EXHIBIT 13 - REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1998
61
1998
ANNUAL REPORT
[PHOTO OMITTED]
Eatons Neck
[LOGO] The First of Long Island
The First of Long Island Corporation
62
SELECTED FINANCIAL DATA
The following is selected consolidated financial data for the past five
years. This data should be read in conjunction with the information contained
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the accompanying consolidated financial
statements and related notes.
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
INCOME STATEMENT DATA:
Total Interest Income ...................... $ 32,682,000 $ 30,401,000 $ 28,585,000 $ 28,017,000 $ 24,861,000
Total Interest Expense ..................... 9,867,000 9,197,000 8,492,000 8,899,000 6,175,000
Net Interest Income ........................ 22,815,000 21,204,000 20,093,000 19,118,000 18,686,000
Provision for Loan Losses (Credit) ......... (100,000) (100,000) -- -- --
Net Income ................................. 8,368,000 7,626,000 6,891,000 6,208,000 6,028,000
PER SHARE DATA: (1)
Basic Earnings ............................. $ 2.69 $ 2.45 $ 2.20 $ 1.97 $ 1.92
Diluted Earnings ........................... 2.64 2.40 2.15 1.94 1.89
Cash Dividends Declared .................... .57 .49 .43 .37 .34
Stock Splits/Dividends Declared ............ -- 3-for-2 -- 3-for-2 --
Book Value ................................. $ 21.03 $ 18.94 $ 17.29 $ 15.69 $ 13.52
BALANCE SHEET DATA AT PERIOD END:
Total Assets ............................... $547,622,000 $484,674,000 $440,903,000 $425,655,000 $396,055,000
Total Loans ................................ 170,718,000 154,730,000 152,682,000 145,874,000 143,613,000
Allowance for Loan Losses .................. 3,651,000 3,579,000 3,600,000 3,600,000 3,600,000
Total Deposits ............................. 479,231,000 422,759,000 384,361,000 373,955,000 351,526,000
Stockholders' Equity ....................... 65,099,000 58,966,000 54,169,000 49,340,000 42,608,000
AVERAGE BALANCE SHEET DATA:
Total Assets ............................... $510,409,000 $460,551,000 $436,659,000 $411,717,000 $390,543,000
Total Loans ................................ 164,063,000 153,733,000 150,090,000 143,677,000 141,399,000
Allowance for Loan Losses .................. 3,643,000 3,597,000 3,606,000 3,607,000 3,602,000
Total Deposits ............................. 445,266,000 402,392,000 383,091,000 363,676,000 347,674,000
Stockholders' Equity ....................... 62,326,000 56,234,000 51,229,000 45,908,000 41,005,000
FINANCIAL RATIOS:
Return on Average Total Assets (ROA) ....... 1.64% 1.66% 1.58% 1.51% 1.54%
Return on Average Stockholders' Equity (ROE) 13.43 13.56 13.45 13.52 14.70
Average Equity to Average Assets ........... 12.21 12.21 11.73 11.15 10.50
(1) Per share data have been adjusted to reflect the 3-for-2 stock splits
declared in 1997 and 1995.
STOCK PRICES
The Corporation's Common Stock trades on The Nasdaq SmallCap Market tier of
The Nasdaq Stock Market under the symbol FLIC. The following table sets forth
high and low sales prices for the years ended December 31, 1998 and 1997.
1998 1997
------------------------ ------------------------
Quarter High Low High Low
- ------- --------- --------- --------- ---------
First $ 54 $ 40 $ 28 2/3 $ 22 1/3
Second 52 46 3/4 29 27 1/3
Third 48 1/2 41 1/8 32 1/6 28 2/3
Fourth 44 37 41 1/6 32 1/3
At December 31, 1998, 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. Prices have been adjusted to reflect a 3-for-2 stock split declared
in December 1997.
63
CONTENTS
Selected Financial Data............................................... (i)
Letter to Stockholders................................................ 1
Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 4
Management's Responsibility for Financial Reporting................... 14
Consolidated Financial Statements and Notes........................... 15
Report of Independent Public Accountants.............................. 37
Directors--The First of Long Island Corporation, The First
National Bank of Long Island........................................ 38
Senior Management--The First National Bank of Long Island............. 39
Officers--The First of Long Island Corporation, The First
National Bank of Long Island........................................ 40
Business Development Board--The First National Bank of Long
Island.............................................................. 41
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 eighteen 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 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 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 20, 1999 at 3:30 P.M.
---------------------------------------------------------------------------
Executive Office Transfer Agent and Registrar
The First of Long Island Corporation Registrar and Transfer Company
10 Glen Head Road 10 Commerce Drive
Glen Head, New York 11545 Cranford, New Jersey 07016-3572
(516) 671-4900 (800) 368-5948
www.firstofli.com
---------------------------------------------------------------------------
This annual report contains Year 2000 readiness disclosures
which are subject to the Year 2000 Information and Readiness Disclosure Act.
64
A Letter To Our Stockholders
[PHOTO OMITTED]
J. William Johnson
Chairman and Chief Executive Officer
We look forward to the future with a great deal of confidence in The First of
Long Island as a premier financial institution.
[LOGO] The First Of Long Island
65
To Our Stockholders, Customers and Friends
We are pleased to report on The First of Long Island's results this past
year. All major goals for the year were exceeded and despite continued negative
pressure on our net interest margin, earnings per share were up 10%. Earnings
equaled $2.64 per share in 1998 as compared to $2.40 per share the year earlier.
Except for a 6% decline in the 1991 recession (when many banks had net losses)
and excluding a nonrecurring credit in 1993, this is the twenty-first year of
increased earnings for The First of Long Island and, without exception, the
twenty-first year of dividend increases. Dividends declared for 1998 were 57
cents per share, an increase of 16% over the amount declared last year.
Once again, the most important factor in the growth in earnings was
checking deposits which increased on average by $21,700,000, or just over 16%.
Other important contributors that positively impacted earnings were increases in
stockholders' equity, service charge income and commercial loans. Service charge
income grew by approximately 12%.
Overall there was an 8%, or $13,000,000, growth in loans from December 31,
1997 to a year later. Commercial loans had the most significant percentage
growth while mortgages also showed good increases. Residential mortgages
continued to grow and we were especially gratified by the growth in commercial
mortgages. The growth in commercial mortgages is the first increase we have had
in this important product in recent years. Consumer loans declined mostly
because of the periodic sale of student loans.
As previously stated, we have had continued pressure on our net interest
margin. The general decline of interest rates in recent years has hurt our
margins, as longer-term securities cannot be replaced upon maturity with
securities bearing comparable yields. In addition, we have experienced
competitive pressure in the past few years on our loan interest margins. During
a period of declining interest rates, there can be some short-term benefit to
our margins as, for example, money market savings rates would be expected to
reprice more quickly than one-year adjustable rate mortgages. However, for
longer-term securities and loans we are negatively impacted by lower rates. This
is because we consider our longer-term earning assets to be principally funded
by checking deposits and stockholders' equity whose cost does not relate to the
level of interest rates. The First of Long Island should have its highest and
most stable net interest margin in times of sustained high rates.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL]
Earnings per share
1979 $ .12
1980 $ .23
1981 $ .25
1982 $ .31
1983 $ .39
1984 $ .57
1985 $ .87
1986 $1.02
1987 $1.09
1988 $1.25
1989 $1.29
1990 $1.37
1991 $1.29
1992 $1.55
1993 $1.72
1994 $1.89
1995 $1.94
1996 $2.15
1997 $2.40
1998 $2.64
On a fully diluted basis
Our return on assets continued at a particularly high level in 1998 being
at 1.64%. In addition, return on equity remained fairly consistent with recent
years.
The year 1998 and the beginning of 1999 have been very active for us as we
are converting our entire branch computer system to a new and more advanced PC
network. Installations at our branches commenced in the last quarter of 1998 and
are continuing into the first quarter of 1999. This computer system, as well as
certain new communications initiatives, are expensive and involve major
undertakings for us. These changes also come at a time when our old systems were
fully depreciated.
Another major undertaking over the past twelve months has been the opening
of four branch offices. In February 1998 we moved our Rockville Centre office
and converted it from a commercial banking facility to a full service location.
In August we opened a new commercial banking office in Hauppauge, followed by
similar offices in Bohemia in September and Garden City in January 1999. We are
very excited about these branches. However, they will have a negative impact on
earnings, the period of which we hope will be short. We believe we have a
valuable window of opportunity occasioned by mergers of the megabanks and our
66
conclusion that their ability to deliver high quality service is made especially
difficult in periods where their focus is on consolidation and cost cutting.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL]
Cash Dividends Declared Per Share
1979 $.01
1980 $.03
1981 $.03
1982 $.05
1983 $.07
1984 $.08
1985 $.12
1986 $.15
1987 $.17
1988 $.19
1989 $.19
1990 $.23
1991 $.25
1992 $.28
1993 $.31
1994 $.34
1995 $.37
1996 $.43
1997 $.49
1998 $.57
This past year has also seen a significant amount of work and attention
focused on the Year 2000 date change problem,"Y2K." The First of Long Island
began work on this issue in 1996. We have made excellent progress overall,
including remediation of the data processing systems used in our core banking
activities. Full remediation and installation of those systems is expected
within the next few months, although testing will continue through 1999.
In the coming years we expect to continue our emphasis on opening
commercial banking offices. Prior to 1998, such offices have been located in
commercial areas but none that would be deemed to be mostly industrial. Two of
the offices opened this past twelve months are in industrial locations where
there also is significant competition. We are anxious to measure our
effectiveness in soliciting business in such markets as we determine potential
markets for future offices. We will also evaluate the relative success of our
new Rockville Centre office as we assess the market for full service branches in
the future.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL]
Return on Average Assets
1994 1.54%
1995 1.51%
1996 1.58%
1997 1.66%
1998 1.64%
As we have in the past, we will maintain our emphasis on servicing
privately owned businesses, professionals and the service conscious consumer. We
face many challenges among which are low interest margins if the level of
interest rates remains low, the challenge of rapidly changing technologies, the
possibility of interest being paid on corporate checking balances, and the
economy, as this extraordinarily long expansion must sometime come to an end.
However, The First of Long Island is a unique company. We were once again
recognized for superior performance by US Banker. In its June issue, among the
top 200 mid-sized publicly traded banks in the nation, the Company received the
distinction of "3rd in Nation" in terms of overall financial performance and 1st
in the Nation in terms of capital, being denoted as "Best Capitalized." We are
highly focused on our markets and providing an extremely high quality of service
to our customers. We always look forward to the future with a bit of concern but
also with a great deal of confidence in The First of Long Island as a premier
financial institution not only on Long Island, but in the United States as a
whole.
/s/ J. William Johnson
J. William Johnson
Chairman and Chief Executive Officer
67
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
1998 Versus 1997 Summary. The Corporation earned $2.64 per share in 1998 as
compared to $2.40 in 1997, an increase of 10%. Based on 1998 net income of
$8,368,000, the Corporation returned 1.64% on average total assets and 13.43% on
average total equity, representing returns just slightly below those realized in
1997. Total assets and deposits were $547,622,000 and $479,231,000,
respectively, at December 31, 1998, representing increases over prior year-end
balances of approximately 13%. Capital grew by $6,133,000, or 10.4%, during
1998, and the Corporation's capital ratios continue to substantially exceed the
current regulatory criteria for a well-capitalized bank. In addition, the
Corporation's liquidity continues to be strong.
The most significant reason for the positive results in 1998 is an increase
in average checking balances of $21,699,000, or a bit more than 16%. As in prior
years, the Bank was again able to use the growth of checking balances as a key
strategy in increasing earnings per share. Other factors that positively
impacted 1998 results were the growth of capital, an 11.7% increase in service
charge income, and commercial loan growth.
When comparing year-end balances, total loans grew by 10.3% in 1998. This
is very favorable by contrast to growth of 1.3% for the prior year. With
improved economic conditions on Long Island, the Bank was able to grow its
commercial mortgage portfolio by approximately 6.7%. Commercial mortgages
continue to be the Bank's most important loan product.
Residential mortgages, excluding equity loans and lines, also grew nicely
in 1998, with year-end 1998 balances up by almost 14.5% when compared to 1997.
Other commercial loans grew by approximately 12% and consumer loans declined.
The decline in consumer loans is primarily attributable to the Bank's program of
selling student loans as they enter repayment status.
The Bank's portfolios of tax-exempt securities and collateralized mortgage
obligations ("CMOs") grew substantially during 1998, while the U.S. Treasury
portfolio declined. This occurred as a result of management's efforts to take
advantage of the better returns afforded by municipal securities and CMOs
relative to the Treasury sector. Savings and money market deposits were up 9.5%
when comparing year-end 1998 to 1997 primarily because of growth in "Select
Savings" and "Advantage" balances. The Select Savings product is a statement
savings account that earns a higher money market rate and the Advantage product
is an interest-bearing checking account. Advantage balances grew largely because
of increased solicitation of IOLA (interest on lawyer) accounts.
1997 Versus 1996 Summary. The Corporation earned $2.40 per share in 1997 as
compared to $2.15 in 1996, an increase of over 11%. Based on 1997 net income of
$7,626,000, the Corporation returned 1.66% on average total assets and 13.56% on
average total equity, as compared to returns of 1.58% and 13.45%, respectively,
in 1996. Total assets and deposits were $484,674,000 and $422,759,000,
respectively, at December 31, 1997, representing increases over prior year-end
balances of approximately 10%. During 1997 capital grew by $4,797,000, or nearly
9%.
The most significant reason for the positive results in 1997 was an
increase in average checking balances of $9,250,000. Another factor that
positively impacted 1997 results was that total operating expenses, exclusive of
personnel costs, remained virtually level. Other contributing factors were an
11% increase in service charge income and the growth of capital.
There was little overall loan growth in 1997. Commercial mortgages declined
slightly in 1997 as new production lagged payoffs in what is a mature portfolio.
By contrast, other commercial loans grew in 1997 with the year-end 1997 balance
up by more than 10% when compared to 1996. Residential mortgages and equity
lines of credit also grew in 1997, while consumer loans declined. The decline in
consumer loans was primarily attributable to the bulk sale of student loans that
were in repayment status.
68
The Bank's portfolio of tax-exempt securities grew by approximately 34% in
1997 as a result of management's efforts to take advantage of the favorable
returns afforded by longer-term, municipal securities. Savings and money market
deposits were up almost 9% when comparing year-end 1997 to 1996 primarily
because of the Bank's introduction of its "Select Savings" product.
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.
1998 1997 1996
----------------------------- ---------------------------- -----------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- ------- ------- -------- ------- -------- -------- -------
Assets: (dollars in thousands)
Federal funds sold
and commercial paper .............. $ 56,355 $ 2,953 5.24% $ 47,664 $ 2,580 5.41% $ 36,460 $ 1,923 5.27%
Investment securities:
Taxable ........................... 194,380 12,039 6.19 188,456 11,828 6.28 180,574 11,383 6.30
Nontaxable (1) .................... 69,334 4,706 6.79 46,897 3,264 6.96 41,763 2,917 6.98
Loans (1) (2) ....................... 164,063 14,661 8.94 153,733 13,862 9.02 150,090 13,407 8.93
--------- --------- ---- --------- --------- ---- --------- --------- ----
Total interest-earning assets (1) ... 484,132 34,359 7.10 436,750 31,534 7.22 408,887 29,630 7.24
--------- ---- --------- ---- --------- ----
Allowance for loan losses ........... (3,643) (3,597) (3,606)
--------- --------- --------
Net interest-earning assets ......... 480,489 433,153 405,281
Cash and due from banks ............. 17,429 16,214 19,853
Premises and equipment, net ......... 5,424 4,948 5,050
Other assets ........................ 7,067 6,236 6,475
--------- --------- ---------
$ 510,409 $ 460,551 $ 436,659
========= ========= =========
Liabilities and
Stockholders' Equity:
Savings and money
market deposits ................... $ 250,236 7,998 3.20 $ 229,639 7,309 3.18 $ 222,319 6,788 3.05
Time deposits ....................... 40,249 1,869 4.64 39,671 1,888 4.76 36,940 1,704 4.61
--------- --------- ---- --------- --------- ---- --------- --------- ----
Total interest-bearing deposits ..... 290,485 9,867 3.40 269,310 9,197 3.42 259,259 8,492 3.28
--------- --------- ---- --------- --------- ---- --------- --------- ----
Checking deposits (3) ............... 154,781 133,082 123,832
Other liabilities ................... 2,817 1,925 2,339
--------- --------- ---------
448,083 404,317 385,430
Stockholders' equity ................ 62,326 56,234 51,229
--------- --------- ---------
$ 510,409 $ 460,551 $ 436,659
========= ========= =========
Net interest income (1) ............. $ 24,492 $ 22,337 $ 21,138
========= ========= =========
Net interest spread (1) ............. 3.70% 3.80% 3.96%
==== ==== ====
Net interest yield (1) .............. 5.06% 5.11% 5.17%
==== ==== ====
(1) Tax-equivalent basis. Interest income on a tax-equivalent basis includes
the additional amount of interest income that would have been earned if the
Bank's investment in tax-exempt loans and investment securities had been
made in loans and investment securities subject to Federal income taxes
yielding the same after-tax income. The tax-equivalent amount of $1.00 of
nontaxable income was $1.52 in each year presented, based on a Federal
income tax rate of 34%.
(2) For the purpose of these computations, nonaccruing loans are included in
the daily average loan amounts outstanding.
(3) Includes official check and treasury tax and loan balances.
69
Rate/Volume Analysis. The following table sets forth the effect of changes
in volumes, rates, and rate/volume on tax-equivalent interest income, interest
expense and net interest income.
Year Ended December 31,
-----------------------------------------------------------------------------------------
1998 versus 1997 1997 versus 1996
Increase (decrease) due to changes in: Increase (decrease) due to changes in:
------------------------------------------ ------------------------------------------
Rate/ Net Rate/ Net
Volume Rate Volume(2) Change Volume Rate Volume(2) Change
------- ------- --------- ------- ------- ------- --------- -------
(in thousands)
Interest Income:
Federal funds sold .................... $ 470 $ (82) $ (15) $ 373 $ 591 $ 51 $ 15 $ 657
Investment securities:
Taxable ............................. 372 (156) (5) 211 497 (50) (2) 445
Nontaxable (1) ...................... 1,562 (81) (39) 1,442 359 (10) (2) 347
Loans (1) ............................. 931 (124) (8) 799 325 127 3 455
------- ------- ------- ------- ------- ------- ------- -------
Total interest income ................. 3,335 (443) (67) 2,825 1,772 118 14 1,904
------- ------- ------- ------- ------- ------- ------- -------
Interest Expense:
Savings and money
market deposits ..................... 656 31 2 689 223 288 10 521
Time deposits ......................... 28 (46) (1) (19) 126 54 4 184
------- ------- ------- ------- ------- ------- ------- -------
Total interest expense ................ 684 (15) 1 670 349 342 14 705
------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in net
interest income ..................... $ 2,651 $ (428) $ (68) $ 2,155 $ 1,423 $ (224) $ -- $ 1,199
======= ======= ======= ======= ======= ======= ======= =======
(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 - 1998 Versus 1997
Net interest income on a tax-equivalent basis increased by $2,155,000, or
9.6%, from $22,337,000 in 1997 to $24,492,000 in 1998. As can be seen from the
above rate/volume analysis, the increase is comprised of a positive volume
variance of $2,651,000 and negative rate and rate/volume variances of $428,000
and $68,000, respectively.
The positive volume variance was largely caused by growth in average
checking deposits and stockholders' equity and the use of such funds to purchase
investment securities and originate loans. When comparing 1998 to 1997, average
checking deposits increased by $21,699,000, or 16.3%, and average stockholders'
equity increased by $6,092,000, or 10.8%.
Also contributing to the positive volume variance was growth in money
market deposits. The resulting funds were used to increase the Bank's overnight
position in federal funds sold and to purchase securities and originate loans.
When comparing 1998 to 1997, average money market deposits increased by
$25,091,000, or 13.8%.
Funding interest-earning asset growth with growth in checking deposits and
capital has a greater impact on net interest income than funding such growth
with interest-bearing deposits because checking deposits and capital, unlike
interest-bearing deposits, have no associated interest cost. The growth of
checking balances has historically been one of the Corporation's key strategies
for increasing earnings per share.
The Bank's calling program is a significant factor that favorably impacted
the growth in average checking balances noted when comparing 1998 to 1997, 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
attributable to the Bank's attention to customer service and improved conditions
in the local economy.
70
Net interest spread and yield were 3.70% and 5.06%, respectively, for 1998
as compared to 3.80% and 5.11%, respectively, for 1997. It would appear that the
principal causes for the decreases in spread and yield are pressure on loan
rates brought about by competitive pricing and reduced yield on the Bank's
investment securities portfolio.
In 1998, nontaxable investment securities represented 14.3% of total
average interest-earning assets, up from 10.7% in 1997. This change resulted
from management's efforts to grow the longer-term, municipal securities
portfolio in light of the favorable returns offered by municipals relative to
U.S. Treasury securities. Average total loans increased by 6.7% when comparing
1998 to 1997 and 2.4% when comparing 1997 to 1996. The increased growth rate for
1998 is believed to be largely attributable to improved economic conditions on
Long Island.
Net Interest Income - 1997 Versus 1996
Net interest income on a tax-equivalent basis increased by $1,199,000, or
5.7%, from $21,138,000 in 1996 to $22,337,000 in 1997. As can be seen from the
Rate/Volume Analysis, the increase was comprised of a positive volume variance
of $1,423,000 and a negative rate variance of $224,000.
The positive volume variance was largely caused by growth in average
checking deposits and stockholders' equity and the use of such funds to purchase
investment securities and originate loans. When comparing 1997 to 1996, average
checking deposits increased by $9,250,000, or 7.5%, and average stockholders'
equity increased by $5,005,000, or 9.8%.
Also contributing to the positive volume variance was growth in money
market deposits. The resulting funds were used to increase the Bank's overnight
position in federal funds sold. When comparing 1997 to 1996, average money
market deposits increased by $12,148,000, or 7.2%.
The Bank's calling program was a significant factor that favorably impacted
the growth in average checking balances noted when comparing 1997 to 1996, and
competitive pricing was 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 was also
attributable to the Bank's attention to customer service and local economic
conditions.
Net interest spread and yield were 3.80% and 5.11%, respectively, for 1997
as compared to 3.96% and 5.17%, respectively, for 1996. It would appear that the
principal cause for the decreases in spread and yield was pressure on loan rates
brought about by competitive pricing.
Noninterest Income, Noninterest Expense, and Income Taxes
Noninterest income consists primarily of service charges on deposit
accounts and Trust Department income. Noninterest income was $4,820,000 and
$4,318,000 in 1998 and 1997, respectively, representing increases over prior
year amounts of $502,000, or 11.6%, and $412,000, or 10.6%. The increase for
1998 is largely comprised of increases in Trust Department income, account
maintenance/activity charges, and insufficient funds charges. The increase for
1997 was largely attributable to an increase in insufficient funds charges, a
portion of which resulted from a revision of the Bank's service charge schedule,
and the absence of securities losses in 1997 versus losses of $148,000 in 1996.
Noninterest expense is comprised of salaries, employee benefits, occupancy
and equipment expense and other operating expenses incurred in supporting the
various business activities of the Corporation. Noninterest expense was
$15,469,000 and $14,285,000 in 1998 and 1997, respectively, representing
increases over prior year amounts of $1,184,000, or 8.3%, and $786,000, or 5.8%.
The increase for 1998 is primarily attributable to increases in salaries and
other operating expenses of $633,000 and $323,000, respectively. The increase in
salaries is primarily attributable to normal annual salary increases and the
opening of a full-service branch in Rockville Centre, Nassau County, Long Island
in February of 1998 (the Bank simultaneously closed its Rockville Centre
commercial banking office) and two new commercial banking offices in Suffolk
County, Long Island in the third quarter of 1998. The increase in other
operating expenses is largely attributable to the new branch openings.
In addition to the new full-service branch and commercial banking offices
discussed above, the Bank opened a new commercial banking office in Garden City,
Long Island in January 1999. Although the new locations are expected to
positively impact results of operations on a longer-term basis, the near-term
impact is expected to be negative as a result of start-up expenses, increased
marketing efforts, and operating expenses incurred while a customer base is
being built. Based on available information, management expects that the
negative impact on 1999 net income before income taxes should not exceed
$350,000.
The increase in noninterest expense for 1997 was primarily attributable to
increases in salaries and employee benefits expense of $355,000 and $450,000,
respectively. The increase in salaries was primarily attributable to normal
annual
71
salary increases. The largest component of the increase in employee benefits
expense was an increase in employee retirement plan expense of $196,000.
In 1998 the Bank began upgrading various equipment, particularly in its
branch system, to better serve its customers and improve the efficiency of its
operations. Such upgrades are expected to be completed in 1999. The upgrades
have and will continue to negatively impact results of operations as the new
items replace ones that are fully-depreciated. Based on available information,
management expects the negative impact on 1999 net income before income taxes to
be approximately $450,000.
Income tax expense as a percentage of book income was 31.8%, 32.7%, and
34.4% in 1998, 1997 and 1996, respectively. The decrease in the percentage for
1998 is primarily attributable to an increase in the size of the Bank's
tax-exempt securities portfolio. The decrease for 1997 was primarily
attributable to refunds of federal and state income taxes resulting from
amending prior year tax returns.
Allowance and Provision For Loan Losses
The allowance for loan losses was $3,651,000 at December 31, 1998 as
compared to $3,579,000 at December 31, 1997, representing 2.1% and 2.3% of total
loans, respectively. The change in the allowance during 1998 is due to
recoveries of $271,000, chargeoffs of $99,000, and a $100,000 credit in the
provision for loan losses.
The allowance for loan losses is an amount that management currently
believes will be adequate to absorb possible future losses on existing loans.
The provision charged to operations, if any, and the related balance in the
allowance for loan losses is based upon periodic evaluations of the loan
portfolio by management. These evaluations consider a variety of factors
including, but not limited to, historical losses; a borrower's ability to repay;
the value of any related collateral; 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.
In both 1998 and 1997, the Bank recovered amounts previously charged off
through the sale of a nonaccruing loan. The recovery in each year increased the
level of the allowance for loan losses beyond what management deemed necessary
to absorb possible future losses on existing loans and, as a result, management
reduced the allowance with an offsetting credit to the provision for loan
losses. The provision credit in each year was $100,000.
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 77% of total loans outstanding at December 31, 1998.
Since 1987, environmental audits have been instituted on commercial properties
and the incidence and scope of these audits has been increased over the
succeeding years. 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.
72
Asset Quality
The Corporation has identified certain assets as risk elements. These
assets present more than the normal risk that the Company will be unable to
eventually collect or realize their full carrying value. As shown in the table
that follows, the total level of risk elements decreased from $437,000 at
year-end 1997 to $22,000 at year-end 1998. The reduction is primarily due to the
resolution of several nonaccruing loans.
1998 1997
---- ----
(dollars in
thousands)
Nonaccruing loans .......................................... $ 22 $382
Foreclosed real estate ..................................... -- --
---- ----
Total nonperforming assets ............................... 22 382
Troubled debt restructurings ............................... -- 6
Loans past due 90 days or more as to
principal or interest payments and still accruing ........ -- 49
---- ----
Total risk elements ...................................... $ 22 $437
==== ====
Nonaccruing loans as a percentage of total loans ........... .01% .25%
==== ====
Nonperforming assets as a percentage of total loans
and foreclosed real estate ............................... .01% .25%
==== ====
Risk elements as a percentage of total loans and
foreclosed real estate ................................... .01% .28%
==== ====
Capital
The Corporation's capital management policy is designed to build and
maintain capital levels that exceed regulatory standards. Under current
regulatory capital standards, banks are classified as well capitalized,
adequately capitalized or undercapitalized. Under such standards, a well
capitalized bank is one that has a total risk-based capital ratio equal to or
greater than 10%, a Tier 1 risk-based capital ratio equal to or greater than 6%,
and a Tier 1 leverage capital ratio equal to or greater than 5%. The
Corporation's total risk-based capital, Tier 1 risk-based capital and Tier 1
leverage capital ratios of 31.76%, 30.51% and 11.88%, respectively, at December
31, 1998 substantially exceed the requirements for a well-capitalized bank.
Total stockholders' equity increased by $6,133,000, or 10.4%, from
$58,966,000 at December 31, 1997 to $65,099,000 at December 31, 1998. The
increase in stockholders' equity is primarily attributable to the combined
effect of net income of $8,368,000, unrealized gains on available-for-sale
securities of $799,000, repurchases of common stock amounting to $1,566,000, and
cash dividends declared of $1,767,000.
Cash Flows and Liquidity
Cash Flows. During 1998, total deposits increased by $56,472,000. This
increase, along with $8,591,000 in cash provided by operations and $218,000 in
proceeds from the exercise of stock options, were used to fund increases in
investment securities and loans of $25,836,000 and $15,816,000, respectively, an
increase in cash and cash equivalents of $18,493,000, repurchases of common
stock amounting to $1,566,000, cash dividends paid of $1,682,000, and capital
expenditures of $1,888,000.
As reflected in the accompanying consolidated balance sheet, the
$56,472,000 growth in deposits from year-end 1997 to year-end 1998 is comprised
of an increase in checking deposits of $32,198,000, or 22.5%, and an increase in
total interest-bearing deposits of $24,274,000, or 8.7%. The increase in
interest-bearing deposits is primarily attributable to growth in money market
balances.
During 1998, commercial and industrial loans increased by $3,062,000, or
11.9%, loans secured by residential real estate increased by $6,390,000, or
11.2%, and commercial mortgages increased by $4,347,000, or 6.7%. These
increases are the primary reason for the growth in the loan portfolio during
1998.
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
December 31, 1998, the Corporation had $76,000,000 in federal funds sales, a
short-term securities portfolio of $12,665,000, and available-for-sale
securities of $87,021,000. The Corporation's liquidity is enhanced by its stable
deposit base which
73
primarily consists of checking, savings and money market accounts. Such accounts
comprised 92.0% of total deposits at December 31, 1998, while time deposits of
$100,000 and over and other time deposits comprised only 2.7% and 5.3%,
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 originates and invests in interest-earning assets and solicits
interest-bearing deposit accounts. The operations of the Bank are subject to
risk resulting from interest rate fluctuations to the extent that there is a
difference between the amount of the Bank's interest-earning assets and the
amount of interest-bearing liabilities that mature, reprice, or are
prepaid/withdrawn in specified time periods. Because approximately 40% of the
Bank's interest-earning assets are funded by noninterest-bearing checking
deposits and capital, a sustained decrease in interest rates should have a
negative impact on net interest income as such assets reprice at lower rates
without an offsetting reduction in interest expense. The Bank defines interest
rate risk as the risk that the Bank's earnings and/or net portfolio value
(defined below) will change when interest rates change. The principal objective
of the Bank's asset/liability management activities is to provide maximum levels
of net interest income while maintaining acceptable levels of interest rate and
liquidity risk and facilitating the funding needs of the Bank.
The Bank monitors and controls interest rate risk through a variety of
techniques including use of interest rate sensitivity models and traditional
interest rate sensitivity gap analysis. Through use of the models, the Bank
projects future net interest income and then estimates the effect on projected
net interest income of various changes in interest rates and balance sheet
growth rates. The Bank also uses the models to calculate the change in net
portfolio value ("NPV") over a range of interest rate change scenarios. Net
portfolio value is the present value of expected future cash flows from assets
less the present value of expected cash flows from liabilities. Traditional gap
analysis involves arranging the Bank's interest-earning assets and
interest-bearing liabilities by repricing periods and then computing the
difference, or interest-rate sensitivity gap, between the assets and liabilities
which are estimated to reprice during each time period and cumulatively through
the end of each time period.
Both interest rate sensitivity modeling and gap analysis involve a variety
of significant estimates and assumptions and are done at a specific point in
time. Interest rate sensitivity modeling requires, among other things, estimates
of: (1) how much and when yields and costs on individual categories of
interest-earning assets and interest-bearing liabilities will respond to general
changes in market interest rates; (2) future cash flows; and (3) discount rates.
Gap analysis requires estimates as to when individual categories of
interest sensitive assets and liabilities will reprice and assumes that assets
and liabilities assigned to the same repricing period will reprice at the same
time and in the same amount. Like sensitivity modeling, gap analysis does not
take into account the fact that the repricing of some assets and liabilities is
discretionary and subject to competitive and other pressures.
Changes in the estimates and assumptions made for interest rate sensitivity
modeling and gap analysis could have a significant impact on projected results
and conclusions. Therefore, these techniques may not accurately reflect the
actual impact of general interest rate movements on the Bank's net interest
income or net portfolio value.
The following table is provided pursuant to the market risk disclosure
rules set forth in Item 305 of Regulation S-K of the Securities and Exchange
Commission. The information provided in the table is based on significant
estimates and assumptions and constitutes a "forward looking statement" within
the meaning of that term as set forth in Rule 175 of the Securities Act of 1933
and Rule 3b-6 of the Securities Act of 1934. The base case information in the
table shows (1) an estimate of the Corporation's NPV at December 31, 1998
arrived at by discounting estimated future cash flows at current market rates
and (2) an estimate of net interest income for 1999 assuming that maturing
assets or liabilities are replaced with new balances of the same type, in the
same amount, and at the same rate level. The rate change information in the
table shows estimates of NPV at December 31, 1998 and net interest income for
1999 assuming rate changes of plus 100 and 200 basis points and minus 100 and
200 basis points. Rate changes are assumed to occur uniformly across the yield
curve regardless of the duration to maturity or repricing of specific assets and
liabilities. In addition, for purposes of calculating NPV, the indicated rate
changes are assumed to be shock or immediate changes, while for purposes of
projecting future net interest income the indicated rate changes are assumed to
be ramped or occur evenly over a twelve month time period. In projecting future
net interest income under the indicated rate change scenarios, activity is
simulated by replacing maturing balances with new balances of the same type, in
the same amount, but at the current rate level and adjusting repricing balances
to the current rate level.
74
Based on the foregoing assumptions and as depicted in the table below, a
ramped decrease in interest rates over a twelve-month time period has a positive
effect on net interest income for the time period. This is principally because
the Bank's interest-bearing deposit accounts reprice faster than its loans and
investment securities. However, over a longer period of time, and assuming that
interest rates remain stable after the first year, the impact should be
negative. This occurs primarily because with the passage of time more loans and
investment securities will reprice at the lower rates and, as previously stated,
there will be no offsetting reduction in interest expense for those loans and
investment securities funded by noninterest-bearing checking deposits and
capital. The opposite should be true of a ramped increase in interest rates over
a twelve-month time period with rate stabilization after the twelve months.
Net Portfolio Value (NPV) Net Interest Income
at December 31, 1998 for 1999
------------------------- -------------------------
Percent Percent
Change Change
From From
Rate Change Scenario Amount Base Case Amount Base Case
- ---------------------------------------- ------ --------- ------ ---------
(dollars in thousands)
+ 200 basis point rate change ......... $41,645 (40.1)% $25,596 (3.8)%
+ 100 basis point rate change ......... 55,561 (20.0) 26,105 (1.9)
Base case (no rate change) ......... 69,480 -- 26,614 --
- - 100 basis point rate change ......... 83,399 20.0 27,123 1.9
- - 200 basis point rate change ......... 97,315 40.1 27,632 3.8
The following table summarizes the Corporation's cumulative interest rate
sensitivity gap at December 31, 1998 based upon significant estimates and
assumptions that the Corporation believes to be reasonable.
Repricing Date
---------------------------------------------------------------------------------------------
Over Over Over
Three Six One Year
Three Months Months Total Through Over Non-
Months Through Through Within Five Five interest-
or Less Six Months One Year One Year Years Years Sensitive Total
--------- ---------- --------- --------- --------- --------- ---------- ---------
(in thousands)
Assets:
Federal funds sold .............. $ 76,000 $ -- $ -- $ 76,000 $ -- $ -- $ -- $ 76,000
Investment securities ........... 18,594 20,761 24,359 63,714 157,409 51,261 2,270 274,654
Loans ........................... 63,455 16,093 32,186 111,734 41,582 13,260 491 167,067
Other assets .................... -- -- -- -- -- -- 29,901 29,901
--------- --------- --------- --------- --------- --------- --------- ---------
158,049 36,854 56,545 251,448 198,991 64,521 32,662 547,622
--------- --------- --------- --------- --------- --------- --------- ---------
Liabilities and Stockholders'
Equity:
Checking deposits ............... -- -- -- -- -- -- 175,046 175,046
Savings and money market deposits 195,212 5,880 9,462 210,554 21,846 33,284 -- 265,684
Time deposits ................... 20,281 9,835 5,564 35,680 2,795 26 -- 38,501
Other liabilities ............... -- -- -- -- -- -- 3,292 3,292
Stockholders' equity ............ -- -- -- -- -- -- 65,099 65,099
--------- --------- --------- --------- --------- --------- --------- ---------
215,493 15,715 15,026 246,234 24,641 33,310 243,437 547,622
--------- --------- --------- --------- --------- --------- --------- ---------
Interest-rate sensitivity gap ...... $ (57,444) $ 21,139 $ 41,519 $ 5,214 $ 174,350 $ 31,211 $(210,775) $ --
========= ========= ========= ========= ========= ========= ========= =========
Cumulative interest-rate
sensitivity gap ................... $ (57,444) $ (36,305) $ 5,214 $ 5,214 $ 179,564 $ 210,775 $ -- $ --
========= ========= ========= ========= ========= ========= ========= =========
75
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting For Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). This Statement establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the intended
use of the derivative and the resulting designation. SFAS No. 133, which is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999,
will not impact the Corporation's accounting or disclosures.
Year 2000
The Bank began its Year 2000 compliance efforts in 1996 and has established
formal processes for identifying, assessing, and managing the Year 2000 risks
posed by internal bank activities, vendors, and customers. On an overall basis,
the Bank made excellent progress in 1998, including remediation of the data
processing systems used in its core banking activities. Full remediation and
installation of those systems is expected in the next several months, although
testing will continue through 1999.
The Bank utilizes Fiserv, Inc. ("Fiserv"), one of the largest data
processing providers for banks, savings institutions, and credit unions, to
process the transactions originating from its core banking activities, which
principally include deposits, loans, and the Bank's investment portfolio. Fiserv
has informed the Bank that most of the application software utilized by the Bank
has been upgraded to be Year 2000 compliant, tested (including client proxy
testing), and made available for use as of December 31, 1998. The balance of the
software utilized by the Bank should be tested and made available for use in the
first quarter of 1999. The proxy testing conducted by Fiserv, which the Bank has
reviewed and will rely on, was performed in accordance with guidelines issued by
various bank regulatory agencies. For most of its applications, the Bank has
already converted to the Year 2000-compliant versions of Fiserv's software. The
remaining applications should be converted in the next several months. The Bank
will continue to closely monitor Fiserv's efforts to address the Year 2000 issue
and fully expects that Fiserv will be Year 2000 compliant in time for the new
millennium. If Fiserv fails in its Year 2000 compliance efforts and the Bank is
not given sufficient advance warning, such failure could have a significant
adverse impact on the operations of the Bank.
Testing of internal information and embedded technology systems, none of
which are deemed to be mission critical, is ongoing but was substantially
completed in 1998. In the third quarter of 1998, the Bank completed an initial
assessment of the risks posed by its significant customers and counterparties
and is continuing to assess these risks on an ongoing basis. During the next
year the Bank will continue to monitor its own internal activities and the plans
of its vendors and customers to address the Year 2000 issue.
For a substantial portion of its internal information and embedded
technology systems, none of which are deemed to be mission critical, the Bank
has contingency/disaster recovery plans in place and is in the process of
developing others where it is reasonably feasible. With respect to significant
outside vendors, the Bank is developing procedures to process information
offline in the event of a Year 2000 failure.
The Bank has upgraded its communication systems and is in the process of
upgrading equipment in its branch system to better serve its customers and
improve the efficiency of its operations. The timing of the upgrades was
accelerated as a result of the Year 2000 issue. The total cost of the upgrades
is expected to be approximately $1,500,000. Approximately half of the upgrades
were purchased and placed in service in the latter part of 1998, and the balance
should be purchased and placed in service in the first quarter of 1999. Other
than the cost of the equipment upgrades, the Bank expects to meet its Year 2000
commitment using internal resources and without incurring significant
incremental expenses. Total incremental expenses are currently expected to be
less than $200,000. Based on current information, management does not expect the
total cost of Year 2000 compliance to materially impact the Corporation's future
results of operations, financial condition, or liquidity.
Regulatory Matters
Financial Reform Legislation. Commercial checking deposits currently
account for approximately 26% of the Bank's total deposits. During 1998,
Congress considered but did not enact financial reform legislation that would
allow customers to cover checks by sweeping funds from interest-bearing accounts
each business day and repeal the prohibition of the payment of interest on
corporate checking deposits in the future. It is expected that similar
legislation will be considered in 1999. Although management currently believes
that the Bank's earnings could be more severely impacted
76
by 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.
FDICIA. An FDIC-insured depository institution with assets of $500 million
or more as of the end of its most recent fiscal year must meet the annual audit
and management reporting requirements of section 112 of the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") and related
implementing regulations. Among other things, the institution's annual report
must include a report from management that contains the following information:
(1) a statement of management's responsibilities for preparing financial
statements, establishing and maintaining an adequate internal control structure
for financial reporting, and complying with designated safety and soundness laws
in the areas of insider loans and dividend restrictions; (2) assessments by
management regarding the effectiveness of the institution's internal control
structure and fiscal year-end reporting procedures and the institution's
compliance with the designated laws and regulations during the fiscal year; and,
(3) an attestation report by the institution's independent public accountants on
management's assertions regarding the effectiveness of the internal control
structure and procedures for financial reporting.
Total assets of the Bank grew to more than $500 million in 1998. As a
result, the Bank's 1999 annual report must comply with the requirements of
Section 112 of FDICIA. Management believes that the cost of compliance will not
have a material adverse impact on the Corporation's future results of
operations, financial condition, or liquidity.
Examinations. The subsidiary Bank was examined by the Office of the
Comptroller of the Currency in the third quarter of 1998. The examination was a
regularly scheduled safety and soundness examination and also included data
processing activities and upcoming technology plans. In addition, a regularly
scheduled examination of the Bank's Trust Department was conducted in April
1998. Management is not aware, nor has it been apprised, of any recommendations
by regulatory authorities that if they were implemented would have a material
effect on the Corporation's liquidity, capital resources, or 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 contained in
sentences including the words "expect" or "could" or "should". 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.
77
MANAGMENT'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 systems
and related internal control structures. These systems and controls have been
designed to provide reasonable assurances that assets are safeguarded and that
transactions are authorized and recorded in accordance with established
procedures and that reliable records are maintained. As an integral part of the
internal control structure, the Corporation maintains a staff of internal
auditors who monitor compliance with and assess the effectiveness of the
internal control structure and coordinate audit coverage with the independent
auditors.
The Corporation's Examining Committee of the Board of Directors, composed
solely of outside directors, meets regularly with the Corporation's internal
auditors, independent auditors and regulatory examiners to review matters
relating to financial reporting, internal control structure and the nature,
extent and results of the audit effort. The independent auditors, internal
auditors and banking regulators have direct access to the Examining Committee
with or without management present.
The financial statements for each of the three years in the period ended
December 31, 1998 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.
78
Consolidated Financial Statements and Notes
[PHOTO OMITTED]
Superior service and a commitment to excellence has made the First of Long
Island a top-performing bank.
[LOGO] The First of Long Island
79
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------------
1998 1997
------------- -------------
Assets:
Cash and due from banks .................................... $ 16,336,000 $ 13,343,000
Federal funds sold ......................................... 76,000,000 60,500,000
------------- -------------
Cash and cash equivalents ................................ 92,336,000 73,843,000
------------- -------------
Investment securities:
Held-to-maturity, at amortized cost (approximate fair
value of $191,252,000 and $192,357,000) .......... 187,633,000 190,577,000
Available-for-sale, at fair value (amortized cost
of $84,878,000 and $56,052,000) .................. 87,021,000 56,844,000
------------- -------------
274,654,000 247,421,000
------------- -------------
Loans:
Commercial and industrial ........................... 28,748,000 25,686,000
Secured by real estate .............................. 132,357,000 121,620,000
Consumer ............................................ 6,366,000 7,152,000
Other ............................................... 4,119,000 1,101,000
------------- -------------
171,590,000 155,559,000
Unearned income ..................................... (872,000) (829,000)
------------- -------------
170,718,000 154,730,000
Allowance for loan losses ........................... (3,651,000) (3,579,000)
------------- -------------
167,067,000 151,151,000
------------- -------------
Bank premises and equipment ................................ 6,312,000 5,037,000
Deferred income tax benefits ............................... 116,000 785,000
Other assets ............................................... 7,137,000 6,437,000
------------- -------------
$ 547,622,000 $ 484,674,000
============= =============
Liabilities:
Deposits:
Checking ............................................ $ 175,046,000 $ 142,848,000
Savings and money market ............................ 265,684,000 242,579,000
Time, other ......................................... 25,446,000 26,726,000
Time, $100,000 and over ............................. 13,055,000 10,606,000
------------- -------------
479,231,000 422,759,000
Accrued expenses and other liabilities ..................... 3,102,000 2,764,000
Income taxes payable ....................................... 190,000 185,000
------------- -------------
482,523,000 425,708,000
------------- -------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 3,095,971 and 3,113,061 shares . 310,000 311,000
Surplus .................................................... 4,219,000 5,471,000
Retained earnings .......................................... 59,304,000 52,717,000
------------- -------------
63,833,000 58,499,000
Accumulated other comprehensive income, net of tax ......... 1,266,000 467,000
------------- -------------
65,099,000 58,966,000
------------- -------------
$ 547,622,000 $ 484,674,000
============= =============
See notes to consolidated financial statements
80
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
--------------------------------------------------
1998 1997 1996
------------ ------------ ------------
Interest income:
Loans .......................................................... $ 14,584,000 $ 13,839,000 $ 13,354,000
Investment securities:
Taxable .................................................... 12,039,000 11,828,000 11,383,000
Nontaxable ................................................. 3,106,000 2,154,000 1,925,000
Federal funds sold ............................................. 2,953,000 2,580,000 1,923,000
------------ ------------ ------------
32,682,000 30,401,000 28,585,000
------------ ------------ ------------
Interest expense:
Savings and money market deposits .............................. 7,998,000 7,309,000 6,788,000
Time deposits .................................................. 1,869,000 1,888,000 1,704,000
------------ ------------ ------------
9,867,000 9,197,000 8,492,000
------------ ------------ ------------
Net interest income ........................................ 22,815,000 21,204,000 20,093,000
Provision for loan losses (credit) ................................. (100,000) (100,000) --
------------ ------------ ------------
Net interest income after provision for loan losses (credit) ....... 22,915,000 21,304,000 20,093,000
------------ ------------ ------------
Noninterest income:
Trust Department income ........................................ 1,340,000 1,198,000 1,213,000
Service charges on deposit accounts ............................ 2,986,000 2,674,000 2,407,000
Realized losses on sales of available-for-sale securities ...... -- -- (148,000)
Other .......................................................... 494,000 446,000 434,000
------------ ------------ ------------
4,820,000 4,318,000 3,906,000
------------ ------------ ------------
Noninterest expense:
Salaries ....................................................... 7,282,000 6,649,000 6,294,000
Employee benefits .............................................. 2,785,000 2,732,000 2,282,000
Occupancy and equipment expense ................................ 1,955,000 1,780,000 1,863,000
Other operating expenses ....................................... 3,447,000 3,124,000 3,060,000
------------ ------------ ------------
15,469,000 14,285,000 13,499,000
------------ ------------ ------------
Income before income taxes ................................. 12,266,000 11,337,000 10,500,000
Income tax expense ................................................. 3,898,000 3,711,000 3,609,000
------------ ------------ ------------
Net income ................................................. $ 8,368,000 $ 7,626,000 $ 6,891,000
============ ============ ============
Weighted average:
Common shares .................................................. 3,105,496 3,117,530 3,139,293
Dilutive stock options ......................................... 66,336 64,044 60,372
------------ ------------ ------------
3,171,832 3,181,574 3,199,665
============ ============ ============
Earnings per share:
Basic .......................................................... $ 2.69 $ 2.45 $ 2.20
============ ============ ============
Diluted ........................................................ $ 2.64 $ 2.40 $ 2.15
============ ============ ============
See notes to consolidated financial statements
81
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
Accumulated
Other
Common Stock Compre- Compre-
------------------------- hensive Retained hensive
Shares Amount Surplus Income Earnings Income Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, January 1 1996 ......... 2,096,467 $ 210,000 $ 7,366,000 $41,179,000 $ 585,000 $49,340,000
Net Income ...................... $ 6,891,000 6,891,000 6,891,000
Repurchase and retirement
of common stock ................. (22,327) (2,000) (728,000) (730,000)
Exercise of stock options ....... 14,644 1,000 286,000 287,000
Unrealized losses on available-
for-sale-securities, net of
tax of $139,000 ................. (282,000) (282,000) (282,000)
-----------
Comprehensive income ............ $ 6,609,000
===========
Cash dividends declared -
$.43 per share .................. (1,337,000) (1,337,000)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 ...... 2,088,784 209,000 6,924,000 46,733,000 303,000 54,169,000
Net Income ...................... $ 7,626,000 7,626,000 7,626,000
Repurchase and retirement
of common stock ................. (53,059) (5,000) (2,439,000) (2,444,000)
Exercise of stock options ....... 39,649 4,000 733,000 737,000
Unrealized gains on available-
for-sale-securities, net of
tax of $175,000 ................. 164,000 164,000 164,000
-----------
Comprehensive income ............ $ 7,790,000
===========
3-for-2 stock split ............. 1,037,687 103,000 (103,000)
Cash dividends declared -
$.49 per share .................. (1,539,000) (1,539,000)
Tax benefit of stock options .... 253,000 253,000
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 ...... 3,113,061 311,000 5,471,000 52,717,000 467,000 58,966,000
Net Income ...................... $ 8,368,000 8,368,000 8,368,000
Repurchase and retirement
of common stock ................. (33,637) (3,000) (1,563,000) (1,566,000)
Exercise of stock options ....... 16,547 2,000 216,000 218,000
Unrealized gains on available-
for-sale-securities, net of
tax of $553,000 ................. 799,000 799,000 799,000
-----------
Comprehensive income ............ $ 9,167,000
===========
Cash in lieu of fractional shares
on 3-for-2 stock split .......... (14,000) (14,000)
Cash dividends declared -
$.57 per share .................. (1,767,000) (1,767,000)
Tax benefit of stock options .... 95,000 95,000
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 ...... 3,095,971 $ 310,000 $ 4,219,000 $59,304,000 $ 1,266,000 $65,099,000
=========== =========== =========== =========== =========== ===========
See notes to consolidated financial statements
82
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 1998 1997 1996
------------ ------------ ------------
Cash Flows From Operating Activities:
Net income ................................................................. $ 8,368,000 $ 7,626,000 $ 6,891,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses (credit) ....................................... (100,000) (100,000) --
Deferred income tax provision (credit) ................................... 114,000 (63,000) 135,000
Depreciation and amortization ............................................ 613,000 528,000 547,000
Discount accretion on investment securities, net ......................... (46,000) (814,000) (1,314,000)
Gain on sale of equipment ................................................ -- -- (1,000)
Net realized losses on sales of available-for-sale securities ............ -- -- 148,000
Decrease (increase) in prepaid income taxes .............................. -- 1,000 (1,000)
Decrease (increase) in other assets ...................................... (700,000) (676,000) 115,000
Increase in accrued expenses and other liabilities ....................... 239,000 271,000 108,000
Increase (decrease) in income taxes payable .............................. 103,000 438,000 (189,000)
------------ ------------ ------------
Net cash provided by operating activities .............................. 8,591,000 7,211,000 6,439,000
------------ ------------ ------------
Cash Flows From Investing Activities:
Proceeds from sales of available-for-sale securities ....................... -- -- 8,589,000
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity ......................................................... 64,533,000 51,565,000 60,713,000
Available-for-sale ....................................................... 4,669,000 6,443,000 7,965,000
Purchase of investment securities:
Held-to-maturity ......................................................... (61,320,000) (70,360,000) (41,267,000)
Available-for-sale ....................................................... (33,718,000) (11,649,000) (40,288,000)
Net increase in loans to customers ......................................... (15,816,000) (1,969,000) (6,807,000)
Purchases of bank premises and equipment ................................... (1,888,000) (521,000) (506,000)
Proceeds from sale of equipment ............................................ -- -- 9,000
------------ ------------ ------------
Net cash used in investing activities .................................. (43,540,000) (26,491,000) (11,592,000)
------------ ------------ ------------
Cash Flows From Financing Activities:
Net increase in total deposits ............................................. 56,472,000 38,398,000 10,406,000
Proceeds from exercise of stock options .................................... 218,000 737,000 287,000
Repurchase and retirement of common stock .................................. (1,566,000) (2,444,000) (730,000)
Cash dividends paid ........................................................ (1,668,000) (1,419,000) (1,243,000)
Cash in lieu of fractional shares on 3-for-2 stock split ................... (14,000) -- --
------------ ------------ ------------
Net cash provided by financing activities ............................... 53,442,000 35,272,000 8,720,000
------------ ------------ ------------
Net increase in cash and cash equivalents .................................... 18,493,000 15,992,000 3,567,000
Cash and cash equivalents, beginning of year ................................. 73,843,000 57,851,000 54,284,000
------------ ------------ ------------
Cash and cash equivalents, end of year ....................................... $ 92,336,000 $ 73,843,000 $ 57,851,000
============ ============ ============
Supplemental Schedule of Noncash:
Investing Activities
Unrealized gains (losses) on available-for-sale securities ................. $ 1,351,000 $ 339,000 $ (421,000)
Transfer of available-for-sale securities to held-to-maturity category ..... -- 28,886,000 --
Financing Activities
Tax benefit from exercise of employee stock options ........................ 95,000 253,000 --
Cash dividends payable ..................................................... 929,000 830,000 710,000
The Corporation made interest payments of $9,858,000, $9,158,000, and $8,476,000
and income tax payments of $3,683,000, $3,335,000, and $3,664,000 in 1998, 1997
and 1996, respectively.
See notes to consolidated financial statements
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of The First of
Long Island Corporation (the "Corporation") and its wholly-owned subsidiary, The
First National Bank of Long Island (the "Bank"). The Corporation's financial
condition and operating results principally reflect those of the Bank. All
intercompany balances and amounts have been eliminated. In preparing the
consolidated financial statements, management is required to make estimates and
assumptions that affect the reported asset and liability balances and revenue
and expense amounts. Actual results could differ significantly from those
estimates.
The accounting and reporting policies of the Corporation reflect banking
industry practice and conform to generally accepted accounting principles. The
following is a summary of the significant accounting policies.
Investment Securities
Current accounting standards require that investment securities be
classified as held-to-maturity, trading, or available-for-sale. The trading
category is not applicable to any securities in the Bank's portfolio because the
Bank does not buy or hold debt or equity securities principally for the purpose
of selling in the near term. Held-to-maturity securities are those debt
securities which the Bank has the intent and ability to hold to maturity, and
are reported at amortized cost. Available-for-sale securities are those debt and
equity securities which are neither held-to-maturity securities nor trading
securities and are reported at fair value, with unrealized gains and losses, net
of the related income tax effect, included in accumulated other comprehensive
income.
Realized gains and losses on the sale of available-for-sale securities are
determined using the specific identification method.
Loans and Allowance For Loan Losses
Loans are reported at their outstanding principal balance less any
chargeoffs, the allowance for loan losses, and any unearned income. Interest on
loans is credited to income based on the principal amount outstanding. Unearned
discounts are recognized as income over the terms of the loans by the interest
method. Nonrefundable loan origination fees are deferred and amortized as yield
adjustments over the lives of the related loans. The incremental direct costs of
originating such loans are charged to expense as incurred, as the effect of
deferral and amortization would be immaterial.
The accrual of interest income is generally discontinued when a loan
becomes 90 days past due as to principal or interest payments. In addition, any
accrued but unpaid interest credited to income in the current year is reversed,
and any accrued but unpaid interest credited to income in the prior year is
charged against the allowance for loan losses. All of the Bank's nonaccruing
loans are considered impaired under Statement of Financial Accounting Standards
No. 114 "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"). In
accordance with SFAS No. 114, a valuation allowance is established on impaired
loans to reflect the difference, if any, between the face amount of the loan and
the present value of expected future cash flows discounted at the loan's
effective interest rate, or as a practical expedient, at the loan's observable
market price or the fair value of the collateral. The valuation allowance is
reported within the overall allowance for loan losses.
The allowance for loan losses is established through provisions for loan
losses charged against income. Amounts deemed to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
The allowance for loan losses represents the amount which management
believes is adequate to provide for possible future losses on existing loans.
While management uses available information to estimate possible loan losses,
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 Bank's allowance for loan
losses. Such agencies can require the Bank to recognize additions to the
allowance based on their judgments of information available to them at the time
of their examination.
Bank Premises and Equipment
Bank premises and equipment are carried at cost, less accumulated
depreciation and amortization. Buildings are depreciated using the straight-line
method over their estimated useful lives which range between thirty-one and
forty years. Building improvements are depreciated using the straight-line
method over the remaining lives of the buildings.
84
Leasehold improvements are amortized using the straight-line method over the
remaining lives of the leases or their estimated useful lives, whichever is
shorter. The lives of the respective leases range between five and fifteen
years. Furniture, fixtures, and equipment are depreciated over their estimated
useful lives which range between five and seven years. The straight-line method
of depreciation is used for furniture, fixture, and equipment acquired prior to
1987 and after 1997, and the 150% declining balance method is used for assets
acquired 1988 through 1997.
Checking Deposits
Each of the Bank's commercial checking accounts has a related
noninterest-bearing sweep account. The sole purpose of the sweep accounts is to
reduce the noninterest-bearing reserve balances that the Bank is required to
maintain with the Federal Reserve Bank, and thereby increase funds available for
investment. Although the sweep accounts are classified as savings accounts for
regulatory purposes, they are included in checking deposits in the accompanying
consolidated balance sheets.
Income Taxes
A current tax liability or asset is recognized for the estimated taxes
payable or refundable on tax returns for the current year. A deferred tax
liability or asset is recognized for the estimated future tax effects
attributable to temporary differences and carryforwards. The measurement of
deferred tax assets is reduced, if necessary, by the amount of any tax benefits
that, based on available evidence, are not expected to be realized. The
measurement of current and deferred tax liabilities and assets is based on
provisions of the enacted tax law. The effects of future changes in tax laws or
rates are not anticipated.
Fair Values of Financial Instruments
The following methods and assumptions are used by the Corporation in
estimating fair values of financial instruments as disclosed herein.
Cash and cash equivalents. The carrying amount of cash and cash equivalents
is their fair value.
Investment securities. For investment securities, fair values are based on
quoted market prices.
Loans. The fair value of the Bank's loan portfolio is determined by first
estimating the average life of the portfolio's future cash flows and then using
this estimate as a proxy for duration. Duration, which is expressed in years,
equates the portfolio's future cash flows to a single lump sum payment received
at a future point in time. The difference between the portfolio's yield and the
yield that could be obtained by currently making similar loans is multiplied by
the portfolio's duration to determine a discount rate. Fair value is arrived at
by applying the discount rate to the portfolio's carrying value and then
subtracting the Bank's allowance for loan losses.
Deposit liabilities. The fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits, money market accounts, and savings
accounts, is equal to their carrying amount at December 31 of each year. For
time deposits, over 70% of which mature within six months, carrying amount is a
reasonable estimate of fair value.
Accrued interest receivable and payable. For these short-term instruments,
the carrying amount is a reasonable estimate of fair value.
Off-balance-sheet assets and liabilities. The fair value of
off-balance-sheet commitments to extend credit and letters of credit is
estimated using fees currently charged to enter into similar agreements.
Stockholders' Equity
Earnings Per Share. The Corporation adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS No. 128") in the fourth
quarter of 1997. All comparative earnings per share data provided for earlier
periods have been restated to conform to the provisions of this Statement.
Basic earnings per share excludes dilution and is computed by dividing net
income by the weighted average number of common shares outstanding for the
period. Diluted earnings per share, which reflects the potential dilution that
could occur if outstanding and exercisable stock options were exercised and
resulted in the issuance of common stock that then shared in the earnings of the
Corporation, is computed by dividing net income by the weighted average number
of common shares and dilutive stock options. Other than stock options and the
Rights described in Note H, the Corporation has no securities that could be
converted into common stock nor does the Corporation have any contracts that
could result in the issuance of common stock.
85
Stock Split. On December 17, 1997, the Corporation declared a 3-for-2 stock
split which was paid on February 2, 1998 by means of a 50% stock dividend. The
effect of the split on the equity accounts of the Corporation was estimated and
recorded in the consolidated financial statements as of and for the year ended
December 31, 1997. In addition, all comparative share and per share amounts
included in the consolidated financial statements and notes thereto for earlier
periods have been adjusted to reflect the effect of the split.
Stock Repurchase Programs. Since 1988, the Corporation has had stock
repurchase programs under which it can purchase shares of its own common stock
in market or private transactions. As of December 31, 1998, and in accordance
with prior approval by its Board of Directors, the Corporation could purchase
20,778 shares of stock under the latest programs.
In 1997, under the normal terms and conditions of the Corporation's stock
repurchase programs, and after approval by the Corporation's full Board of
Directors, the Corporation purchased 15,627 shares of common stock from its
Chairman and Chief Executive Officer for $656,334.
Comprehensive Income
The Corporation adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" ("SFAS No. 130") in 1997. All comparative
financial statements provided for earlier periods have been reclassified to
reflect application of the provisions of this Statement.
Comprehensive income includes net income and all other changes in equity
during a period except those resulting from investments by owners and
distributions to owners. Other comprehensive income includes revenues, expenses,
gains, and losses that under generally accepted accounting principles are
included in comprehensive income but excluded from net income.
Comprehensive income and accumulated other comprehensive income are
reported net of related income taxes. Accumulated other comprehensive income for
the Corporation consists solely of unrealized holding gains or losses on
available-for-sale securities. Such gains and losses are net of reclassification
adjustments for realized losses on sales of available-for-sale securities of
$148,000 in 1996.
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 No. 25 "Accounting for Stock Issued to
Employees" ("APB No. 25") and related Interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of the Corporation's stock at the date of grant over the amount an
employee must pay to acquire the stock. Compensation costs for stock
appreciation rights are recorded annually based on the quoted market price of
the Corporation's stock at the end of the period.
Trust and Investment Services Division
Assets held in a fiduciary capacity are not assets of the Corporation and,
accordingly, are not included in the accompanying financial statements. Trust
fees are recorded on the accrual basis.
Report of Independent Public Accountants
The notes to consolidated financial statements include selected information
as of December 31, 1996, 1995 and 1994 and for the years ended December 31, 1995
and 1994 that is not covered by the Report of Independent Public Accountants.
This information has been presented in order to comply with the Form 10-K
reporting requirements.
86
NOTE B - INVESTMENT SECURITIES
The following table sets forth the amortized cost and estimated fair values
of the Bank's investment securities at December 31, 1998, 1997 and 1996.
1998
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Held-to-Maturity Securities: (in thousands)
U.S. Treasury .................... $ 61,339 $ 1,665 $ -- $ 63,004
U.S. government agencies .......... 27,316 417 (210) 27,523
State and municipals .............. 43,751 1,355 (26) 45,080
Collateralized mortgage obligations 55,227 594 (176) 55,645
--------- --------- --------- ---------
$ 187,633 $ 4,031 $ (412) $ 191,252
========= ========= ========= =========
Available-for-Sale Securities:
U.S. Treasury ..................... $ 47,287 $ 1,328 $ -- $ 48,615
State and municipals .............. 37,464 856 (41) 38,279
Equity ............................ 127 -- -- 127
--------- --------- --------- ---------
$ 84,878 $ 2,184 $ (41) $ 87,021
========= ========= ========= =========
1997
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Held-to-Maturity Securities: (in thousands)
U.S. Treasury ..................... $ 79,679 $ 596 $ (67) $ 80,208
U.S. government agencies .......... 23,010 268 (271) 23,007
State and municipals .............. 46,055 967 (27) 46,995
Collateralized mortgage obligations 41,833 385 (71) 42,147
--------- --------- --------- ---------
$ 190,577 $ 2,216 $ (436) $ 192,357
========= ========= ========= =========
Available-for-Sale Securities:
U.S. Treasury ..................... $ 44,859 $ 609 $ (26) $ 45,442
State and municipals .............. 11,066 211 (2) 11,275
Equity ............................ 127 -- -- 127
--------- --------- --------- ---------
$ 56,052 $ 820 $ (28) $ 56,844
========= ========= ========= =========
1996
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
Held-to-Maturity Securities: (in thousands)
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
--------- --------- --------- ---------
$ 141,850 $ 1,185 $ (940) $ 142,095
========= ========= ========= =========
Available-for-Sale Securities:
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
Equity ............................ 127 -- -- 127
--------- --------- --------- ---------
$ 79,964 $ 682 $ (229) $ 80,417
========= ========= ========= =========
At December 31, 1998 and 1997, investment securities with a carrying value
of $51,312,000 and $51,155,000, respectively, were pledged as collateral to
secure public deposits and for other purposes.
87
Maturities and Average Yields. The following table sets forth the
maturities and weighted average yields of the Bank's investment securities at
December 31, 1998.
Principal Maturing (1)
-------------------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
---------------- ---------------- ---------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ------- ------- ------- ------- ------- ------- -------
(dollars in thousands)
Held-to-Maturity Securities:
U.S. Treasury ................................ $16,985 6.14% $44,354 6.00% $ -- --% $ -- --%
U.S. government agencies ..................... 151 7.54 8,378 6.77 9,291 6.48 9,496 6.56
State and municipals (2) ..................... 8,544 5.68 21,548 7.08 13,396 6.91 263 6.77
Collateralized mortgage obligations .......... -- -- -- -- 771 6.75 54,456 7.13
------- ------- ------- ------- ------- ------- ------- -------
$25,680 6.00% $74,280 6.40% $23,458 6.73% $64,215 7.04%
======= ======= ======= ======= ======= ======= ======= =======
Principal Maturing (1)
-------------------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
---------------- ---------------- ---------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ------- ------- ------- ------- ------- ------- -------
(dollars in thousands)
Available-for-Sale Securities:
U.S. Treasury ................................ $10,079 6.56% $38,536 6.13% $ -- --% $ -- --%
State and municipals (2) ..................... 1,419 6.21 2,311 7.32 21,995 6.27 12,554 6.52
------- ------- ------- ------- ------- ------- ------- -------
Total debt securities .......................... 11,498 6.52 40,847 6.20 21,995 6.27 12,554 6.52
Equity ....................................... -- -- -- -- -- -- 127 6.40
------- ------- ------- ------- ------- ------- ------- -------
$11,498 6.52% $40,847 6.20% $21,995 6.27% $12,681 6.52%
======= ======= ======= ======= ======= ======= ======= =======
(1) Maturities shown are stated maturities, except in the case of municipal
securities which are shown at the earlier of their stated maturity or
pre-refunded dates. Securities backed by mortgages, which include the U.S.
government agencies and collateralized mortgage obligations shown above,
are expected to have substantial periodic repayments resulting in weighted
average lives considerably shorter than would be surmised from the above
table.
(2) Yields on tax-exempt obligations have been computed on a tax-equivalent
basis.
NOTE C - LOANS
The following table sets forth major classifications of loans.
December 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(in thousands)
Commercial and industrial ................ $ 28,748 $ 25,686 $ 23,345 $ 21,708 $ 19,482
Secured by real estate ................... 132,357 121,620 120,782 115,098 115,855
Consumer ................................. 6,366 7,152 8,999 9,671 8,961
Other .................................... 4,119 1,101 396 193 174
--------- --------- --------- --------- ---------
171,590 155,559 153,522 146,670 144,472
Unearned income .......................... (872) (829) (840) (796) (859)
--------- --------- --------- --------- ---------
170,718 154,730 152,682 145,874 143,613
Allowance for loan losses ................ (3,651) (3,579) (3,600) (3,600) (3,600)
--------- --------- --------- --------- ---------
$ 167,067 $ 151,151 $ 149,082 $ 142,274 $ 140,013
========= ========= ========= ========= =========
88
Allowance For Loan Losses. The following table sets forth changes in the
Bank's allowance for loan losses.
Year ended December 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(dollars in thousands)
Balance, beginning of year ........................... $ 3,579 $ 3,600 $ 3,600 $ 3,600 $ 3,590
------- ------- ------- ------- -------
Loans charged off:
Commercial and industrial .......................... (50) -- (2) (3) (13)
Secured by real estate ............................. -- -- -- -- --
Consumer and other ................................. (49) (59) (33) (21) (35)
------- ------- ------- ------- -------
(99) (59) (35) (24) (48)
------- ------- ------- ------- -------
Recoveries of loans charged off:
Commercial and industrial .......................... -- -- -- -- 6
Secured by real estate ............................. 257 120 21 16 36
Consumer and other ................................. 14 18 14 8 16
------- ------- ------- ------- -------
271 138 35 24 58
------- ------- ------- ------- -------
Net (charge-offs) recoveries ......................... 172 79 -- -- 10
Provision for loan losses (credit) ................... (100) (100) -- -- --
------- ------- ------- ------- -------
Balance, end of year ................................. $ 3,651 $ 3,579 $ 3,600 $ 3,600 $ 3,600
======= ======= ======= ======= =======
Ratio of net (charge-offs) recoveries to
average loans outstanding .......................... .10% .05% -% -% .01%
======= ======= ======= ======= =======
Allocation of Allowance For Loan Losses. The following table sets forth the
allocation of the Bank's total allowance for loan losses by loan type.
December 31,
--------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------------------------------------------
% of % of % of % of % of
Loans Loans Loans Loans Loans
To Total To Total To Total To Total To Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(dollars in thousands)
Commercial ................... $ 730 16.9% $ 564 16.6% $ 530 15.3% $ 563 14.9% $ 574 13.6%
Real-estate secured .......... 2,325 77.5 2,099 78.6 2,185 79.1 2,241 78.9 2,326 80.7
Consumer and other ........... 249 5.6 211 4.8 174 5.6 196 6.2 148 5.7
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total allocated .............. 3,304 100.0 2,874 100.0 2,889 100.0 3,000 100.0 3,048 100.0
Unallocated .................. 347 -- 705 -- 711 -- 600 -- 552 --
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
$3,651 100.0% $3,579 100.0% $3,600 100.0% $3,600 100.0% $3,600 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Selected Loan Maturity Information. The following table sets forth maturity
and rate information for the Bank's commercial and industrial loans.
Maturity
-------------------------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
-------- ---------- ---------- -----
(in thousands)
Commercial and industrial loans:
Fixed rate ................................. $ 8,478 $ 2,846 $ -- $11,324
Variable rate .............................. 6,530 9,517 1,377 17,424
------- ------- ------- -------
$15,008 $12,363 $ 1,377 $28,748
======= ======= ======= =======
89
Past Due, Nonaccrual, and Restructured Loans. The following table sets
forth selected information about the Bank's nonaccrual, past due, and
restructured loans.
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
At December 31: (in thousands)
Loans past due 90 days or more as to principal or
interest payments and still accruing .................................................... $ -- $ 49 $ 31 $ 4 $ 3
Nonaccrual loans ........................................................................... 22 382 659 843 516
Restructured loans ......................................................................... -- 6 19 48 124
Year Ended December 31:
Gross interest income that would have been recorded
during the year under original terms:
Nonaccrual loans ........................................................................ 2 55 60 97 36
Restructured loans ...................................................................... -- 1 3 7 8
Gross interest income recorded during the year:
Nonaccrual loans ........................................................................ 2 32 11 36 1
Restructured loans ...................................................................... -- 1 2 6 6
Commitments for additional funds ........................................................... None None None None None
As of December 31, 1998, the Corporation did not have any impaired loans as
defined in SFAS No. 114 except for the nonaccrual loans noted above.
Certain directors, including their immediate families and companies in
which they are principal owners, and executive officers were loan customers of
the Bank during 1998 and 1997. Such loans are made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and do not involve more than the normal risk of collectibility or
present other unfavorable features. The aggregate amount of these loans was
approximately $1,203,000 and $1,575,000 at December 31, 1998 and 1997,
respectively. During 1998, $402,000 of new loans to such persons were made and
repayments totaled $774,000. There were no loans to directors or executive
officers which were nonaccruing at December 31, 1998 or 1997.
NOTE D - PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following:
December 31,
-----------------------
1998 1997
-------- --------
(in thousands)
Land ............................................. $ 1,274 $ 1,274
Buildings ........................................ 4,507 4,502
Leasehold improvements ........................... 1,134 846
Furniture and equipment .......................... 8,635 7,040
-------- --------
15,550 13,662
Accumulated depreciation and amortization ........ (9,238) (8,625)
-------- --------
$ 6,312 $ 5,037
======== ========
A building occupied by one of the Bank's branch offices is leased from a
director of the Corporation and the Bank. The lease, which is dated 1992 and has
a term of approximately ten years, currently provides for annual base rentals of
$25,813, plus certain charges for real estate taxes and common area maintenance.
The Bank may cancel this lease at any time by giving the director ninety days
written notice. The Bank believes that the terms of this lease are comparable to
those that could have been obtained from other persons.
During 1998, the Bank changed its depreciation method for furniture,
fixtures, and equipment from 150% declining balance to straight-line. The impact
of the change on results of operations for 1998 was immaterial.
90
NOTE E - DEPOSITS
The following table sets forth major classifications of average deposits.
Year ended December 31,
--------------------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
------- --------- ------- --------- ------- ---------
(dollars in thousands)
Checking ................................. $154,781 --% $133,082 --% $123,832 --%
Savings and money market ................. 250,236 3.20 229,639 3.18 222,319 3.05
Time deposits ............................ 40,249 4.64 39,671 4.76 36,940 4.61
-------- ---- -------- ---- -------- ----
$445,266 2.22% $402,392 2.28% $383,091 2.21%
======== ==== ======== ==== ======== ====
Time Deposits of $100,000 and Over. The following table sets forth the
remaining maturities of the Bank's time deposits in amounts of $100,000 or more.
Remaining Maturity Amount
-------------------------------------------- -------
(in thousands)
3 months or less ........................... $ 9,348
Over 3 through 6 months .................... 2,446
Over 6 through 12 months ................... 985
Over 12 months ............................. 276
-------
$13,055
=======
NOTE F - INCOME TAXES
The Corporation and its subsidiary file a consolidated federal income tax
return. Income taxes charged to earnings in 1998, 1997, and 1996 had effective
tax rates of 31.8%, 32.7%, and 34.4%, respectively. The following table sets
forth a reconciliation of the statutory Federal income tax rate to the
Corporation's effective tax rate.
Year Ended December 31,
------------------------------------
1998 1997 1996
------ ------ ------
Statutory federal income tax rate ................................. 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit ............. 5.8 5.6 5.9
Tax-exempt interest on securities and loans, net of
disallowed cost of funding ..................................... (8.3) (6.4) (6.2)
Other ............................................................. .3 (.5) .7
------ ------ ------
31.8% 32.7% 34.4%
====== ====== ======
Provision For Income Taxes. The following table sets forth the components
of the provision for income taxes.
Year Ended December 31,
---------------------------------------
1998 1997 1996
------- ------- -------
(in thousands)
Currently payable:
Federal ...................... $2,731 $2,841 $2,540
State ........................ 1,053 933 934
------- ------- -------
3,784 3,774 3,474
------- ------- -------
Deferred:
Federal ....................... 85 (96) 135
State ......................... 29 33 --
------- ------- -------
114 (63) 135
------- ------- -------
$3,898 $3,711 $3,609
======= ======= =======
91
Net Deferred Tax Asset. The following table sets forth the components of
the Bank's net deferred tax asset.
December 31,
-----------------
1998 1997
------ ------
Deferred tax assets: (in thousands)
Allowance for loan losses ............................. $1,038 $1,079
Supplemental executive retirement expense ............. 55 118
Interest on nonperforming loans ....................... 38 100
Postretirement benefits expense ....................... 32 29
Accrued professional fees ............................. 12 12
------ ------
1,175 1,338
Valuation allowance ...................................... -- --
------ ------
1,175 1,338
------ ------
Deferred tax liabilities:
Pension expense ....................................... 157 197
Accretion on bonds .................................... 18 20
Depreciation .......................................... 6 12
Unrealized gains on available-for-sale securities ..... 878 324
------ ------
1,059 553
------ ------
Net deferred tax asset ................................... $116 $785
====== ======
NOTE G - COMMITMENTS AND CONTINGENT LIABILITIES
Financial Instruments With Off-Balance-Sheet Risk. The Bank is a party to
financial instruments with off-balance-sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit, standby letters of credit, and
commercial letters of credit. These instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the consolidated
balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to financial instruments for commitments to extend credit, standby
letters of credit, and commercial letters of credit is represented by the
contractual notional amount of these instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments. At December 31, financial instruments whose
contract amounts represent credit risk are as follows:
1998 1997
------- -------
(in thousands)
Commitments to extend credit ....... $33,319 $28,907
Standby letters of credit .......... 1,566 1,436
Commercial letters of credit ....... 464 467
Standby letters of credit are conditional commitments issued by the Bank to
assure the performance or financial obligations of a customer to a third party.
The Bank's standby letters of credit extend through December 1999. The credit
risk involved in issuing standby letters of credit is essentially the same as
that involved in extending loans to customers. The Bank generally holds
collateral and/or obtains personal guarantees supporting these commitments. The
extent of collateral held for these commitments at December 31, 1998 varied from
0% to 100%, and averaged 55%.
Commercial letters of credit are conditional commitments issued by the Bank
to assure the payment by a customer to a supplier. All of the Bank's commercial
letters of credit extend for less than one year. The credit risk involved in
issuing commercial letters of credit is the same as that discussed in the
preceding paragraph for standby letters of credit. The Bank generally obtains
personal guarantees supporting these commitments.
Commitments to extend credit are legally binding agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if any, by the Bank upon extension of credit
92
is based on management's credit evaluation of the borrower. Collateral held
varies but may include mortgages on commercial and residential real estate,
deposit accounts with the Bank or other financial institutions, and securities.
Concentrations of Credit Risk. Virtually all of the Bank's loans, personal
and commercial, are to borrowers who are domiciled on Long Island. As a result,
the income of many of the Bank's borrowers is dependent on the Long Island
economy. In addition, virtually all of the Bank's real estate loans involve
mortgages on Long Island properties. Thus, the Bank's loan portfolio is
susceptible to the economy of Long Island.
Lease Commitments. At December 31, 1998, minimum annual rental commitments
under noncancelable operating leases are as follows:
Year Amount
----------------------------------------------- -----------
(in thousands)
1999 .......................................... $ 302
2000 .......................................... 283
2001 .......................................... 247
2002 .......................................... 239
2003 .......................................... 202
Thereafter .................................... 481
-----------
$ 1,754
===========
In addition, the Bank has various renewal options on the above leases. Rent
expense was $286,000, $261,000, and $247,000 in 1998, 1997, and 1996,
respectively.
NOTE H - SHAREHOLDER PROTECTION RIGHTS PLAN
On July 16, 1996, the Board of Directors of the Corporation (the "Board")
adopted a Shareholder Protection Rights Plan and declared a dividend of one
right ("Right") on each outstanding share of the Corporation's common stock (the
"Common Stock"). The dividend was paid on July 31, 1996 to shareholders of
record as of the same date.
In the absence of an event of the type described below, the Rights will be
evidenced by and trade with the Common Stock and will not be exercisable.
However, the Rights will separate from the Common Stock and become exercisable
following the earlier of (1) the tenth business day, or such later date as the
Board may decide, after any person or persons (collectively referred to as
"person") commences a tender offer that would result in such person holding a
total of 20% or more of the outstanding Common Stock, or (2) ten business days
after, or such earlier or later date as the Board may decide, the announcement
by the Corporation that any person has acquired 20% or more of the outstanding
Common Stock.
When separated from the Common Stock, each Right will entitle the holder to
purchase one share of Common Stock for $83 (the "Exercise Price"). However, in
the event that the Corporation has announced that any person has acquired 20% or
more of the outstanding Common Stock, the Rights owned by that person will be
automatically void and each other Right will automatically become a right to
buy, for the Exercise Price, that number of shares of Common Stock having a
market value of twice the Exercise Price. Also, if any person acquires 20% or
more of the outstanding Common Stock, the Board can require that, in lieu of
exercise, each outstanding Right be exchanged for one share of Common Stock.
The Rights may be redeemed by action of the Board at a price of $.01 per
Right at any time prior to announcement by the Corporation that any person has
acquired 20% or more of the outstanding Common Stock. The Exercise Price and the
number of Rights outstanding are subject to adjustment to prevent dilution. The
Rights expire ten years from the date of their issuance.
NOTE I - STOCK-BASED COMPENSATION
The Corporation has two stock option and appreciation rights plans (the
"Plans"). The 1996 Plan was approved by the Corporation's Board of Directors on
January 16, 1996 and subsequently approved by its stockholders. Under the 1996
Plan, options to purchase up to 360,000 shares of common stock are available to
be granted to key employees of the Corporation and its subsidiaries through
January 15, 2006. Each option, which may be granted with or without a stock
appreciation right attached, is granted at a price equal to the fair market
value of one share of the Corporation's stock on the date of grant and is
exercisable in whole or in part at certain times commencing six months from the
date of grant and ending ten years after the date of grant. The 1996 Plan also
provides for the granting of stand-alone stock appreciation
93
rights. At December 31, 1998, options to purchase 30,587 shares of Common Stock
were outstanding with respect to the 1996 Plan, of which 30,387 were
exercisable. No stock appreciation rights have been granted under the 1996 Plan,
either attached to options or on a stand-alone basis.
The 1986 Plan was approved by the Corporation's Board of Directors on
January 21, 1986 and subsequently approved by its stockholders. Under the 1986
Plan, as later amended, options to purchase up to 387,675 shares of common stock
were available to be granted to key employees of the Corporation and its
subsidiaries through January 21, 1996. The terms of the 1986 Plan are
substantially the same as those of the 1996 Plan. At December 31, 1998, options
to purchase 83,012 shares of Common Stock were outstanding and exercisable under
the 1986 Plan and there were no outstanding stock appreciation rights.
Compensation costs recognized for stock appreciation rights granted under the
1986 Plan amounted to $143,000 and $72,000 for the years ended December 31, 1997
and 1996, respectively. No compensation costs were recognized in 1998.
The Corporation has chosen to account for stock-based compensation using
the intrinsic value method prescribed in APB No. 25. Since each option is
granted at a price equal to the fair market value of one share of the
Corporation's stock on the date of grant, no compensation cost has been
recognized. The following table compares reported net income and earnings per
share to net income and earnings per share on a pro forma basis assuming that
the Corporation accounted for stock-based compensation under SFAS No. 123.
1998 1997 1996
---------- ---------- ----------
(in thousands except per share data)
Net Income:
As Reported .................. $8,368 $7,626 $6,891
Pro Forma .................... 8,230 7,523 6,776
Earnings Per Share:
As Reported:
Basic ........................ $2.69 $2.45 $2.20
Diluted ...................... 2.64 2.40 2.15
Pro Forma:
Basic ........................ $2.65 $2.41 $2.16
Diluted ...................... 2.59 2.36 2.12
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. Future awards are anticipated under the 1996 Plan.
Stock Option Activity. The following table sets forth stock option activity
and the weighted average fair value of options granted.
Year Ended December 31,
-------------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- --------- -------- --------- -------- ---------
Outstanding, beginning of year ................... 115,796 $ 16.76 155,677 $ 14.14 151,435 $ 12.99
Granted .......................................... 14,650 42.03 20,057 24.34 26,325 19.89
Exercised ........................................ (16,497) 13.17 (59,488) 12.40 (21,966) 13.07
Forfeited ........................................ (350) 38.99 (450) 24.33 (117) 17.39
-------- --------- -------- --------- -------- ---------
Outstanding, end of year ......................... 113,599 $ 20.48 115,796 $ 16.76 155,677 $ 14.14
======== ========= ======== ========= ======== =========
Exercisable, end of year ......................... 113,399 $ 20.44 115,796 $ 16.76 155,677 $ 14.14
======== ========= ======== ========= ======== =========
Weighted average fair value of options granted ... $ 9.42 $ 5.14 $ 4.36
======== ======== ========
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model using the following weighted average
assumptions: risk-free interest rates of 4.77%, 5.56%, and 5.93% for 1996 Plan
94
options granted in 1998, 1997, and 1996, respectively, and 5.61% for 1986 Plan
options granted in 1996; volatility of 13.40% for 1996 Plan options granted in
1998, 11.30% for 1996 Plan options granted in 1997 and 1996, and 11.22% for 1986
Plan options granted in 1996; expected dividend yield of 1.5% for options
granted in 1998 and 2% for options granted in 1997 and 1996; and expected lives
of 7 years for options granted in 1998, 1997 and 1996.
Stock Options Outstanding. The following table sets forth information about
outstanding and exercisable stock options at December 31, 1998.
Outstanding Stock Options Exercisable Stock Options
--------------------------------------------------- ------------------------------
Weighted Average
------------------------------- Weighted
Remaining Average
Contractual Exercise Exercise
Range of Exercise Prices Number Life (yrs.) Price Number Price
- ------------------------------ ----------- ----------- ----------- ----------- -----------
$ 9.01 to $15.00 ............. 26,563 3.06 $ 11.49 26,563 $ 11.49
$15.01 to $25.00 ............. 72,686 6.61 19.52 72,686 19.52
$25.01 to $45.00 ............. 14,350 9.07 42.03 14,150 42.00
----------- ----------- ----------- ----------- -----------
113,599 6.09 $ 20.48 113,399 $ 20.44
=========== =========== =========== =========== ===========
NOTE J - RETIREMENT PLANS
The Bank has a defined benefit pension plan (the "Pension Plan") covering
eligible employees. The provisions of the Pension Plan are governed by the rules
and regulations contained in the Prototype Plan of the New York State Bankers
Retirement System (the "Retirement System") and the Retirement System Adoption
Agreement executed by the Bank. For investment purposes, the Pension Plan's
contributions are pooled with the contributions of the other participants in the
Retirement System. Assets of the Pension Plan are invested in various debt and
equity securities.
Employees are eligible to participate in the Pension Plan after attaining
21 years of age and completing 12 full months of service. Pension benefits are
generally based on varying percentages of average annual compensation during
defined periods of creditable service. The Bank makes annual contributions to
the Pension Plan in an amount sufficient to fund these benefits and participants
contribute 2% of their compensation. The Bank's funding policy, the entry age
normal cost-frozen initial liability method, is consistent with the funding
requirements of federal law and regulations. Employees become fully vested after
four years of participation in the Pension Plan (no vesting occurs during the
four-year period).
In 1998, the Corporation adopted Statement of Financial Accounting
Standards No. 132 ("SFAS No. 132") "Employers' Disclosures about Pensions and
Other Postretirement Benefits." SFAS No. 132 supersedes the disclosure
requirements for pension and other postretirement plans as set forth in SFAS No.
87 "Employers' Accounting For Pensions", SFAS No. 88 "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and For
Termination Benefits", and SFAS No. 106 "Employers' Accounting For
Postretirement Benefits Other Than Pensions." SFAS No. 132 does not address
measurement or recognition for pension and other postretirement benefit plans.
The following disclosures are in accordance with the provisions of SFAS No. 132.
Net Pension Cost. The following table sets forth the components of net
periodic pension cost.
1998 1997 1996
----- ----- -----
(in thousands)
Service cost ............................... $ 319 $ 247 $ 255
Interest cost .............................. 345 311 276
Expected return on plan assets ............. (522) (423) (405)
Net amortization and deferral .............. (44) (44) (44)
----- ----- -----
Net pension cost ........................... $ 98 $ 91 $ 82
===== ===== =====
Significant Actuarial Assumptions. The following table sets forth the
significant actuarial assumptions as of the end of each plan year.
1998 1997 1996
---- ---- ----
Discount rate ....................................... 6.00% 7.00% 7.75%
Rate of increase in compensation levels ............. 4.50% 5.00% 5.00%
Expected long-term rate of return on plan assets .... 7.50% 8.00% 8.00%
95
Funded Status of The Plan. The following table sets forth the change in the
benefit obligation and plan assets for each Plan year and, as of the end of each
Plan year, the funded status of the Plan and prepaid benefit cost.
Year Ended September 30,
-----------------------------------------------
1998 1997 1996
------- ------- -------
(in thousands)
Change in projected benefit obligation
Projected benefit obligation at beginning of year ...................... $ 5,021 $ 4,094 $ 3,624
Service cost ........................................................... 415 330 358
Plan participants' contributions ....................................... (112) (81) (121)
Expenses ............................................................... (76) (61) (63)
Interest cost .......................................................... 345 311 276
Benefits paid .......................................................... (189) (220) (156)
Assumption changes and other ........................................... 776 648 176
------- ------- -------
Projected benefit obligation at end of year ............................ 6,180 5,021 4,094
------- ------- -------
Change in plan assets
Fair value of plan assets at beginning of year ......................... 6,567 5,308 4,675
Actual return on plan assets ........................................... 282 1,202 645
Employer contribution .................................................. 188 257 86
Plan participants' contributions ....................................... 112 81 121
Benefits paid .......................................................... (189) (220) (156)
Expenses ............................................................... (76) (61) (63)
------- ------- -------
Fair value of plan assets at end of year ............................... 6,884 6,567 5,308
------- ------- -------
Funded status .......................................................... 704 1,546 1,214
Unrecognized net actuarial loss (gain) ................................. 315 (574) (364)
Unrecognized prior service cost ........................................ (39) (42) (46)
Unrecognized transition asset .......................................... (208) (248) (289)
------- ------- -------
Prepaid benefit cost ................................................... $ 772 $ 682 $ 515
======= ======= =======
The Bank has a combined profit sharing/401(k) plan (the "Profit Sharing
Plan"). Employees are eligible to participate provided they are at least 21
years of age and have completed one year of service in which they worked 1000
hours if full-time and 700 hours if part-time. Participants may elect to
contribute, on a tax-deferred basis, up to 10% of gross compensation, as
defined, subject to the limitations of Section 401(k) of the Internal Revenue
Code. The Bank may, at its sole discretion, make "Additional" contributions to
each participant's account based on the amount of the participant's tax deferred
contributions and make profit sharing contributions to each participant's
account equal to a percentage of the participant's compensation, as defined.
Participants are fully vested in their elective contributions and, after five
years of participation in the Profit Sharing Plan, are fully vested (20% vesting
per year) in the Additional and profit sharing contributions made by the Bank.
Additional contributions were $106,000, $93,000, and $92,000 for 1998, 1997, and
1996, respectively, and profit sharing contributions were $416,000, $403,000,
and $387,000, respectively.
On August 3, 1995, the Bank adopted The First National Bank of Long Island
Supplemental Executive Retirement Program ("SERP"). The SERP provides benefits
to certain employees, designated by the Compensation Committee of the Board of
Directors, whose benefits under the Pension Plan and Profit Sharing Plan are
limited by the applicable provisions of the Internal Revenue Code. The benefit
under the SERP is equal to the additional amount the employee would be entitled
to under the Pension and Profit Sharing Plans in the absence of such Internal
Revenue Code limitations. The effective date of the SERP, which superseded the
Bank's previous supplemental retirement benefit plan, was January 1, 1994. SERP
expense was $413,000, $337,000 and $150,000 in 1998, 1997 and 1996,
respectively.
96
NOTE K - OTHER OPERATING EXPENSES
Expenses included in other operating expenses which exceed one percent of
the aggregate of total interest income and noninterest income in 1998, 1997, and
1996 are as follows:
1998 1997 1996
---- ---- ----
(in thousands)
Computer services .................... $509 $420 $418
Insurance ............................ 395 420 424
Marketing ............................ 441 386 303
NOTE L - REGULATORY MATTERS
Capital. The Corporation is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Corporation's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Corporation must meet specific capital guidelines that involve
quantitative measures of the Corporation's assets, liabilities, and certain
off-balance-sheet items calculated under regulatory accounting practices. The
Corporation's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Under current regulations, banks are classified as well capitalized,
adequately capitalized or undercapitalized. The following table sets forth the
Corporation's capital ratios at December 31, 1998 and 1997 and the minimum
ratios necessary to be classified as well capitalized and adequately
capitalized. The Corporation's capital ratios at December 31, 1998 and 1997
substantially exceed the requirements for a well-capitalized bank.
Corporation's Capital Ratios
at December 31:
---------------------------- Well Adequately
1998 1997 Capitalized Capitalized
---------- ---------- ----------- -----------
Total Risk-Based Capital Ratio ......... 31.76% 33.54% 10.00% 8.00%
Tier 1 Risk-Based Capital Ratio ......... 30.51 32.28 6.00 4.00
Tier 1 Leverage Capital Ratio ........... 11.88 12.24 5.00 4.00
Other Matters. The amount of dividends paid by the Bank to the Corporation
is subject to restrictions under Federal Reserve Board Regulation H. Under
Regulation H, the Bank is required to obtain regulatory approval for the payment
of dividends during any one calendar year that exceed the Bank's net income for
the calendar year plus the retained net income for the two preceding calendar
years. At December 31, 1998, the Bank had retained net income for the current
and two preceding calendar years of $15,360,000.
Regulation D of the Board of Governors of The Federal Reserve System
requires banks to maintain reserves against certain deposit balances. The Bank's
average reserve requirement for 1998 was approximately $3,123,000.
Under national banking laws and related statutes, the Bank is limited as to
the amount it may loan to the Corporation, unless such loans are collateralized
by specified obligations. At December 31, 1998, the maximum amount available for
transfer from the Bank to the Corporation in the form of loans approximated
$9,535,000.
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time and are based on
existing on and off-balance-sheet financial instruments. Such estimates are
generally subjective in nature and dependent upon a number of significant
assumptions associated with each financial instrument or group of similar
financial instruments, including estimates of discount rates, risks associated
with specific financial instruments, estimates of future cash flows, and
relevant available market information. Changes in assumptions could
significantly affect the estimates. In addition, fair value estimates do not
reflect the value of anticipated future business, premiums or discounts that
could result from offering for sale at one time the Corporation's entire
holdings of a particular financial instrument, or the tax consequences of
realizing gains or losses on the sale of financial instruments.
97
The following table sets forth the carrying/contract amounts and estimated
fair values of the Corporation's financial instruments at December 31, 1998 and
1997.
1998 1997
--------------------------- ---------------------------
Carrying/ Carrying/
Contract Contract
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(in thousands)
Financial Assets:
Cash and due from banks .................................... $ 16,336 $ 16,336 $ 13,343 $ 13,343
Federal funds sold ......................................... 76,000 76,000 60,500 60,500
Held-to-maturity securities ................................ 187,633 191,252 190,577 192,357
Available-for-sale securities .............................. 87,021 87,021 56,844 56,844
Loans ...................................................... 167,067 167,829 151,151 152,024
Accrued interest receivable ................................ 4,164 4,164 3,807 3,807
Financial Liabilities:
Checking deposits .......................................... 175,046 175,046 142,848 142,848
Savings and money market deposits .......................... 265,684 265,684 242,579 242,579
Time deposits .............................................. 38,501 38,501 37,332 37,332
Accrued interest payable ................................... 197 197 186 186
Off-Balance-Sheet Liabilities:
Commitments to extend credit ............................... 33,319 -- 28,907 --
Standby and commercial letters of credit ................... 2,030 17 1,903 8
NOTE N - PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for The First of Long Island Corporation
(parent company only) is as follows:
CONDENSED BALANCE SHEETS December 31,
-------------------
1998 1997
------- -------
Assets: (in thousands)
Checking and money market accounts with subsidiary ..... $ 2,375 $ 2,121
Investment in subsidiary bank, at equity ............... 63,566 57,422
Other assets ........................................... 87 253
------- -------
$66,028 $59,796
======= =======
Liabilities:
Cash dividends payable ................................. $ 929 $ 830
------- -------
Stockholders' equity:
Common stock ........................................... 310 311
Surplus ................................................ 4,219 5,471
Retained earnings ...................................... 59,304 52,717
------- -------
63,833 58,499
Accumulated other comprehensive income, net of tax ..... 1,266 467
------- -------
65,099 58,966
------- -------
$66,028 $59,796
======= =======
98
CONDENSED STATEMENTS OF INCOME Year ended December 31,
-----------------------------
1998 1997 1996
------- ------- -------
Income: (in thousands)
Dividends from subsidiary bank ......................... $ 3,000 $ 2,400 $ 2,200
Interest on deposits with subsidiary bank .............. 52 72 86
------- ------- -------
3,052 2,472 2,286
------- ------- -------
Expenses:
Employee benefits ...................................... -- 143 72
Other operating expenses ............................... 29 29 28
------- ------- -------
29 172 100
------- ------- -------
Income before undistributed earnings of
subsidiary bank ........................................ 3,023 2,300 2,186
Equity in undistributed earnings ....................... 5,345 5,326 4,705
------- ------- -------
Net income ............................................. $ 8,368 $ 7,626 $ 6,891
======= ======= =======
CONDENSED STATEMENTS OF CASH FLOWS Year ended December 31,
Increase (Decrease) in Cash and Cash Equivalents* -----------------------------
1998 1997 1996
------- ------- -------
Income: (in thousands)
Cash Flows From Operating Activities:
Net income ............................................... $ 8,368 $ 7,626 $ 6,891
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of subsidiary bank .............. (5,345) (5,326) (4,705)
Decrease in other assets ............................... 261 -- --
Decrease in accrued expenses and other liabilities ..... -- (173) (38)
------- ------- -------
Net cash provided by operating activities ................ 3,284 2,127 2,148
------- ------- -------
Cash Flows From Financing Activities:
Repurchase and retirement of common stock .............. (1,566) (2,444) (730)
Proceeds from exercise of stock options ................ 218 737 287
Cash dividends paid .................................... (1,668) (1,419) (1,243)
Cash in lieu of fractional shares on 3-for-2 stock split (14) -- --
------- ------- -------
Net cash used in financing activities ................. (3,030) (3,126) (1,686)
------- ------- -------
Net increase (decrease) in cash and cash equivalents ..... 254 (999) 462
Cash and cash equivalents, beginning of year ............. 2,121 3,120 2,658
------- ------- -------
Cash and cash equivalents, end of year ................... $ 2,375 $ 2,121 $ 3,120
======= ======= =======
Supplemental Schedule of Noncash Financing Activities:
Tax benefit from exercise of employee stock options .... $ 95 $ 253 $ --
Cash dividends payable ................................. 929 830 710
* Cash and cash equivalents include the checking and money market accounts
with the Corporation's wholly-owned bank subsidiary.
99
NOTE O - QUARTERLY FINANCIAL DATA (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- -------- -------- -------- --------
(in thousands, except per share data)
1998
Interest income .................................. $ 7,789 $ 8,095 $ 8,410 $ 8,388 $ 32,682
Interest expense ................................. 2,374 2,437 2,591 2,465 9,867
Net interest income .............................. 5,415 5,658 5,819 5,923 22,815
Provision for loan losses (credit) ............... -- (100) -- -- (100)
Noninterest income ............................... 1,135 1,238 1,202 1,245 4,820
Noninterest expense .............................. 3,715 3,840 3,966 3,948 15,469
Income before income taxes ....................... 2,835 3,156 3,055 3,220 12,266
Income taxes ..................................... 908 1,021 961 1,008 3,898
Net income ....................................... 1,927 2,135 2,094 2,212 8,368
Earnings per share:
Basic .......................................... .62 .69 .67 .71 2.69
Diluted ........................................ .61 .67 .66 .70 2.64
Comprehensive income ............................. 1,879 2,194 3,070 2,024 9,167
1997
Interest income .................................. $ 7,208 $ 7,416 $ 7,822 $ 7,955 $ 30,401
Interest expense ................................. 2,146 2,249 2,376 2,426 9,197
Net interest income .............................. 5,062 5,167 5,446 5,529 21,204
Provision for loan losses (credit) ............... -- (100) -- -- (100)
Noninterest income ............................... 1,040 993 1,103 1,182 4,318
Noninterest expense .............................. 3,569 3,504 3,520 3,692 14,285
Income before income taxes ....................... 2,533 2,756 3,029 3,019 11,337
Income taxes ..................................... 854 887 997 973 3,711
Net income ....................................... 1,679 1,869 2,032 2,046 7,626
Earnings per share:
Basic .......................................... .54 .60 .65 .66 2.45
Diluted ........................................ .53 .59 .64 .64 2.40
Comprehensive income ............................. 771 2,561 2,256 2,202 7,790
100
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, 1998 and 1997 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,
1998. 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, 1998 and 1997 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/Arthur Andersen LLP
New York, New York
January 22, 1999
101
Directors
THE FIRST OF LONG ISLAND CORPORATION
THE FIRST NATIONAL BANK OF LONG ISLAND
[PHOTO OMITTED]
J. William Johnson, Chairman and Chief Executive Officer
[PHOTO OMITTED]
John R. Miller III, President and Publisher, Equal Opportunity Publications,
Inc. (publishing)
[PHOTO OMITTED]
Howard Thomas Hogan, Jr., Hogan & Hogan (lawyer, private practice)
[PHOTO OMITTED]
Beverly Ann Gehlmeyer, Tax Manager and Principal, Gehlmeyer & Gehlmeyer, P.C.
(certified public accounting firm)
[PHOTO OMITTED]
Paul T. Canarick, President and Principal, Paul Todd, Inc. (construction
company)
[PHOTO OMITTED]
J. Douglas Maxwell, Jr., Chairman and Chief Executive Officer, NIRx Medical
Technologies Corp. (medical technology)
[PHOTO OMITTED]
Walter C. Teagle III, President and Chief Executive Officer, Metro Design
Systems, Inc. (engineering design services)
102
Senior Management
We are highly focused on our markets and providing an extremely high quality of
service to our customers.
[LOGO] The First of Long Island
[PHOTO OMITTED]
Left to Right
Mark D. Curtis; Joseph G. Perri; Arthur J. Lupinacci, Jr.;
Richard Kick; John C. Sansone; Donald L. Manfredonia
103
OFFICERS
The First of Long Island Corporation
J. William Johnson
Chairman and Chief Executive Officer
Arthur J. Lupinacci, Jr.
Executive Vice President and Secretary
Mark D. Curtis
Senior Vice President and Treasurer
Richard Kick
Senior Vice President
Donald L. Manfredonia
Senior Vice President
Joseph G. Perri
Senior Vice President
John C. Sansone,
Senior 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 Presidents
Arthur J. Lupinacci, Jr.
Senior Operating Officer
Donald L. Manfredonia
Senior Lending Officer
Senior Vice Presidents
Mark D. Curtis
Chief Financial Officer and Cashier
Richard Kick
Senior Operations and Senior Retail Loan Officer
Joseph G. Perri
Senior Commercial Marketing Officer
John C. Sansone
Senior Trust Officer
104
BUSINESS DEVELOPMENT BOARD
[PHOTO OMITTED]
Kenneth R. Latham, Chairman of the Board, Latham Bros. Lumber Company, Inc.
[PHOTO OMITTED]
Herbert Haber, CPA, Certified Public Accountant
[PHOTO OMITTED]
Thomas N. Dufek, CPA, Partner, Kilgannon, Furey, Dufek & Company
[PHOTO OMITTED]
Kevin J. Harding, Esq., Partner, Harding and Harding
[PHOTO OMITTED]
Herbert Kotler, Esq., Attorney
[PHOTO OMITTED]
Susan Hirschfeld Mohr, President, J. W. Hirschfeld Agency, Inc.
[PHOTO OMITTED]
Richard Nussbaum, CPA, Managing Partner, Nussbaum, Yates, Wolpow, P.C.
[PHOTO OMITTED]
Arthur C. Schupbach, Esq., Partner, Schupbach, Williams & Pavone LLP
[PHOTO OMITTED]
H. Craig Treiber, President/CEO, The Treiber Group LLC
[PHOTO OMITTED]
Emil V. Cianciulli, Esq., Partner, Cianciulli & Meng, P.C.
[PHOTO OMITTED]
David Black, CPA, David Black & Associates, Inc.
[PHOTO OMITTED]
Lawrence F. Steiner, President, Universal Unlimited, Inc.
[PHOTO OMITTED]
Kenneth R. Going, President, GOING SIGN CO. Inc.
[PHOTO OMITTED]
Alan B. Katcher, Chief Executive Officer, Terry Alan Adv. Co., Inc.
[PHOTO OMITTED]
Zachary Levy, Esq., Attorney
[PHOTO OMITTED]
Bernard Esquenet, Chief Executive Officer, The Ruhof Corp.
[PHOTO OMITTED]
Quentin Sammis, President, Coldwell Banker Sammis
[PHOTO OMITTED]
William L. Edwards, Real Estate Investor
[PHOTO OMITTED]
Howard S. Cohen, President, Mount Carmel Cemetery Assoc.
[PHOTO OMITTED]
Arthur Ventura, President, Badge Agency
[PHOTO OMITTED]
Mark Wurzel, President, Calico Cottage, Inc.
[PHOTO OMITTED]
John A. Burns, Jr., Esq., Counsel, Forchelli, Schwartz, Mineo, Carlino & Cohn,
LLP
105
Official Staff
Vice Presidents
- ---------------
Albert Arena
Commercial Banking
Archie J. Arrington
Manager, Roslyn Heights
Lester J. Bach
Manager, Great Neck
James Clavell
Branch Administration
Robert F. Covino
Manager, Rockville Centre
Kitty W. Craig
Auditing
Paul J. Daley
Commercial Banking
Wayne B. Drake
Controller, Finance
Stephen Durso
Commercial Banking
John G. Fitzpatrick
Loan Center
Compliance - CRA Officer
Betsy Gustafson
Deposit Operations
Charles E. Haberkorn, Jr.
Commercial Banking
Peter J. Hoey
Data Center
James P. Johnis
Commercial Banking
George P. Knott
Manager, Woodbury
Henry A. Kramer
Commercial Banking
Concepcion L. Larrea
Manager, Greenvale
Teresa P. Maloney
Trust and Investment Services
Roslyn Marett
Human Resources
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
Henry C. Suhr
Manager, Northport
106
Assistant Vice Presidents
- -------------------------
Peter J. Arebalo
Manager, Valley Stream
Philip B. Brady
Manager, Bohemia
Aldo G. Columbano
Finance
Linda A. Cutter
Manager, New Hyde Park
Margaret M. DeBonis
Auditing
Barbara D. Hefner
Loan Center
Susan J. Hempton
Human Resources
David Lippa
Glen Head
Dorothy Miller
Manager, Hicksville
Gretchen B. Nesky
Commercial Banking
Lee Nunez
Manager, Lake Success
Ronald Pimental
Branch Administration
Frank Plesche
Manager, Old Brookville
Mark A. Ryan
Manager, Hauppauge
Frederick G. Ruff
General Services
Carole Ann Snayd
Roslyn Heights
Michael J. Spolarich
Commercial Banking
Ann Marie Tarantino
Compliance and Procedures
Philip R. Thompson
Manager, Garden City
Elissa A. Toussaint
Northport
Herta Tscherne
Manager, Mineola
Trust Officers
Susan P. Contino
Trust and Investment Services
Andrew G. Drenick
Trust and Investment Services
Sharon E. Pazienza
Trust and Investment Services
Senior Mortgage Advisor
John F. Darcy
Loan Center
107
Mortgage Originator
Frederick T. Hughes
Loan Center
Assistant Cashiers
- ------------------
Monica T. Baker
Branch Administration
Pari Glazer
Lake Success
Arlyne H. Kramer
Hicksville
Jenny Malandruccolo
Huntington
Mary Lou Martin
Locust Valley
Caroline V. McIntyre
Old Brookville
Donna P. Minervini
Rockville Centre
June E. Pipito
Woodbury
Assistant Trust Officer
Joanne Buckley
Trust and Investment Services
Assistant Managers
- ------------------
Ann J. Cristodero
Loan Center
Alison A. Hazell
Deposit Operations
Catherine Irvin
Finance
Robert B. Jacobs
Loan Center
Rosemary Kerrane
Mineola
Eveline Ratte
Loan Center
Colleen M. Robbins
Human Resources
Cathy A. Vanatta
Marketing
Administrative and Executive Assistants
- ---------------------------------------
Elaine Ballinger
Glen Head
Allison C. Brown
Northport
Andrea L. DePol
Roslyn Heights
Anna S. Fleming
Loan Center
Lorraine Fogarty
Branch Administration
Marguerite F. Hirschman
Trust and Investment Services
108
Patricia Lacorazza
Loan Center
Carmela Lalonde
Deposit Operations
Conrad A. Lissade
Data Center
Donna M. Long
Deposit Operations
Francine McDonald
Trust and Investment Services
Constance Miller
Administration
Patricia Ovalle-Wood
Greenvale
Cheryl A. Romanski
Finance
Lori A. Ruggiero
Data Center
Anne J. Virgadamo
Huntington
Maureen P. Zebrowski
Commercial Banking
Counsel
SCHUPBACH, WILLIAMS & PAVONE LLP
Independent Auditors
ARTHUR ANDERSEN LLP
FORM 10-K REPORT
A copy of the Corporation's annual report on Form 10-K for 1998, filed with the
Securities and Exchange Commission, may be obtained without charge upon written
request to Mark D. Curtis, Senior Vice President and Treasurer, The First of
Long Island Corporation, 10 Glen Head Road, PO Box 67, Glen Head, New York
11545-0067.
109
FULL SERVICE OFFICES
10 Glen Head Road
Glen Head, NY 11545
(516) 671-4900
7 Glen Cove Road
Greenvale, NY 11548
(516) 621-8811
253 New York Avenue
Huntington, NY 11743
(516) 427-4143
108 Forest Avenue
Locust Valley, NY 11560
(516) 671-2299
711 Fort Salonga Road
Northport, NY 11768
(516) 261-4000
209 Glen Head Road
Old Brookville, NY 11545
(516) 759-9002
310 Merrick Road
Rockville Centre, NY 11570
(516) 763-5533
130 Mineola Avenue
Roslyn Heights, NY 11577
(516) 621-1900
800 Woodbury Road
Woodbury, NY 11797
(516) 364-3434
COMMERCIAL BANKING OFFICES
30 Orville Drive
Bohemia, NY 11716
(516) 218-2500
1050 Franklin Avenue
Garden City, NY 11530
(516) 742-6262
536 Northern Boulevard
Great Neck, NY 11021
(516) 482-6666
330 Motor Parkway
Hauppauge, NY 11788
(516) 952-2900
110
106 Old Country Road
Hicksville, NY 11801
(516) 932-7150
3000 Marcus Avenue
Lake Success, NY 11042
(516) 775-3133
194 First Street
Mineola, NY 11501
(516) 742-1144
200 Jericho Turnpike
New Hyde Park, NY 11040
(516) 328-3100
133 E. Merrick Road
Valley Stream, NY 11580
(516) 825-0202
TRUST AND INVESTMENT SERVICES
800 Woodbury Road
Woodbury, NY 11797
(516) 364-3436
111