stock
repurchase program under which it can purchase, from time to time, shares of its
own common stock in market or private transactions. Under plans previously
approved by the Board of Directors, the Corporation purchased 58,830 shares thus
far in 2001 and can purchase 58,196 shares in the future.
11
The stock repurchase program has been used by management to enhance
earnings per share and return on average stockholders' equity. When comparing
the first half of 2001 to the same period last year, earnings per share are up
24 cents. Of the 24-cent increase, approximately 3 cents is attributable to
shares repurchased in 2000 and thus far this year. On a full-year basis, these
repurchases should add approximately 9 cents to earnings per share.
Cash Flows and Liquidity
Cash Flows. During the first six months of 2001, cash and cash equivalents
increased by $25,370,000. As shown in the consolidated statement of cash flows,
this occurred primarily because the cash provided by operations and deposit
growth exceeded the cash used for loan growth, investment securities growth,
cash dividends, and stock repurchases.
The deposit growth, which amounted to $45,192,000, is primarily
attributable to growth in money market type balances, checking balances, and
IOLA balances (interest on lawyer accounts).
Liquidity. The Corporation's primary sources of liquidity are its overnight
position in federal funds sold, its short-term investment securities portfolio
which generally consists of securities purchased to mature within one year and
securities with average lives of one year or less, maturities and monthly
payments on the balance of the investment securities portfolio and the loan
portfolio, and investment securities designated as available-for-sale. At June
30, 2001, the Corporation had $108,800,000 in federal funds sales, a short-term
securities portfolio of $29,135,000, and available-for-sale securities of
$96,525,000. The Corporation's liquidity is enhanced by its stable deposit base
which primarily consists of checking, savings, and money market accounts. Such
accounts comprised 93.5% of total deposits at June 30, 2001, while time deposits
of $100,000 and over and other time deposits comprised only 2.2% and 4.3%,
respectively.
The Bank attracts all of its deposits through its banking offices primarily
from the communities in which those banking offices are located and does not
rely on brokered deposits. In addition, the Bank has not historically relied on
purchased or borrowed funds as sources of liquidity.
Market Risk
The Bank invests in interest-earning assets which are funded by
interest-bearing deposits, noninterest-bearing deposits, and capital. The Bank's
results of operations are subject to risk resulting from interest rate
fluctuations generally and having assets and liabilities that have different
maturity, repricing, and prepayment/withdrawal characteristics. The Bank defines
interest rate risk as the risk that the Bank's earnings and/or net portfolio
value will change when interest rates change. The principal objective of the
Bank's asset/liability management activities is to maximize net interest income
while at the same time maintain acceptable levels of interest rate and liquidity
risk and facilitate the funding needs of the Bank.
During the first six months of 2001, there was a significant decrease in
short-term interest rates as evidenced by a 275 basis point reduction in both
the federal funds target rate and the Bank's prime lending rate. In addition,
rates on intermediate term securities and loans also decreased but by lesser
amounts. Because the Bank's loans and investment securities generally reprice
slower than its interest-bearing deposit accounts, a decrease in interest rates
should initially have a positive impact on the Bank's net interest
12
income. However, since approximately 39% of the Bank's average interest-earning
assets are funded by noninterest-bearing checking deposits and capital, if rates
are sustained at the lower levels and the Bank purchases securities and
originates loans at yields lower than those maturing and reprices loans at lower
yields, the eventual impact on net interest income should be negative. The
reverse should be true of an increase in interest rates.
It is believed that the Corporation's exposure to interest rate risk has
not changed materially since December 31, 2000.
Legislation
Commercial checking deposits currently account for approximately 26% of the
Bank's total deposits. Congress is considering legislation that would allow
customers to cover checks by sweeping funds from interest-bearing deposit
accounts each business day and repeal the prohibition of the payment of interest
on corporate checking deposits in the future. Although management currently
believes that the Bank's earnings could be more severely impacted by permitting
the payment of interest on corporate checking deposits than the daily sweeping
of funds from interest-bearing accounts to cover checks, either could have a
material adverse impact on the Bank's future results of operations.
Forward Looking Statements
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains various forward-looking statements with respect to
financial performance and business matters. Such statements are generally
contained in sentences including the words "expect" or "could" or "should" or
"would". The Corporation cautions that these forward-looking statements are
subject to numerous assumptions, risks and uncertainties, and therefore actual
results could differ materially from those contemplated by the forward-looking
statements. In addition, the Corporation assumes no duty to update
forward-looking statements.
13
PART II. OTHER INFORMATION
ITEM 1. NONE
ITEM 2. NONE
ITEM 3. NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of The First of Long Island Corporation
(the "Corporation") held April 17, 2001 was called to: (1) approve an amendment
of the Corporation's Stock Option Plan to allow for the granting of stock
options to non-employee directors of the Corporation and to limit the number of
stock options and stock appreciation rights that can be granted to any one
person in any one fiscal year to 25,000; and (2) to elect four directors to
serve for two-year terms and until their successors have been elected and
qualified.
The amendment to the Stock Option Plan was approved by the stockholders in
that it received the affirmative vote of the holders of a majority of the shares
entitled to vote and represented at the meeting. The total number of shares
which could have been voted at the annual meeting was 2,889,390. There were
1,975,075 votes cast for the amendment of the Stock Option Plan, 191,604 votes
cast against, and 28,169 abstentions.
For the election of directors, each share is entitled to as many votes as
there are directors to be elected, and such votes may be cumulated and voted for
one nominee or divided among as many different nominees as is desired. If
authority to vote for any nominee or nominees is withheld on any proxy, the
votes are spread among the remaining nominees. The following table lists the
directors elected at the annual meeting and, for each director elected, the
number of votes cast for and the number of votes withheld. No other persons were
nominated and no other persons received any votes.
- --------------------------------------------------------------------------------
Number of Votes
---------------------------------
Directors Elected At
Annual Meeting Cast For Withheld
- --------------------------------------------------------------------------------
Howard Thomas Hogan, Jr. 2,188,334 6,514
J. Douglas Maxwell, Jr. 2,188,334 6,514
John R. Miller III 2,188,334 6,514
Walter C. Teagle III 2,188,334 6,514
- --------------------------------------------------------------------------------
The name of each other director whose term of office as a director
continued after the annual meeting is as follows:
Term as Director
Name Expires
- ---- ---------------
Allen E. Bushing 2002
Paul T. Canarick 2002
Beverly Ann Gehlmeyer 2002
J. William Johnson 2002
ITEM 5. STOCK REPURCHASE PROGRAM
Since 1988, the Corporation has had a stock repurchase program under which
it can purchase, from time to time, shares of its own common stock in market or
private transactions. Under plans previously approved by the Board of Directors,
the Corporation purchased 58,830 shares thus far in 2001 and can purchase 58,196
shares in the future.
ITEM 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
14
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
THE FIRST OF LONG ISLAND CORPORATION
--------------------------------------
(Registrant)
/s/ J. WILLIAM JOHNSON
DATE: August 9, 2001 --------------------------------------
J. WILLIAM JOHNSON, PRESIDENT
(principal executive officer)
/s/ MARK D. CURTIS
--------------------------------------
MARK D. CURTIS
SENIOR VICE PRESIDENT AND TREASURER
(principal financial and accounting officer)
15