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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _____________
Commission file Number 0-12220
THE FIRST OF LONG ISLAND CORPORATION
(Exact Name Of Registrant As Specified In Its Charter)
New York 11-2672906
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10 Glen Head Road, Glen Head, NY 11545
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (516) 671-4900
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
None N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value per share
- --------------------------------------
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
[Cover page 1 of 2 pages]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes |X| No |_|
The aggregate market value of the Corporation's voting common stock held by
nonaffiliates as of June 28, 2002, the last business day of the Corporation's
most recently completed second fiscal quarter, was $116,470,620. This value was
computed by reference to the price at which the stock was last sold on June 28th
and excludes $19,932,787 representing the market value of common stock
beneficially owned by directors and executive officers of the Registrant.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding March 13, 2003
- ---------------------------- --------------------------
Common Stock, $.10 par value 4,071,011
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Corporation's Annual Report to shareholders for the fiscal
year ended December 31, 2002 are incorporated by reference into Parts II and IV.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held April 15, 2003 are incorporated by reference into Part
III.
[Cover page 2 of 2 pages]
PART I
ITEM 1. BUSINESS
General
The First of Long Island Corporation (the "Registrant" or the
"Corporation"), a one-bank holding Company, was incorporated on February 7, 1984
for the purpose of providing financial services through its wholly-owned
subsidiary, The First National Bank of Long Island (the "Bank").
The Bank was organized in 1927 as a national banking association under the
laws of the United States of America and was known as the First National Bank of
Glen Head through June 30, 1978. The Bank has an Investment Management Division
that provides investment management, pension trust, personal trust, estate, and
custody services. In addition, in 1994 the Bank organized a wholly-owned
subsidiary, The First of Long Island Agency (the "Agency"), as a licensed
insurance agency under the laws of the State of New York. The Bank currently
plans to begin using the Agency in 2003 to once again offer mutual funds and
annuities to its customers.
The Bank has served the financial needs of privately owned businesses,
professionals, consumers, public bodies, and other organizations primarily in
Nassau and Suffolk Counties, Long Island. The Bank expects to expand the
geographic distribution of its customer base in 2003 by opening several branch
offices in Manhattan. In the coming years, the Bank will continue to search for
favorable locations at which to establish new branches, with continued emphasis
on the commercial banking unit type.
The principal business of the Bank has historically consisted of attracting
business and consumer checking, money market and savings deposits and investing
those funds in investment securities, commercial and residential mortgage loans,
commercial loans, and home equity loans and lines. The Corporation's loan
portfolio is currently primarily comprised of loans to borrowers in Nassau and
Suffolk Counties and real estate loans are principally secured by properties
located in these Counties.
The Bank's investment securities portfolio is comprised of U.S. Treasury
securities, U.S. government agency securities (principally modified
pass-through, mortgage-backed securities of Federal agencies), collateralized
mortgage obligations, state and municipal securities and corporate bonds. The
Bank also regularly sells federal funds on an overnight basis to a number of
banking institutions.
The Bank offers a variety of deposit products having a wide range of
interest rates and terms. The principal products include checking accounts,
money market type accounts, savings accounts, escrow service and IOLA (interest
on lawyer) accounts, and time deposit accounts.
In addition to its loan and deposit products, the Bank offers other
services to its customers including the following:
o ATM Banking
o Bank by Mail
o Bill Payment Using PC or Telephone Banking
o Collection Services
o Counter Checks and Certified Checks
o Drive-Through Banking
o Gift Checks and Personal Money Orders
o Internet PC Banking For Personal and Commercial Customers
o Merchant Credit Card Depository Services
o Night Depository Services
o Lock Box Services
o Payroll Services
o Safe Deposit Boxes
o Securities Transactions
o Signature Guarantee Services
o Telephone Banking
o Travelers Checks
o Trust and Investment Management Services
o U.S. Savings Bonds
o Wire Transfers and Foreign Cables
o Withholding Tax Depository Services
The Bank has a main office located in Huntington, New York, eight other
full service offices (Glen Head, Greenvale, Locust Valley, Northport, Old
Brookville, Rockville Centre, Roslyn Heights, Woodbury) and twelve commercial
banking offices (Allen Boulevard, Bohemia, Deer Park, Garden City, Great Neck,
Hauppauge, Hicksville, Lake Success, Mineola, New Highway, New Hyde Park, Valley
Stream), all of which are in Nassau and Suffolk Counties.
The Bank's revenues are derived principally from interest on loans,
interest on investment securities, service charges and fees on deposit accounts,
and income from trust and investment management services.
The Bank did not commence, abandon, or significantly change any of its
lines of business during 2002.
The Bank encounters substantial competition in its banking business from
numerous other banking corporations which have offices located in the
communities served by the Bank. Principal competitors are branches of large
banks, such as Citibank, J.P. Morgan Chase & Co., Bank of New York, and Fleet
NA, and various Long Island based banks.
1
Lending Activities
General. The Bank's loan portfolio is currently primarily comprised of
loans to small and medium-sized privately owned businesses, professionals, and
consumers in Nassau and Suffolk Counties. The Bank offers a full range of
lending services including construction loans, commercial and residential
mortgage loans, home equity loans and lines, commercial loans, consumer loans,
and commercial and standby letters of credit. Commercial loans include, among
other things, short-term business loans; term and installment loans; revolving
credit term loans; and loans secured by marketable securities, the cash
surrender value of life insurance policies, or deposit accounts. Consumer loans
include, among other things, auto loans, unsecured home improvement loans,
secured and unsecured personal loans, overdraft checking lines, and VISA(R)
credit cards.
The Bank makes both fixed and variable rate loans. Variable rate loans are
tied to and reprice with changes in the Bank's prime interest rate, The Wall
Street Journal prime interest rate, U.S. Treasury rates, or the Federal Home
Loan Bank of New York regular fixed advance rate. Commercial mortgage loans are
made with terms usually not in excess of fifteen years, while the maximum term
on residential mortgage loans is thirty years. Commercial and consumer loans
generally mature within five years. The Bank's current practice is to usually
lend no more than 75% of appraised value on residential mortgage loans, 60% on
home equity lines and 70% on commercial mortgage loans.
The risks inherent in the Bank's loan portfolio primarily stem from the
following factors relating to borrower size, geographic concentration, and
environmental contamination: first, loans to small and medium-sized businesses
sometimes involve a higher degree of risk than those to larger companies because
such businesses may have shorter operating histories and higher debt-to-equity
ratios than larger companies and may lack sophistication in internal record
keeping and financial and operational controls; second, the ability of many of
the Bank's borrowers to repay their loans can be dependent on the strength of
the local economy; and finally, if it becomes necessary to foreclose a loan
secured by real estate, the ability of the Bank to fully realize its investment
is dependent on, among other things, the strength of the Long Island real estate
market and the condition of the property including the absence of environmental
contamination. The Bank does not have any significant industry concentrations or
any foreign loans.
Except home equity products, loans from $300,000 to $750,000 require the
approval of the Management Loan Committee (home equity loans and lines have more
stringent approval requirements). All loans in excess of $750,000 require the
approval of the Management Loan Committee and two members of the Board Loan
Committee, one of whom must be a non-management director.
The Bank's lending is subject to written underwriting standards and loan
origination procedures, as approved by the Bank's Board of Directors and
contained in the Bank's loan policies. The Bank's loan policies allow for
exceptions and set forth the specific approvals required. Decisions on loan
applications are based on, among other things, the borrower's credit history,
the financial strength of the borrower, estimates of the borrower's ability to
repay the loan, and the value of the collateral, if any. All real estate
appraisals must meet the requirements of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989.
The composition of the Bank's loan portfolio is set forth below.
December 31,
-------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
(in thousands)
Commercial and industrial .... $ 37,329 $ 40,993 $ 30,514 $ 30,296 $ 28,748
Secured by real estate ....... 217,730 179,905 155,283 147,598 132,357
Consumer ..................... 6,414 6,198 7,504 5,284 6,366
Other ........................ 628 593 560 549 4,119
--------- --------- --------- --------- ---------
262,101 227,689 193,861 183,727 171,590
Unearned income .............. (993) (1,001) (952) (953) (872)
--------- --------- --------- --------- ---------
261,108 226,688 192,909 182,774 170,718
Allowance for loan losses .... (2,085) (2,020) (1,943) (2,033) (3,651)
--------- --------- --------- --------- ---------
$ 259,023 $ 224,668 $ 190,966 $ 180,741 $ 167,067
========= ========= ========= ========= =========
2
Commercial and Industrial Loans. The Bank makes commercial loans on a
demand basis, short-term basis, or installment basis. Short-term business loans
are generally due and payable within one year and should be self liquidating
during the normal course of the borrower's business cycle. Term and installment
loans are usually due and payable within five years. Generally, it is the policy
of the Bank to obtain personal guarantees of principal owners on loans made to
privately-owned businesses.
Maturity and rate information for the Bank's commercial and industrial
loans is set forth below.
Maturity
-------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
---------- ---------- ---------- ----------
(in thousands)
Commercial and industrial loans:
Fixed rate ....................... $ 6,408 $ 3,039 $ -- $ 9,447
Variable rate .................... 10,273 16,669 940 27,882
---------- ---------- ---------- ----------
$ 16,681 $ 19,708 $ 940 $ 37,329
========== ========== ========== ==========
Real Estate Mortgage and Home Equity Loans and Lines. The Bank makes
residential and commercial mortgage loans and home equity loans and establishes
home equity lines of credit. Applicants for residential mortgage loans and home
equity loans and lines will be considered for approval provided they have
satisfactory credit history and the Bank believes that there is sufficient
monthly income to service both the loan or line applied for and existing debt.
Applicants for commercial mortgage loans will be considered for approval
provided they, as well as any guarantors, generally have satisfactory credit
history and can demonstrate, through financial statements and otherwise, the
ability to repay. If the source of repayment is rental income, such income must
almost always be more than sufficient to amortize the debt.
In processing requests for commercial mortgage loans, the Bank almost
always requires an environmental assessment to identify the possibility of
environmental contamination. The extent of the assessment procedures varies from
property to property and is based on factors such as whether or not the subject
property is an industrial building or has a suspected environmental risk based
on current or past use.
Construction Loans. The Bank makes loans to finance the construction of
both residential and commercial properties. The maturity of such loans is
generally one year or less and advances are made as the construction progresses.
The advances can require the submission of bills by the contractor, verification
by a Bank-approved inspector that the work has been performed, and obtaining
title insurance updates to insure that no intervening liens have been placed.
Consumer Loans and Lines. The Bank makes auto loans, home improvement
loans, and other consumer loans, establishes revolving overdraft lines of
credit, and issues VISA(R) credit cards. Consumer loans and lines may be secured
or unsecured. Consumer loans are generally made on an installment basis over
terms not exceeding five years. In reviewing loans and lines for approval, the
Bank considers, among other things, ability to repay, stability of employment
and residence, and past credit history.
Past Due, Nonaccrual, and Restructured Loans. Selected information about
the Bank's past due, nonaccrual, and restructured loans can be found in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" which has been incorporated by reference into Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
this Form 10-K.
The accrual of interest on loans is generally discontinued when principal
or interest payments become past due 90 days or more. As of December 31, 2002,
the Bank did not have any impaired loans or material potential problem loans
except for the loans disclosed in "Note C - Loans" to the Corporation's
consolidated financial statements which have been incorporated by reference into
"Item 8. Financial Statements and Supplemental Data" of this Form 10-K.
Economic conditions in the Bank's market area were reasonably favorable
during the 2002 year. Future levels of past due, nonperforming, and restructured
loans will be affected by the strength of the local economy.
Allowance for Loan Losses. The allowance for loan losses is established
through provisions for loan losses charged against income and reductions in the
allowance are credited to 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 is an amount that management currently
believes will be adequate to absorb estimated inherent losses in the Bank's loan
portfolio. The process for estimating credit losses and determining the
allowance for loan losses as of any balance sheet date is subjective in nature
and requires material estimates. Actual results could differ significantly from
these estimates.
In determining the allowance for loan losses, there is not an exact amount
but rather a range for what constitutes an appropriate allowance. In estimating
losses the Bank reviews individual credits in its portfolio and, for those loans
deemed to be impaired,
3
measures impairment losses based on either the fair value of collateral or the
discounted value of expected future cash flows. Estimated losses for loans that
are not specifically reviewed are determined on a pooled basis taking into
account a variety of factors including historical losses; levels of and trends
in delinquencies and nonaccruing loans; trends in volume and terms of loans;
changes in lending policies and procedures; experience, ability and depth of
lending staff; national and local economic conditions; concentrations of credit;
and environmental risks. Management also considers relevant loan loss statistics
for the Bank's peer group. The estimated losses on the loans specifically
reviewed plus those determined on a pooled basis make up the allocated component
of the allowance for loan losses. The unallocated or general component of the
allowance for loan losses could cover losses in the portfolio that have not
otherwise been identified through the review of specific loans or pools of
loans.
Changes in the Bank's allowance for loan losses for each of the five years
in the period ended December 31, 2002 and the allocation of the Bank's allowance
for loan losses by loan type at the end of each of these years can be found in
"Note C - Loans" to the Corporation's consolidated financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", respectively, which have been incorporated by reference into Items
7 and 8, respectively, of this Form 10-K.
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. Loans secured by
real estate represent approximately 83% of the Bank's total loans outstanding at
December 31, 2002. The majority of these loans were made to borrowers domiciled
on Long Island and are secured by Long Island properties. In recent years,
economic conditions on Long Island have been strong and residential real estate
values have grown to unprecedented highs. Such conditions and values could
deteriorate in the future, and such deterioration could be substantial. If this
were to occur, some of the Bank's borrowers may be unable to make the required
contractual payments on their loans, and the Bank may be unable to realize the
full carrying value of such loans through foreclosure. However, management
believes that the Bank's underwriting policies for residential mortgages are
relatively conservative and, as a result, the Bank should be less affected than
the overall market.
Investment Activities
General. The investment policy of the Bank, as approved by the Board of
Directors and supervised by both the Board and the Management Investment
Committee, is intended to promote investment practices which are both safe and
sound and in full compliance with the Federal Financial Institutions Examination
Council (FFIEC) Supervisory Policy Statement on Investment Securities and
End-User Derivative Activities and all other applicable regulations. Investment
authority will be granted and amended as is necessary by the Board of Directors.
The Bank's investment decisions seek to maximize income while keeping both
credit and market risk at acceptable levels, provide for the Bank's liquidity
needs, assist in managing interest rate sensitivity, and provide securities that
can be pledged, as needed, to secure deposits or borrowing lines.
The Bank's investment policy limits individual maturities to twenty years
and average lives, in the case of collateralized mortgage obligations (CMOs) and
other mortgage-backed securities, to 10 years. At the time of purchase, bonds of
states and political subdivisions must generally be rated A or better, notes of
states and political subdivisions must generally be rated MIG-2 (or equivalent)
or better, and commercial paper must be rated A-1 or P-1. In addition,
management periodically reviews issuer credit ratings for all securities in the
Bank's portfolio other than those issued by the U.S. government or its agencies.
Any significant deterioration in the creditworthiness of an issuer will be
analyzed and action will be taken if deemed appropriate. The Bank has not
engaged in the purchase and sale of securities for the primary purpose of
producing trading profits and its current investment policy does not allow such
activity.
At December 31, 2002, the Bank had net unrealized gains of $9,336,000 in
its held-to-maturity portfolio, consisting of gross unrealized gains of
$9,425,000 and gross unrealized losses of $89,000. The unrealized gains and
losses were principally caused by decreases and increases, respectively, in
interest rates since the securities were purchased. The Bank intends and expects
to be able to hold these securities to maturity and therefore expects that
neither the unrealized gains nor the unrealized losses will ever be realized.
Portfolio Composition. The composition of the Bank's investment portfolio
can be found in "Note B - Investment Securities" to the Corporation's
consolidated financial statements which have been incorporated by reference into
Item 8 of this Form 10-K.
Maturity Information. The maturities and weighted average yields of the
Bank's investment securities at December 31, 2002 can be found in "Note B -
Investment Securities" to the Corporation's consolidated financial statements
which have been incorporated by reference into Item 8 of this Form 10-K.
The Bank received dividends on its Federal Reserve Bank stock of $6,924 in
2002 representing a yield of 6.00%.
Sources of Funds
General. The Bank's primary sources of funds are deposits, maturity and
redemption of investment securities, interest earned on investment securities
and federal funds sold, collection of principal and interest on loans, retained
earnings, and other funds provided from operations.
The Bank offers checking and interest-bearing deposit products. In addition
to business checking, the Bank has a variety of personal checking products
including "First Class", "Prime", regular, budget, senior citizen and special
checking. Among other
4
things, the personal products differ in minimum balance requirements, monthly
maintenance fees, and per check charges. The interest-bearing deposit products,
which have a wide range of interest rates and terms, consist of checking,
including interest on lawyer accounts (IOLA); escrow service accounts; rent
security accounts; three money-market-type products, including a traditional
money market savings account, "Select Savings" - a statement savings account
that earns a money market rate, and "Diamond Savings" - a passbook savings
account that earns a money market rate; traditional statement savings;
traditional passbook savings; savings certificates (3 month, 6 month and 1 to 6
year terms); large and jumbo certificates; holiday club accounts; and individual
retirement accounts (savings certificates with terms of 1 to 6 years).
Total certificates of deposits, the majority of which mature within one
year, were $30,466,000, or 4.4% of total deposits, at December 31, 2002.
Certificates of deposit in amounts of $100,000 or more were $13,107,000 at
December 31, 2002, or 1.9% of total deposits.
The Bank relies primarily on customer service, calling programs,
competitive pricing, and advertising to attract and retain deposits. Currently,
the Bank solicits deposits only from its local market area and does not have any
deposits which qualify as brokered deposits under applicable Federal
regulations. The flow of deposits is influenced by general economic conditions,
changes in interest rates and competition.
Classification of Average Deposits. The Bank's average deposit balances by
major classification are set forth below.
Year ended December 31,
--------------------------------------------------------------------------
2002 2001 2000
---------------------- ---------------------- ----------------------
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
--------- --------- --------- --------- --------- ---------
(dollars in thousands)
Checking .................... $ 241,683 --% $ 201,688 --% $ 186,215 --%
Savings and money market .... 391,829 1.14 343,389 2.31 303,530 3.67
Time deposits ............... 34,810 1.84 39,202 3.84 41,105 4.81
--------- --------- --------- --------- --------- ---------
$ 668,322 0.76% $ 584,279 1.62% $ 530,850 2.47%
========= ========= ========= ========= ========= =========
Remaining Maturities of Time Deposits. The remaining maturities of the
Bank's time deposits in amounts of $100,000 or more at December 31, 2002 can be
found in "Note E - Deposits" to the Corporation's consolidated financial
statements which have been incorporated by reference into Item 8 of this Form
10-K.
Competition
The Bank competes against other commercial banks as well as savings banks,
mortgage brokers, brokerage firms and credit unions in its market area. The Bank
competes effectively for loans on the basis of the quality of service it
provides and by offering competitive interest rates, and competes effectively
for deposits by offering a high level of customer service, paying competitive
rates on money market type deposit products, and through the geographic
distribution of its branch system.
Employees
As of December 31, 2002, the Bank had 181 full-time equivalent employees
and considers employee relations to be satisfactory. Employees of the Bank are
not represented by a collective bargaining unit.
Regulation
The Corporation is subject to the regulation and supervision of the Federal
Reserve Board and the Securities and Exchange Commission. The primary banking
agency responsible for regulating the Bank is the Comptroller of the Currency.
The Bank is also subject to regulation and supervision by the Federal Reserve
Board and the Federal Deposit Insurance Corporation.
Availability of Reports
The First National Bank of Long Island maintains an Internet website at
www.fnbli.com. The Corporation's annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed
with or furnished to the Securities and Exchange Commission pursuant to Section
13(a) or 15(d) of the Exchange Act are available free of charge through the
Bank's Internet website as soon as reasonably practicable after they are
electronically filed with or furnished to the SEC. To access these reports
simply go to the homepage of the Bank's Internet website and click on "First of
Long Island Corporation" and then click on "SEC Filings". This will bring you to
a listing of the Corporation's reports maintained on the SEC's EDGAR website.
You can then click on any report to view its contents.
5
ITEM 2. PROPERTIES
The Corporation neither owns nor leases any real estate. Office facilities
of the Corporation are located at 10 Glen Head Road, Glen Head, NY in a building
owned by the Bank. The Bank's designated main office is located at 253 New York
Avenue, Huntington, New York.
As of December 31, 2002, the Bank owns a total of ten buildings in fee and
occupies thirteen other facilities under lease arrangements, all of which are in
Nassau and Suffolk Counties New York. Subsequent to December 31, 2002, the Bank
obtained regulatory approval for three new branch offices in Manhattan and has
entered into lease agreements for all of these offices.
The Corporation believes that the physical facilities of the Bank are
suitable and adequate at present and are being fully utilized.
ITEM 3. LEGAL PROCEEDINGS
Other than ordinary routine litigation incidental to the business, it is
believed that there are no material legal proceedings, either individually or in
the aggregate, to which the Corporation or the Bank is a party or to which any
of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None were submitted to a vote of security holders during the fourth quarter
of 2002.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's common stock trades on the Nasdaq SmallCap Market tier of
the Nasdaq Stock Market ("Nasdaq") under the symbol "FLIC". The table appearing
on page 1 of the Corporation's Annual Report to Shareholders for the fiscal year
ended December 31, 2002 showing the high and low sales prices, by quarter, for
the years ended December 31, 2002 and 2001 is incorporated herein by reference.
On March 13, 2003, there were 4,071,011 shares of the Corporation's common
stock outstanding with 698 holders of record. The holders of record include
banks and brokers who act as nominees, each of whom may represent more than one
stockholder.
During 2002 and 2001, the Corporation declared semi-annual cash dividends
aggregating $.63 and $.54 per share, respectively.
All of the Corporation's equity compensation plans, which consist solely of
stock option and appreciation rights plans, were previously approved by its
stockholders. Information as of December 31, 2002 regarding the number of shares
of common stock to be issued upon the exercise of outstanding stock options, the
weighted average exercise price of outstanding stock options, and the number of
stock options remaining available for future issuance are set forth in "Note I -
Stock-Based Compensation" to the Corporation's consolidated financial statements
which have been incorporated by reference into "Item 8. Financial Statements and
Supplemental Data" of this Form 10-K.
Trading in the Corporation's common stock is limited. The total trading
volumes for 2002 and 2001 as reported by Nasdaq and as adjusted for the 3-for-2
stock split declared June 18, 2002 were 743,903 and 534,408 shares,
respectively, with average daily trading volumes of 2,952 and 2,155 shares,
respectively. During 2002, the Corporation purchased 52,848 shares, 12,000 of
which were purchased in market transactions, and in 2001 purchased 178,427
shares, 121,050 of which were purchased in market transactions. These market
purchases represent approximately 2% and 23% of the total trading volumes
reported by Nasdaq for 2002 and 2001, respectively. Although the Corporation has
had a stock repurchase program since 1988, if the Company discontinues the
program it could adversely affect market liquidity for the Corporation's common
stock, the price of the Corporation's common stock, or both.
In addition, effective July 1, 2002, the Corporation's common stock was
included for the first time in the Russell 3000(R) and 2000(R) Indices. The
Corporation believes that inclusion in the Russell indices has positively
impacted the price of its common stock and has increased the stock's trading
volume and liquidity. Conversely, if the Corporation's market capitalization
falls below the minimum necessary to be included in the indices at any future
index reconstitution date, the Corporation believes that this could adversely
affect the price, volume and liquidity of its common stock.
For a further discussion of the Corporation's share repurchase program,
including its impact on earnings per share, and the Russell indices please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Note A" to the Corporation's consolidated financial statements,
both of which are included in the Corporations Annual Report to Shareholders for
the fiscal year ended December 31, 2002.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data" appearing on page 1 of the Corporation's Annual
Report to Shareholders for the fiscal year ended December 31, 2002 is
incorporated herein by reference.
The Corporation's dividend payout ratio was 23.08%, 23.18% and 22.86% for
2002, 2001 and 2000, respectively.
6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing on pages 9 through 20 of the Corporation's Annual Report
to Shareholders for the fiscal year ended December 31, 2002 is incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk information included in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and appearing on
pages 18 through 20 of the Corporation's Annual Report to Shareholders for the
fiscal year ended December 31, 2002 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and report of independent public
accountants appearing on pages 22 through 43 of Corporation's Annual Report to
Shareholders for the fiscal year ended December 31, 2002 are incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 27, 2002, based on a recommendation by the Audit Committee of the
Board of Directors (the "Audit Committee"), the Board of Directors of The First
of Long Island Corporation (the "Company") approved the dismissal of the
Company's independent public accountant, Arthur Andersen LLP. No reports by
Arthur Andersen LLP within the two years prior to their dismissal contained an
adverse opinion or a disclaimer of opinion, or were qualified or modified as to
uncertainty, audit scope or accounting principles. During the Company's two most
recent fiscal years and all interim periods preceding the dismissal, there were
no disagreements between the Company and Arthur Andersen LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure. Within the last two most recent fiscal years and all
subsequent interim periods preceding the dismissal and to the date of dismissal,
there were no reportable events with respect to Arthur Andersen LLP as that term
is described in Item 304 of Regulations S-K. On July 2, 2002, the Corporation
filed a Form 8-K with the Securities and Exchange Commission to report the
dismissal of Arthur Andersen LLP. In connection with the Form 8-K filing, the
Company requested that Arthur Andersen LLP furnish it with a letter addressed to
the Securities and Exchange Commission stating whether or not it agrees with the
above statements. A copy of such letter, dated June 27, 2002, is filed as
exhibit 16 to this Form 10-K
On June 27, 2002, based on a recommendation by the Audit Committee, the
Board of Directors of the Company selected and engaged Grant Thornton LLP as its
independent public accountant. Grant Thornton LLP audited the Company's
financial statements for the fiscal year ended December 31, 2002.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
"ELECTION OF DIRECTORS" appearing on pages 3 through 5 and "MANAGEMENT"
appearing on pages 8 and 9 of Registrant's Proxy Statement for its Annual
Meeting of Stockholders to be held April 15, 2003 are incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
"COMPENSATION OF DIRECTORS", "BOARD COMPENSATION COMMITTEE REPORT",
"COMPENSATION OF EXECUTIVE OFFICERS", "SUMMARY COMPENSATION TABLE",
"COMPENSATION PURSUANT TO PLANS", and "PERFORMANCE GRAPH" appearing on pages 5
and 6 and 9 through 18 of the Registrant's Proxy Statement for its Annual
Meeting of Stockholders to be held April 15, 2003 are incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS" appearing on Pages 1 through
3 of Registrant's Proxy Statement for its Annual Meeting of Stockholders to be
held April 15, 2003 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"TRANSACTIONS WITH MANAGEMENT AND OTHERS" appearing on pages 18 and 19 of
Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held
April 15, 2003 is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer, J. William Johnson, and Chief
Financial Officer, Mark D. Curtis, have reviewed the Corporation's disclosure
controls and procedures within 90 days prior to the filing of this report on
Form 10-K. Based upon this review, these officers believe that the Corporation's
disclosure controls and procedures are effective in ensuring that material
information related to the Corporation is made known to them by others within
the Corporation.
7
(b) Changes in Internal Controls
There were no significant changes in the Corporation's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the review performed by the Chief Executive Officer and the Chief
Financial Officer. In addition, there were no corrective actions with regard to
significant deficiencies and material weaknesses in internal controls subsequent
to the review performed by the Chief Executive Officer and the Chief Financial
Officer.
ITEM 16. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees. Grant Thornton LLP became the Corporation's principal
accountant on June 27, 2002, and prior to this Arthur Andersen LLP served as the
Corporation's principal accountant. Grant Thornton LLP's fees for audit services
for the 2002 year were $86,500 and Arthur Andersen's fees for audit services for
the 2001 year were $85,000. Audit services include the following: (1)
professional services rendered for the audit of the Corporation's annual
financial statements; (2) reviews of the financial statements included in the
Corporation's Forms 10-Q; (3) a reading of the Corporation's annual report on
Form 10-K; (4) rendering an opinion on management's assertion about the
effectiveness of the Bank's internal control structure over financial reporting;
and (5) consultation on matters related to accounting and financial reporting.
With respect to the reviews of financial statements included in the
Corporation's Forms 10-Q, Arthur Andersen LLP performed the review for the
quarter ended March 31, 2002 for a fee of $5,000 and Grant Thornton LLP
performed the reviews for the remaining quarters in 2002.
Audit Related Fees. In neither of the last two fiscal years was the
Corporation billed by its principal accountant for "Audit-Related Fees" as that
term is described in Item 9(e)(2) of Schedule 14A of the Securities and Exchange
Commission's Proxy Rules.
Tax Fees. For the 2002 fiscal year, Grant Thornton LLP billed the
Corporation $7,000 for the preparation of most of its tax returns for the 2001
fiscal year. Arthur Andersen LLP billed the Corporation $10,000 during 2002 for
preparing the 2001 tax returns for the Bank's REIT (real estate investment
trust) subsidiary, providing advice regarding the Bank's REIT and investment
subsidiaries and for analysis of the tax consequences of bank owned life
insurance.
All Other Fees. In neither of the last two fiscal years was the Corporation
billed by its principal accountant for any fees other than those described above
under the captions "Audit Fees" and "Tax Fees".
Audit Committee Administration of the Engagement. The rendering of audit
and non-audit services by the Corporation's principal accountant are approved by
the Audit Committee of the Corporation's Board of Directors before the
accountant is engaged to perform such services.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements
The following consolidated financial statements of the Corporation and its
subsidiary, and Report of Independent Public Accountants thereon, as required by
Item 8 of this report are incorporated herein by reference.
o Consolidated Balance Sheets - December 31, 2002 and 2001
o Consolidated Statements of Income - Years ended December 31, 2002, 2001 and
2000
o Consolidated Statement of Changes in Stockholders' Equity - Years ended
December 31, 2002, 2001 and 2000
o Consolidated Statements of Cash Flows - Years ended December 31, 2002, 2001
and 2000
o Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules
None Applicable.
(a) 3. Listing of Exhibits
The following exhibits are submitted herewith.
EXHIBIT NO. NAME
- ----------- ----
3(i) Certificate of Incorporation, as amended (1)
3(ii) By-laws, as amended (2)
10.1 Incentive Compensation Plan (3)
10.2 1986 Stock Option and Appreciation Rights Plan (4)
10.3 1996 Stock Option and Appreciation Rights Plan (5)
10.4 Amendment to 1996 Stock Option and Appreciation Rights Plan dated
February 20, 2001 (6)
8
10.5 Employment Agreement between Registrant and J. William Johnson
dated January 31, 1996, as amended December 18, 1996, January 2,
1998, January 6, 1999, July 20, 1999, and July 9, 2002 (7)
10.6 Employment Agreement between Registrant and Michael N. Vittorio
dated June 22, 2002 (8)
10.7 Employment Agreement between Registrant and Arthur J. Lupinacci,
Jr. dated July 1, 1999, as amended July 9, 2002 (9)
10.8 Employment Agreement between Registrant and Donald L. Manfredonia
dated January 1, 2002, as amended July 9, 2002 (10)
10.9 Employment Agreement between Registrant and Joseph G. Perri,
dated January 1, 2002, as amended July 9, 2002 (11)
10.10 Special Severance Agreement between Registrant and Richard Kick,
dated January 1, 2002 (12)
10.11 Special Severance Agreement between Registrant and Mark D.
Curtis, dated January 1, 2002 (13)
10.12 Special Severance Agreement between Registrant and Brian J.
Keeney, dated January 1, 2002 (14)
13 Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 2002 Included herein
16 Letter from Arthur Andersen LLP dated June 27, 2002 (15)
21 Subsidiary of Registrant Included herein
23 Consent of Independent Public Accountants Included herein
99.1 Notice of 2003 Annual Meeting and Proxy Statement (16)
99.2 Certification by Chief Executive Officer and Chief Financial
Officer Included herein
(1) Previously filed as part of Report on Form 10-K for 1998, filed on March
29, 1999, as exhibit 3(i), which exhibit is incorporated herein by
reference.
(2) Previously filed as part of Report on Form 10-K for 1999, filed on March
29, 2000, as exhibit 3(ii), which exhibit is incorporated herein by
reference.
(3) "Incentive Compensation Plan" and "Board Compensation Committee Report"
appearing on pages 13 and 9, respectively, of the Registrant's Proxy
Statement for its Annual Meeting of Stockholders to be held April 15, 2003
are incorporated herein by reference.
(4) Previously filed as an exhibit to Form 10-K which exhibit is incorporated
herein by reference.
(5) Previously filed as part of Report on Form 10-K for 1995, filed on March
22, 1996, as exhibit 10(b), which exhibit is incorporated herein by
reference.
(6) Previously filed as part of Report on Form 10-K for 2000, filed on March
27, 2001, as Exhibit 10.4, which exhibit is incorporated herein by
reference.
(7) Employment agreement previously filed as part of Report on Form 10-K for
1995, filed on March 22, 1996, as exhibit 10(c), which exhibit is
incorporated herein by reference. The December 18, 1996, January 2, 1998,
and January 6, 1999 amendments to Mr. Johnson's employment agreement each
involved an increase in Mr. Johnson's base annual salary, the dollar
amounts of which were previously disclosed in Form 10-K. The July 20, 1999
amendment to Mr. Johnson's employment contract served to correct the date
set forth in Section 4(c) from May 31, 2005 to May 31, 2006. The July 9,
2002 amendment to Mr. Johnson's employment contract served to delete
Section 4(d) "Additional Insurance". Mr. Johnson's current base annual
salary is disclosed in Exhibit 99.1 to this Form 10-K filing.
(8) Previously filed as part of Report on Form 10-Q for the quarterly period
ended June 30, 2002, filed on August 9, 2002, as Exhibit 10.1, which
exhibit is incorporated herein by reference.
(9) Previously filed as part of Report on Form 10-K for 1999, filed on March
29, 2000, as exhibit 10.5, which exhibit is incorporated herein by
reference. The July 9, 2002 amendment to Mr. Lupinacci's employment
contract served to delete Section 8.1(b) "Additional Insurance" and
eliminate the references in Section 8.2 to Section 8.1(b) and to "other
insurance coverage". Mr. Lupinacci's current base annual salary is
disclosed in Exhibit 99.1 to this Form 10-K filing.
(10) Employment agreement previously filed as part of Report on Form 10-K for
2001, filed on March 29, 2002, as exhibit 10.7, which exhibit is
incorporated herein by reference. The July 9, 2002 amendment to Mr.
Manfredonia's employment contract served to delete Section 8.1(b)
"Additional Insurance" and eliminate the references in Section 8.2 to
Section 8.1(b) and to "other insurance coverage". Mr. Manfredonia's current
base annual salary is disclosed in Exhibit 99.1 to this Form 10-K filing.
(11) Employment agreement previously filed as part of Report on Form 10-K for
2001, filed on March 29, 2002, as exhibit 10.8, which exhibit is
incorporated herein by reference. The July 9, 2002 amendment to Mr. Perri's
employment contract served to delete Section 8.1(b) "Additional Insurance"
and eliminate the references in Section 8.2 to Section 8.1(b) and to "other
insurance coverage". Mr. Perri's current base annual salary is disclosed in
Exhibit 99.1 to this Form 10-K filing.
(12) Special Severance Agreement previously filed as part of Report on Form 10-K
for 2001, filed on March 29, 2002, as exhibit 10.9, which exhibit is
incorporated herein by reference.
9
(13) Special Severance Agreement previously filed as part of Report on Form 10-K
for 2001, filed on March 29, 2002, as exhibit 10.9, which exhibit is
incorporated herein by reference.
(14) Special Severance Agreement previously filed as part of Report on Form 10-K
for 2001, filed on March 29, 2002, as exhibit 10.9, which exhibit is
incorporated herein by reference.
(15) Previously filed as part of report on Form 8-K dated June 27, 2002, filed
on July 2, 2002, as exhibit 16.1, which exhibit is incorporated herein by
reference.
(16) The Corporation's Proxy Statement for its Annual Meeting of Stockholders to
be held April 15, 2003 was submitted in electronic format on March 4, 2003
and is incorporated herein by reference.
(b) Reports on Form 8-K
None
(c) Exhibits
Exhibits as listed under 15(a) 3. above are submitted as a separate section
of this report.
(d) Financial Statement Schedules - None
10
Signatures
Pursuant to the requirements of Section l3 or l5(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE FIRST OF LONG ISLAND CORPORATION
(Registrant)
Dated: March 18, 2003 By /s/ J. WILLIAM JOHNSON
--------------------------------------------------
J. WILLIAM JOHNSON, Chief Executive Officer
(principal executive officer)
By /s/ MARK D. CURTIS
--------------------------------------------------
MARK D. CURTIS, Senior Vice President and Treasurer
(principal financial officer and principal accounting
officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signatures Titles Date
/s/ J. WILLIAM JOHNSON Chairman of the Board MARCH 18, 2003
- ----------------------------
J. William Johnson
/s/ ALLEN E. BUSCHING Director MARCH 18, 2003
- ----------------------------
Allen E. Busching
/s/ PAUL T. CANARICK Director MARCH 18, 2003
- ----------------------------
Paul T. Canarick
/s/ BEVERLY ANN GEHLMEYER Director MARCH 18, 2003
- ----------------------------
Beverly Ann Gehlmeyer
/s/ HOWARD THOMAS HOGAN, JR. Director MARCH 18, 2003
- ----------------------------
Howard Thomas Hogan, Jr.
/s/ J. DOUGLAS MAXWELL, JR. Director MARCH 18, 2003
- ----------------------------
J. Douglas Maxwell, Jr.
/s/ JOHN R. MILLER III Director MARCH 18, 2003
- ----------------------------
John R. Miller III
/s/ WALTER C. TEAGLE III Director MARCH 18, 2003
- ----------------------------
Walter C. Teagle III
/s/ MICHAEL N. VITTORIO Director MARCH 18, 2003
- ----------------------------
Michael N. Vittorio
11
CERTIFICATIONS
1. I, J. William Johnson, have reviewed this annual report on Form 10-K of The
First of Long Island Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in light of circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 18, 2003
By /s/ J. WILLIAM JOHNSON
- ------------------------------------
J. WILLIAM JOHNSON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
(principal executive officer)
1. I, Mark D. Curtis, have reviewed this annual report on Form 10-K of The First
of Long Island Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in light of circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
12
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 18, 2003
By /s/ MARK D. CURTIS
- --------------------------------------------
MARK D. CURTIS
SENIOR VICE PRESIDENT & TREASURER
(principal financial and accounting officer)
13
EXHIBIT INDEX
EXHIBIT BEGINS
ON SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- --------------
3(i) Certificate of Incorporation, as amended (1)
3(ii) By-laws, as amended (2)
10.1 Incentive Compensation Plan (3)
10.2 1986 Stock Option and Appreciation Rights Plan (4)
10.3 1996 Stock Option and Appreciation Rights Plan (5)
10.4 Amendment to 1996 Stock Option and Appreciation Rights Plan dated
February 20, 2001 (6)
10.5 Employment Agreement between Registrant and J. William Johnson
dated January 31, 1996, as amended December 18, 1996, January 2,
1998, January 6, 1999, July 20, 1999, and July 9, 2002 (7)
10.6 Employment Agreement between Registrant and Michael N. Vittorio
dated June 22, 2002 (8)
10.7 Employment Agreement between Registrant and Arthur J. Lupinacci,
Jr. dated July 1, 1999, as amended July 9, 2002 (9)
10.8 Employment Agreement between Registrant and Donald L. Manfredonia
dated January 1, 2002, as amended July 9, 2002 (10)
10.9 Employment Agreement between Registrant and Joseph G. Perri,
dated January 1, 2002, as amended July 9, 2002 (11)
10.10 Special Severance Agreement between Registrant and Richard Kick,
dated January 1, 2002 (12)
10.11 Special Severance Agreement between Registrant and Mark D.
Curtis, dated January 1, 2002 (13)
10.12 Special Severance Agreement between Registrant and Brian J.
Keeney, dated January 1, 2002 (14)
13 Registrant's Annual Report to Shareholders for the fiscal year
ended December 31, 2002 16
16 Letter from Arthur Andersen LLP dated June 27, 2002 (15)
21 Subsidiary of Registrant 74
23 Consent of Independent Public Accountants 76
99.1 Notice of 2003 Annual Meeting and Proxy Statement (16)
99.2 Certification by Chief Executive Officer and Chief Financial
Officer 78
(1) Previously filed as part of Report on Form 10-K for 1998, filed on March
29, 1999, as exhibit 3(i), which exhibit is incorporated herein by
reference.
(2) Previously filed as part of Report on Form 10-K for 1999, filed on March
29, 2000, as exhibit 3(ii), which exhibit is incorporated herein by
reference.
(3) "Incentive Compensation Plan" and "Board Compensation Committee Report"
appearing on pages 13 and 9, respectively, of the Registrant's Proxy
Statement for its Annual Meeting of Stockholders to be held April 15, 2003
are incorporated herein by reference.
(4) Previously filed as an exhibit to Form 10-K which exhibit is incorporated
herein by reference.
(5) Previously filed as part of Report on Form 10-K for 1995, filed on March
22, 1996, as exhibit 10(b), which exhibit is incorporated herein by
reference.
(6) Previously filed as part of Report on Form 10-K for 2000, filed on March
27, 2001, as Exhibit 10.4, which exhibit is incorporated herein by
reference.
(7) Employment agreement previously filed as part of Report on Form 10-K for
1995, filed on March 22, 1996, as exhibit 10(c), which exhibit is
incorporated herein by reference. The December 18, 1996, January 2, 1998,
and January 6, 1999 amendments to Mr. Johnson's employment agreement each
involved an increase in Mr. Johnson's base annual salary, the dollar
amounts of which were previously disclosed in Form 10-K. The July 20, 1999
amendment to Mr. Johnson's employment contract served to correct the date
set forth in Section 4(c) from May 31, 2005 to May 31, 2006. The July 9,
2002 amendment to Mr. Johnson's employment contract served to delete
Section 4(d) "Additional Insurance". Mr. Johnson's current base annual
salary is disclosed in Exhibit 99.1 to this Form 10-K filing.
(8) Previously filed as part of Report on Form 10-Q for the quarterly period
ended June 30, 2002, filed on August 9, 2002, as Exhibit 10.1, which
exhibit is incorporated herein by reference.
(9) Previously filed as part of Report on Form 10-K for 1999, filed on March
29, 2000, as exhibit 10.5, which exhibit is incorporated herein by
reference. The July 9, 2002 amendment to Mr. Lupinacci's employment
14
contract served to delete Section 8.1(b) "Additional Insurance" and
eliminate the references in Section 8.2 to Section 8.1(b) and to "other
insurance coverage". Mr. Lupinacci's current base annual salary is
disclosed in Exhibit 99.1 to this Form 10-K filing.
(10) Employment agreement previously filed as part of Report on Form 10-K for
2001, filed on March 29, 2002, as exhibit 10.7, which exhibit is
incorporated herein by reference. The July 9, 2002 amendment to Mr.
Manfredonia's employment contract served to delete Section 8.1(b)
"Additional Insurance" and eliminate the references in Section 8.2 to
Section 8.1(b) and to "other insurance coverage". Mr. Manfredonia's current
base annual salary is disclosed in Exhibit 99.1 to this Form 10-K filing.
(11) Employment agreement previously filed as part of Report on Form 10-K for
2001, filed on March 29, 2002, as exhibit 10.8, which exhibit is
incorporated herein by reference. The July 9, 2002 amendment to Mr. Perri's
employment contract served to delete Section 8.1(b) "Additional Insurance"
and eliminate the references in Section 8.2 to Section 8.1(b) and to "other
insurance coverage". Mr. Perri's current base annual salary is disclosed in
Exhibit 99.1 to this Form 10-K filing.
(12) Special Severance Agreement previously filed as part of Report on Form 10-K
for 2001, filed on March 29, 2002, as exhibit 10.9, which exhibit is
incorporated herein by reference.
(13) Special Severance Agreement previously filed as part of Report on Form 10-K
for 2001, filed on March 29, 2002, as exhibit 10.9, which exhibit is
incorporated herein by reference.
(14) Special Severance Agreement previously filed as part of Report on Form 10-K
for 2001, filed on March 29, 2002, as exhibit 10.9, which exhibit is
incorporated herein by reference.
(15) Previously filed as part of report on Form 8-K dated June 27, 2002, filed
on July 2, 2002, as exhibit 16.1, which exhibit is incorporated herein by
reference.
(16) The Corporation's Proxy Statement for its Annual Meeting of Stockholders to
be held April 15, 2003 was submitted in electronic format on March 4, 2003
and is incorporated herein by reference.
15
EXHIBIT 13 - REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2002
16
[LOGO] The First of Long Island
2002 ANNUAL REPORT
[PHOTO OMITTED]
1927............Celebrating 75 Years............2002
The First of Long Island Corporation
17
[LOGO] The First of Long Island
A BEACON OF STRENGTH FOR 75 YEARS
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 twenty-one branch system on Long Island.
The First of Long Island Agency, Inc. was organized in 1994 under the laws of
the State of New York, as a subsidiary of the Bank to conduct business as a
licensed insurance agency engaged in the sale of insurance, primarily fixed
annuity products.
The Bank is subject to regulation and supervision of the Federal Reserve Board,
the Comptroller of the Currency, and the Federal Deposit Insurance Corporation
which also insures its deposits. The Comptroller of the Currency is the primary
banking agency responsible for regulating the subsidiary Bank. In addition, the
Corporation is subject to the regulations and supervision of the Federal Reserve
Board and the Securities and Exchange Commission.
About the Cover:
Top photo: The First National Bank of Glen Head - in Glen Head circa 1930's;
pictured left is the first employee, Robert S. Miller. He had a long career with
the Bank, becoming President in 1954 and Chairman of the Board in 1966. The
identity of the individual on the right is unknown to us. If you recognize this
person, please call the Marketing Department and help us update our records.
Bottom photo: The First National Bank of Long Island - the Glen Head Branch
circa 1990's.
Table of Contents
Selected Financial Data - 1
Letter to Shareholders - 2
Testimonials - 4
Board of Directors - 7
Senior Management - 8
Management's Discussion and Analysis of Financial Condition and Results of
Operations - 9
Management's Responsibility for Financial Reporting - 21
Consolidated Financial Statements and Notes - 22
Report of Independent Public Accountants - 43
Annual Meeting Notice - 44
Business Development Board - IBC
Branch Listings - OBC
18
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.
2002 2001 2000 1999* 1998
------------ ------------ ------------- ------------ -------------
INCOME STATEMENT DATA:
Total Interest Income ......................... $ 36,929,000 $ 37,989,000 $ 38,822,000 $ 33,963,000 $ 32,682,000
Total Interest Expense ........................ 5,111,000 9,451,000 13,106,000 9,513,000 9,867,000
Net Interest Income ........................... 31,818,000 28,538,000 25,716,000 24,450,000 22,815,000
Provision for Loan Losses (Credit) ............ 100,000 100,000 (75,000) -- (100,000)
Net Income .................................... 11,563,000 10,094,000 9,318,000 9,034,000 8,236,000
PER SHARE DATA:**
Basic Earnings ................................ $ 2.77 $ 2.37 $ 2.13 $ 1.98 $ 1.77
Diluted Earnings .............................. 2.73 2.33 2.10 1.95 1.73
Cash Dividends Declared ....................... .63 .54 .48 .43 .38
Stock Splits/Dividends Declared ............... 3-for-2 -- -- -- --
Book Value .................................... $ 20.53 $ 17.84 $ 16.33 $ 14.45 $ 13.73
BALANCE SHEET DATA AT YEAR END:
Total Assets .................................. $792,342,000 $684,081,000 $ 625,992,000 $570,551,000 $ 546,127,000
Total Loans ................................... 261,108,000 226,688,000 192,909,000 182,774,000 170,718,000
Allowance for Loan Losses ..................... 2,085,000 2,020,000 1,943,000 2,033,000 3,651,000
Total Deposits ................................ 699,725,000 604,870,000 550,472,000 503,189,000 479,231,000
Stockholders' Equity .......................... 85,442,000 74,746,000 70,866,000 64,233,000 63,744,000
AVERAGE BALANCE SHEET DATA:
Total Assets .................................. $753,703,000 $661,958,000 $ 600,326,000 $554,561,000 $ 508,982,000
Total Loans ................................... 242,773,000 205,959,000 186,451,000 176,078,000 164,063,000
Allowance for Loan Losses ..................... 2,101,000 1,941,000 1,961,000 2,835,000 3,643,000
Total Deposits ................................ 668,322,000 584,279,000 530,850,000 486,532,000 445,266,000
Stockholders' Equity .......................... 80,516,000 73,390,000 66,711,000 65,406,000 61,037,000
FINANCIAL RATIOS:
Return on Average Total Assets (ROA) .......... 1.53% 1.52% 1.55% 1.63% 1.62%
Return on Average Stockholders' Equity (ROE) .. 14.36% 13.75% 13.97% 13.81% 13.49%
Average Equity to Average Assets .............. 10.68% 11.09% 11.11% 11.79% 11.99%
*Net income, earnings per share, ROA, and ROE for 1999 are before a $945,000
($.21 per share) credit resulting from a transition adjustment to the allowance
for loan losses.
**Adjusted to reflect the 3-for-2 stock split paid July 2002
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, 2002 and 2001.
2002 2001
----------------- -----------------
Quarter High Low High Low
- ------- ------- ------- ------- -------
First $ 26.67 $ 24.10 $ 26.04 $ 25.17
Second 33.83 25.94 27.17 25.50
Third 36.57 32.25 27.27 25.77
Fourth 36.75 30.50 26.83 25.20
At December 31, 2002, there were 696 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.
19
Letter to Shareholders
[PHOTO OMITTED]
Dear Shareholders,
We are very pleased to report on our results for 2002. Earnings per share were
$2.73 versus $2.33 in 2001, reflecting a substantial growth of 17%. Our net
income was $11,563,000. The graph below depicts earnings per share growth since
1979.
The Corporation declared total dividends of 63 cents per share in 2002, a 17%
increase over the 54 cents per share declared last year. As you will recall, The
First of Long Island also split its stock 3-for-2 in July 2002.
Return on Assets, a key measure of a bank's performance, remained high at 1.53%,
and Return on Equity increased to 14.4% from 13.8%. The results in 2002 are
particularly gratifying as they were achieved in a difficult interest rate
environment. For example, the federal funds rate was reduced again to an
incredibly low 1.25% in November 2002. The negative effects of the resultant
lower net interest margin were overcome by growth in our business, particularly
checking account balances.
Average checking account balances were 20% greater in 2002 than in the prior
year, largely the result of our new business development program, and were
clearly the most important reason for the growth in earnings per share. The
solicitation of commercial checking account relationships is our most important
strategy to increase earnings per share. Other important factors contributing to
the earnings growth were increases in money market type savings balances and
loans. In the loan categories, mortgage based products accounted for most of the
increase, especially loans to consumers on residential real estate. Residential
mortgages alone increased 37% in average outstandings as consumers refinanced
their mortgages, added to their homes and bought new houses.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL]
Earnings Per Share
1979 $.08
1980 $.15
1981 $.17
1982 $.21
1983 $.26
1984 $.38
1985 $.58
1986 $.68
1987 $.73
1988 $.83
1989 $.86
1990 $.91
1991 $.86
1992 $1.03
1993 $1.11
1994 $1.21
1995 $1.24
1996 $1.39
1997 $1.55
1998 $1.73
1999 $1.95
2000 $2.10
2001 $2.33
2002 $2.73
On a fully diluted basis excluding special credits. Adjusted for dividends and
splits.
20
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL]
Average Checking Balances
In Millions of Dollars
1997 $133,082
1998 $154,781
1999 $168,791
2000 $186,215
2001 $201,688
2002 $241,683
As we look towards the year 2003 we are excited by the opportunities, although
significant challenges lie ahead. The most difficult will likely be an even more
stressful interest rate environment, placing even greater pressure on our net
interest margin. Other issues include an escalation in insurance premiums for
most of our important coverages and the possibility of Congress passing
legislation to permit interest on corporate checking accounts. In addition, we
are dealing with a lackluster economy indicating little evidence of any
meaningful expansion.
We continue, however, to be enthusiastic about our growth opportunities. As our
shareholders know, two of our most important markets are privately owned
businesses and professionals. We have had excellent success over the years in
attracting and retaining these customers at The First of Long Island. We will
continue the strategy of soliciting banking relationships from these types of
customers both on Long Island and soon in Manhattan, as we look forward to
establishing branches in that borough. We also plan on pricing our consumer
checking accounts more aggressively in order to grow that business which has
been stagnant, not in terms of balances maintained, but in numbers of accounts.
Also, in the consumer market, we expect to offer mutual funds and annuities
again in order to more fully meet the investing needs of our personal customers.
The strength of The First of Long Island has always been our most important
goal. It is our duty not only to our shareholders but to our customers to ensure
that the Bank will always be a "Beacon of Financial Strength in all Economic
Climates". There are 10,000 banks and thrifts in the United States, and we were
proud to report that Weiss Ratings, Inc. recently rated The First National Bank
of Long Island one of the ten strongest amongst the 10,000 banks and thrifts.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL]
Return on Average Assets
1998 1.62%
1999 1.63%
2000 1.55%
2001 1.52%
2002 1.53%
Excluding special credits.
21
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL]
Cash Dividends Declared Per Share
1979 $.01
1980 $.02
1981 $.02
1982 $.03
1983 $.05
1984 $.05
1985 $.08
1986 $.10
1987 $.11
1988 $.13
1989 $.13
1990 $.15
1991 $.17
1992 $.19
1993 $.21
1994 $.23
1995 $.25
1996 $.29
1997 $.33
1998 $.38
1999 $.43
2000 $.48
2001 $.54
2002 $.63
Adjusted to reflect the 3-for-2 split paid July 2002.
Although we will be challenged in 2003, not only by external factors but by the
expenses of our growth strategies, we look to the future with confidence. As we
have said before, we sincerely believe the quality of service provided by The
First of Long Island is unequaled by any of our competitors, and we will
continue to work very hard to perpetuate that level of service and maintain The
First of Long Island as a premier and prosperous financial institution.
We are also pleased to announce that Michael N. Vittorio, Executive Vice
President, was elected to the Board of Directors of the Corporation and the Bank
on February 18, 2003, and his name is submitted to you for a full year term
beginning this April. At the same meetings Mike was also elected President of
both entities effective March 1, 2003. I know you will all join me in wishing
him well in his new responsibilities.
/s/ J. William Johnson
J. William Johnson
Chairman and Chief Executive Officer
22
We have a deeply rooted commitment to provide an unparalleled level of
service to our customers - privately owned businesses, professionals and service
conscious consumers.
- - J. William Johnson
[PHOTO OMITTED]
Arthur J. Lupinacci
Executive Vice President,
Chief Administrative Officer
The First National Bank of Long Island
Senior Management
We've always prided ourselves on the financial strength of The First of Long
Island. Under the leadership of J. William Johnson, our shareholders have seen
positive growth in cash dividends and earnings. The Bank prides itself on
remaining a "Beacon of Strength in All Economic Climates." Recently, Weiss
Ratings, a major independent ratings agency, named The First National Bank of
Long Island one of the 10 strongest amongst 10,000 banks and thrifts across the
nation based on capital adequacy, asset quality, earnings, and liquidity. We are
particularly gratified with this rating as it acknowledges our continued
commitment to the financial health of our community bank.
[PHOTO OMITTED]
Mark Udell
Chief Executive Officer
London Jewelers
Customer
My grandfather established our business in 1926, catering to the wealthy estates
in the area. Over time, mergers and liquidations eroded the atmosphere and
service of our original bank; we began to feel like we were just a number. That
all changed when we were introduced to The First of Long Island. Both Don
Manfredonia and Bill Johnson were instrumental in providing small business loans
to allow us to expand our network of fine stores on Long Island. Our business
models and philosophies are very similar: a business environment both genuine
and sincere, staffed by people who really care; and an ethical and conservative
management structure. I always feel like a significant part of the Bank - a
self-titled ambassador, if you could go that far. We are both progressive
organizations forging steady growth for over three-quarters of a century.
[PHOTO OMITTED]
Donald Brown
Vice Chairman
Slant/Fin Corporation
Customer
I live locally and because I value relationships within the community, I make it
a point to patronize the stores in my neighborhood. Whenever I do my personal
banking at the Glen Head branch, I run into friends and other local community
people. It's not just the Bank's employees' professionalism, or convenient
locations, nor even the hand delivery of personal documents that distinguishes
The First of Long Island from other financial institutions. There's a special
warmth and friendliness that exists at the Bank. From my perspective, The First
of Long Island and I have a nice solid comfortable relationship. I've always
liked that about them.
[PHOTO OMITTED]
Robert Giambalvo, CPA
President
Giambalvo, Kilgannon & Giammarese, CPAs, PC
Customer
As a CPA firm, we are committed to giving our clients exceptional service. We
expect the same consideration and attention to detail when we are the customer.
And that's exactly what we get from The First National Bank of Long Island. We
appreciate the personal attention from the staff - especially Executive Vice
President Joe Perri, who exemplifies what a banker should be - as well as the
Bank's local perspective. Everything is handled here and I don't have to wait
for some anonymous person across the state or the country for a response. In my
business, personal service is what keeps clients. That's also true
23
in banking, and it's the reason I chose The First of Long Island over every
other bank in the New York metro area.
[PHOTO OMITTED]
Patricia Petersen
President & CEO
Daniel Gale Real Estate Organization
Customer
The real estate industry, much like banking, is highly influenced by the
dynamics of the Long Island economy. In good and bad times, the strength of our
relationship has kept us loyal customers of The First of Long Island. Not only
has the Bank provided special financing over the years, they've also given
invaluable counsel. Even though we have both grown into powerful organizations
in our own right, The First of Long Island has remained the small town community
bank for us. Their professionalism and firsthand knowledge of banking and
finance make the Bank a significant partner in the Daniel Gale success story. As
we expand further on Long Island, we know The First of Long Island will be there
for us.
[PHOTO OMITTED]
Steven Dubner
President
Steven Dubner Landscaping, Inc.
Customer
The Bank's capital strength is a given; it's their customer loyalty that
impresses me. I can always reach out and speak directly to anyone at my branch
or at the executive level. It's probably why I continue to bank at the Woodbury
branch with George Knott and June Pipito. I have found both to be very capable
and professional in addressing my banking needs. We can always count on them in
any situation. There are always open lines of communication to discuss any of my
business or personal banking needs. I like the fact that there is no staff
turnover. No issue is ever too big or too small to handle. As a businessperson,
I recognize the importance of capital adequacy for a bank, but it's really the
human aspect that I consider the most important factor in this relationship.
Customer since 1968
[PHOTO OMITTED]
Jeffrey D. Forchelli
Esquire
Managing Partner
Forchelli, Curto, Schwartz, Mineo, Carlino & Cohn, LLP
Customer
We were originally introduced to the Bank through, of all things, a direct mail
piece. Due to dissatisfaction with our `big bank,' we turned to The First of
Long Island for our banking needs. Whatever our needs, they have always worked
with us to meet them in a mutually beneficial way. They have always been
pleasant, professional, and very helpful. Our bank officer and the branch
network - especially Mineola and Allen Blvd. - have a strong commitment to our
continued success by providing quality products and services. Because of our
positive experience with the Bank, we have enthusiastically referred clients to
The First of Long Island for more than thirteen years.
[PHOTO OMITTED]
Camilla Wnuk
Business Owner
Glen Head Hardware
Shareholder
My husband Carl believes in staying in the community. The First of Long Island
has had the same relationship with the communities they serve. Even from the
days when my husband's family made their deliveries in "a little wagon," the
Bank has always been there to provide quality service to the people of our
community. From John Mulder, the Glen Head Branch Manager, to Mr. Johnson the
Chairman, The First National Bank of Long Island is made up of good people who
really care about us - both personally and
24
professionally. We've always been able to count on them. We've never banked
anywhere else; it's something we've never even considered!
Customer since 1935
[PHOTO OMITTED]
Herb Schnipper
Business Owner
Harbor Lumber
Shareholder
It's been 50 years and we're still with The First of Long Island - a local and
fair-minded bank that has always been there for us. I've always felt quite at
home - never a stranger. I can remember when Robert Miller, the Bank's
president, ran the show; I'm glad to see that The First of Long Island remains
true to its philosophy of providing the best customer service to the private
business owner - like me.
Customer since 1952
[PHOTO OMITTED]
Quentin B. Sammis
President
Coldwell Banker Sammis
Business Development Board Member
Ten years ago, we were a relatively small real estate firm, approached by a
major competitor offering to sell us their Long Island operations. They were
losing money and desperate to unload twelve locations. It was a monumental
business decision for us. Fortunately, the Bank believed in us; they provided
advice, encouragement, and financing for the expansion. As a result, the
acquisition more than quadrupled our exposure in the marketplace. Because The
First of Long Island is a sound commercial bank, we trust their judgment; they
have good people on staff and the right management team in place. In fact, we
consider the Bank to be an important part of our company, helping us to develop
new properties and make strategically sound business decisions. Relationships
like this don't develop overnight; they are cultivated with mutual trust and
respect.
[PHOTO OMITTED]
Bernard Esquenet
Chief Executive Officer
The Ruhof Corporation
Business Development Board Member
Since we are manufacturers of medical cleaning agents, environmental safety
issues affect the growth of our business; expansion becomes a very complex
subject. Many years ago, we banked with one of the large money centers; they
couldn't offer solutions, just endless excuses and broken promises. In 1989, The
First of Long Island came to the rescue. As 'The Big Bank Alternative,' they
listened; their decisions had a profound impact on the success of our
organization. For the last fourteen years, I've worked closely with my branch
manager, Peter Arebalo in Valley Stream. He has a talent for orchestrating
introductions when his customers need assistance: he actually helps them solve
each other's problems. It's part of his job - it's what he brings to the table;
he's an important part of each customer's success. Because of his intervention,
I've made valuable lifelong allegiances with people and companies I trust and
respect.
[PHOTO OMITTED]
J. Douglas Maxwell, Jr.
Chief Financial Officer
NIRx Medical Technologies LLC
Board of Directors
One of the great strengths of the Bank is consistency of focus. We have enjoyed
growth and profitability by providing exceptional service to a very specific
group of customers - small private businesses, professionals and service
conscious consumers. As we look forward, we believe more strongly than ever that
in today's complex and demanding world these customers and others like them will
continue to value the individual attention we provide them. Our aim, as it has
been, is to keep expanding geographically -
25
carefully and selectively. To use today's business jargon, we think that our
business model is reproducible. We are testing that belief by venturing into New
York City. We are confident that this initial step outside our traditional
geographic boundaries will be followed by many more and that this vision will
sustain our commitment to both our shareholders and customers.
26
[PHOTO OMITTED]
Executive Committee, l. to r: Donald L. Manfredonia, Mark D. Curtis, Michael N.
Vittorio, J. William Johnson, Arthur J. Lupinacci Jr., Joseph G. Perri, Richard
Kick, Brian J. Keeney
THE FIRST OF LONG ISLAND CORPORATION
Officers
J. William Johnson
Chairman and
Chief Executive Officer
Michael N. Vittorio
President
Arthur J. Lupinacci, Jr.
Executive Vice President and
Chief Administrative Officer
Mark D. Curtis
Senior Vice President and Treasurer
Brian J. Keeney
Senior Vice President
Richard Kick
Senior Vice President
Donald L. Manfredonia
Senior Vice President
Joseph G. Perri
Senior Vice President and Secretary
Wayne B. Drake
Assistant Treasurer
THE FIRST NATIONAL BANK OF LONG ISLAND
Executive Officers
J. William Johnson
Chairman and
Chief Executive Officer
Michael N. Vittorio
President
Arthur J. Lupinacci, Jr.
Executive Vice President and
Chief Administrative Officer
Donald L. Manfredonia
Executive Vice President
Senior Lending Officer
Joseph G. Perri
Executive Vice President
Senior Commercial Marketing Officer
Mark D. Curtis
Senior Vice President
Chief Financial Officer and Cashier
Brian J. Keeney
Senior Vice President
Executive Trust Officer
Richard Kick
Senior Vice President
Senior Operations and
Senior Retail Loan Officer
27
[PHOTO OMITTED]
Standing, l to r: Walter C. Teagle III, Paul T. Canarick, J. William Johnson,
Howard Thomas Hogan Jr., John R. Miller III
Seated, l to r: J. Douglas Maxwell Jr., Allen E. Busching, Beverly Ann Gehlmeyer
THE FIRST OF LONG ISLAND CORPORATION
Board of Directors
J. William Johnson
Chairman and
Chief Executive Officer
Allen E. Busching
Principal, B&B Capital
(consulting and private investment)
Paul T. Canarick
President and Principal
Paul Todd, Inc.
(construction company)
Beverly Ann Gehlmeyer
Tax Manager and Principal
Gehlmeyer & Gehlmeyer, P.C.
(certified public accounting firm)
Howard Thomas Hogan, Jr.
Hogan & Hogan
(attorney, private practice)
J. Douglas Maxwell, Jr.
Chief Financial Officer
NIRx Medical Technologies LLC
(medical technology)
John R. Miller III
President and Publisher
Equal Opportunity Publications, Inc.
(publishing)
Walter C. Teagle III
President
Teagle Management, Inc.
(private investment consulting firm)
Michael N. Vittorio
President
The First of Long Island is here for today...and tomorrow.
28
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
2002 Versus 2001 Summary. The Corporation earned $2.73 per share in 2002 as
compared to $2.33 in 2001, an increase of 17%. Based on 2002 net income of
$11,563,000, the Corporation returned 1.53% on average total assets and 14.36%
on average total equity as compared to returns of 1.52% and 13.75% in 2001.
Total assets and deposits were $792,342,000 and $699,725,000, respectively, at
December 31, 2002, each up by approximately 16% when compared to the prior
year-end balance. Despite continued cash dividends and purchases under the
Corporation's stock repurchase program, total capital before unrealized gains on
available-for-sale securities grew by $7,710,000 in 2002, or approximately 10%,
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 good.
Overwhelmingly, the most important reason for the earnings increase in 2002
was significant growth in average checking balances. Average checking balances
for 2002 were up approximately 20%. The growth is believed to be attributable to
a variety of factors including targeted solicitation efforts by the Bank's
business development officers, favorable conditions in the local economy, the
high level of customer service offered by the Bank, and, as a result of the
currently low interest rate environment, a lack of incentive for the Bank's
customers to invest excess balances.
Other factors that made a meaningful contribution to this year's earnings
growth were loan growth and growth in savings and money market balances. Average
loans outstanding grew by almost 18%, with the majority of the growth occurring
in residential mortgages, commercial mortgages, and home equity lines. Growth in
these categories is believed to be partially attributable to favorable
conditions in the Long Island economy as well as a decline in interest rates and
the resulting increase in the desire of bank customers to refinance their
existing mortgages. The growth in savings and money market balances was largely
comprised of growth in "Select Savings", a statement savings account that earns
a higher money market rate, and growth in nonpersonal money market balances. The
growth in Select Savings balances is believed to be partially attributable to
troubled conditions in the equity markets and a resulting increase in the
attractiveness of FDIC insured bank deposits as an investment vehicle. The
positive impact on earnings of checking, loan and savings growth was partially
offset by a downtrend in net interest margin and an increase in noninterest
expense.
2002 was a slower year from the standpoint of the Corporation's stock
repurchase program. During 2002, and as adjusted for the 3-for-2 stock split
paid July 2002, the Corporation was able to purchase approximately 53,000 shares
of common stock as compared to approximately 178,000 shares in 2001 and 127,000
shares in 2000. The stock repurchase program has been used by management to
enhance earnings per share and return on average stockholders' equity (ROE). The
stock repurchase program is estimated to have contributed approximately 5 cents
of the 40-cent increase in earnings per share for 2002. The estimated
contribution to earnings per share includes the full-year impact of the shares
purchased in 2001 plus the additional impact of the shares purchased throughout
2002.
Management expects that continued downward pressure on net interest margin
and, to a lesser extent, increased insurance cost and the cost of new branch
openings will challenge the Bank from an earnings perspective in 2003. Net
interest margin trended downward throughout 2002 as a result of a decline in
intermediate and longer-term rates that began in 2001 and became significantly
more pronounced during 2002, particularly during the last half of the year. Net
interest margin was negatively impacted as interest-earning assets repriced at
lower yields and proceeds from the maturity and amortization of such assets were
reinvested at lower yields. Management expects that net interest margin will
decline even further in 2003. In addition, due to current conditions in the
insurance marketplace, the Bank's 2003 earnings will be negatively impacted by a
significant increase in insurance premiums for liability, health care, and other
coverages. Furthermore, the Bank currently plans to open several new commercial
banking offices in Manhattan during the first half of 2003. 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.
29
2001 Versus 2000 Summary. The Corporation earned $2.33 per share in 2001 as
compared to $2.10 in 2000, an increase of 11%. Based on 2001 net income of
$10,094,000, the Corporation returned 1.52% on average total assets and 13.75%
on average total equity as compared to returns of 1.55% and 13.97% in 2000.
Total assets and deposits were $684,081,000 and $604,870,000, respectively, at
December 31, 2001, representing increases over prior year-end balances of 9.3%
and 9.9%, respectively. Despite continued purchases under the Corporation's
stock repurchase program, total capital before unrealized gains on
available-for-sale securities grew by $3,570,000 in 2001, or approximately 5%,
and the Corporation's capital ratios continued to substantially exceed the
current regulatory criteria for a well-capitalized bank. In addition, the
Corporation's liquidity continued to be strong.
The most important reason for the earnings increase in 2001 was growth in
average checking balances. Other important factors were growth in average loan
and money market type savings balances and an increase in service charge income.
Average checking balances for 2001 were up approximately $15.5 million, or just
over 8%, average loans outstanding were up approximately $19.5 million, or
10.5%, average money market type savings balances were up approximately $41.3
million, or almost 16%, and service charge income grew by $509,000, or
approximately 17%. Also positively impacting earnings were growth in
stockholders' equity and the Corporation's share repurchase program. An increase
in noninterest expense partially offset the earnings growth brought about by the
aforementioned items.
When comparing year-end balances, the Bank's mortgage loan portfolio grew
by almost 16% in 2001 as compared to 5.2% in 2000 and 11.5% in 1999. The 2001
growth was comprised of an increase in commercial mortgages of 6.8% and an
increase in residential mortgages, including home equity loans and lines, of
25.0%. This compares to increases of 3.2% for commercial mortgages and 7.4% for
residential mortgages in 2000. The increased growth rates for residential and
commercial mortgage loans experienced in 2001 is believed to be partially
attributable to a decrease in mortgage rates and a resulting increase in the
desire of bank customers to refinance their existing mortgages and favorable
conditions in the Long Island economy. Commercial mortgages continued to be the
Bank's most important loan product.
The Bank's portfolios of tax-exempt and mortgage securities grew during
2001, while the long-term U.S. Treasury portfolio declined. This occurred as a
result of management's efforts to take advantage of the better returns afforded
by municipal and mortgage securities relative to the Treasury sector. Savings
and money market deposits were up 11.8% when comparing year-end 2001 to 2000
primarily because of growth in Select Savings, nonpersonal money market, and
IOLA (interest on lawyer) accounts.
2001 was a successful year from the standpoint of the Corporation's stock
repurchase program. During 2001, and as adjusted for the 3-for-2 stock split
paid July 2002, the Corporation was able to repurchase approximately 178,000
shares of common stock, representing approximately 4% of total shares
outstanding at the beginning of the year. This compares to repurchases of
approximately 127,000 and 214,000 shares in 2000 and 1999, respectively. The
stock repurchase program has been used by management to enhance earnings per
share and return on average stockholders' equity (ROE). The stock repurchase
program is estimated to have contributed approximately 5 cents of the 23 cent
increase in earnings per share for 2001.
30
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.
2002 2001 2000
------------------------------- ------------------------------- -------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------- --------- ------- --------- --------- ------- --------- --------- -------
(dollars in thousands)
Assets:
Federal funds sold .............. $ 50,586 $ 823 1.63% $ 82,017 $ 3,291 4.01% $ 80,387 $ 5,044 6.27%
Investment securities:
Taxable ....................... 290,322 13,669 4.71 223,538 12,643 5.66 204,272 12,725 6.23
Nontaxable(1) ................. 128,337 8,791 6.85 114,982 8,038 6.99 96,141 6,832 7.11
Loans(1)(2) ..................... 242,773 16,651 6.86 205,959 16,781 8.15 186,451 16,596 8.90
--------- --------- ------- --------- --------- ------- --------- --------- -------
Total interest-earning
assets(1) .................... 712,018 39,934 5.61 626,496 40,753 6.51 567,251 41,197 7.26
--------- ------- --------- ------- --------- -------
Allowance for loan losses ....... (2,101) (1,941) (1,961)
--------- --------- ---------
Net interest-earning assets ..... 709,917 624,555 565,290
Cash and due from banks ......... 31,284 24,472 22,026
Premises and equipment, net ..... 6,654 7,133 6,695
Other assets .................... 5,848 5,798 6,315
--------- --------- ---------
$ 753,703 $ 661,958 $ 600,326
========= ========= =========
Liabilities and
Stockholders' Equity:
Savings and money
market deposits ............... $ 391,829 4,472 1.14 $ 343,389 7,944 2.31 $ 303,530 11,127 3.67
Time deposits ................... 34,810 639 1.84 39,202 1,507 3.84 41,105 1,979 4.81
--------- --------- ------- --------- --------- ------- --------- --------- -------
Total interest-bearing deposits . 426,639 5,111 1.20 382,591 9,451 2.47 344,635 13,106 3.80
--------- --------- ------- --------- --------- ------- --------- --------- -------
Checking deposits(3) ............ 241,683 201,688 186,215
Other liabilities ............... 4,865 4,289 2,765
--------- --------- ---------
673,187 588,568 533,615
Stockholders' equity ............ 80,516 73,390 66,711
--------- --------- ---------
$ 753,703 $ 661,958 $ 600,326
========= ========= =========
Net interest income(1) .......... $ 34,823 $ 31,302 $ 28,091
========= ========= =========
Net interest spread(1) .......... 4.41% 4.04% 3.46%
======= ======= =======
Net interest yield(1) ........... 4.89% 5.00% 4.95%
======= ======= =======
(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.
31
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,
------------------------------------------------------------------------------------
2002 versus 2001 2001 versus 2000
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 ............ $(1,261) $(1,957) $ 750 $(2,468) $ 102 $(1,818) $ (37) $(1,753)
Investment securities:
Taxable ..................... 3,777 (2,118) (633) 1,026 1,200 (1,172) (110) (82)
Nontaxable (1) .............. 934 (162) (19) 753 1,339 (111) (22) 1,206
Loans (1) ..................... 3,000 (2,655) (475) (130) 1,736 (1,404) (147) 185
------- ------- ------- ------- ------- ------- ------- -------
Total interest income ......... 6,450 (6,892) (377) (819) 4,377 (4,505) (316) (444)
------- ------- ------- ------- ------- ------- ------- -------
Interest Expense:
Savings and money
market deposits ............. 1,121 (4,025) (568) (3,472) 1,461 (4,105) (539) (3,183)
Time deposits ................. (169) (787) 88 (868) (92) (399) 19 (472)
------- ------- ------- ------- ------- ------- ------- -------
Total interest expense ........ 952 (4,812) (480) (4,340) 1,369 (4,504) (520) (3,655)
------- ------- ------- ------- ------- ------- ------- -------
Increase (decrease) in net
interest income ............. $ 5,498 $(2,080) $ 103 $ 3,521 $ 3,008 $ (1) $ 204 $ 3,211
======= ======= ======= ======= ======= ======= ======= =======
(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 - 2002 Versus 2001
Net interest income on a tax-equivalent basis increased by $3,521,000, or
11.2%, from $31,302,000 in 2001 to $34,823,000 in 2002. As can be seen from the
above rate/volume analysis, the increase is primarily comprised of a positive
volume variance of $5,498,000 and a negative rate variance of $2,080,000.
Volume Variance. The positive volume variance was largely caused by
substantial growth in average checking deposits and the use of such funds to
purchase investment securities and originate loans. When comparing 2002 to 2001,
average checking deposits increased by $39,995,000, or approximately 20%.
Funding interest-earning asset growth with growth in checking deposits has a
greater impact on net interest income than funding such growth with
interest-bearing deposits because checking deposits, unlike interest-bearing
deposits, have no associated interest cost. This is the primary reason that the
growth of checking balances has historically been one of the Corporation's key
strategies for increasing earnings per share.
Also making a contribution to the positive volume variance was growth in
savings and money market deposit balances and the use of such funds to purchase
investment securities and originate loans. When comparing 2002 to 2001, average
savings and money market deposit balances increased by $48,440,000, or 14.1%.
Although the largest components of this increase were growth in Select Savings
and nonpersonal money market accounts, the Bank also experienced nice growth in
traditional savings and IOLA accounts.
The Bank's new business program is a significant factor that favorably
impacted the growth in average checking balances during 2002. Competitive
pricing, customer demographics, and troubled conditions in the equity markets
are believed to be important factors with respect to the growth in average
interest-bearing deposits noted during the same period. In addition, the growth
in checking and interest-bearing deposits is also believed to be attributable to
the Bank's attention to customer service as well as national and local economic
conditions.
32
Rate Variance. During 2001, there was a significant decrease in short-term
interest rates as evidenced by a 475 basis point reduction in both the federal
funds target rate and the Bank's prime lending rate. During 2002, there were no
further reductions in short-term rates until November when both the federal
funds target rate and the Bank's prime lending rate declined by an additional 50
basis points. As shown in the interest rate sensitivity gap table included in
the Market Risk section of this discussion and analysis, the Bank has a
significant volume of money market type deposit accounts that are subject to
repricing as short-term interest rates change. Since the amount of these
deposits outweighs the assets held by the Bank whose pricing is tied to
short-term interest rates, a decrease in short-term interest rates should
positively impact the Bank's net interest income in the near term. However, if
short-term rates decline to the point that the Bank can not, due to competitive
pressures, decrease its money market rates in the same amount as market
decreases in the federal funds target rate, the prime lending rate, and other
short-term rates, the magnitude of the positive impact will decline. This is
what happened as short-term interest rates dropped significantly in 2001. In
response, the Bank took advantage of the slope of the yield curve by extending
the average maturity of its short-term securities portfolio and thereby
preserving its spread on short-term interest-earning assets and liabilities.
Rates on intermediate and longer-term securities and loans also declined
during 2001 and 2002, but by contrast to short-term rates, the magnitude of the
decline was far more significant in 2002. During 2002, yields on two, five, and
ten year U.S. Treasury securities decreased by 142, 157, and 124 basis points,
respectively, with most of the decrease occurring in the last half of the year.
As a result, net interest margin trended downward throughout 2002 as
interest-earning assets repriced at lower yields and proceeds from the maturity
and amortization of such assets were reinvested at lower yields. Management
expects that net interest margin will continue its downward trend in 2003 and
that the decline for the year as a whole will be more severe than the 11 basis
point decline experienced in 2002.
Net Interest Income - 2001 Versus 2000
Net interest income on a tax-equivalent basis increased by $3,211,000, or
11.4%, from $28,091,000 in 2000 to $31,302,000 in 2001. As can be seen from the
above rate/volume analysis, the increase is primarily comprised of a positive
volume variance of $3,008,000 and a positive rate/volume variance of $204,000.
The positive volume variance was largely caused by: (1) growth in average
checking deposits and the use of such funds to purchase investment securities
and originate loans; and (2) growth in money market type deposits and the use of
such funds to increase the Bank's overnight position in federal funds sold and
to purchase securities and originate loans. When comparing 2001 to 2000, average
checking deposits increased by $15,473,000, or 8.3%, average savings and money
market deposits increased by $39,859,000, or 13.1%, average loans increased by
$19,508,000, or 10.5%, and average investment securities increased by
$38,107,000, or 12.7%. The growth in loans was largely comprised of increases in
residential mortgages, including home equity loans, and commercial loans, with
the commercial loan growth having the largest positive impact on net interest
income.
The Bank's new business program is a significant factor that favorably
impacted the growth in average checking balances noted when comparing 2001 to
2000, and competitive pricing and customer demographics are believed to be
important factors with respect to the growth in average interest-bearing
deposits noted during the same period. In addition, the growth in both checking
and interest-bearing deposits is also believed to be attributable to the Bank's
attention to customer service and local economic conditions.
The Bank's net interest spread and yield increased from 3.46% and 4.95%,
respectively, in 2000 to 4.04% and 5.00%, respectively, in 2001. It would appear
that the principal cause of the increase in net interest spread was the
significant decline in short-term interest rates experienced during 2001, and
the principal cause of the increase in net interest margin was a change in the
mix of investments. Federal funds sold, which is the Bank's lowest yielding
investment, became a smaller percentage of total interest-earning assets and
nontaxable securities, a higher yielding investment, became a larger percentage.
During 2001, both the federal funds target rate and the Bank's prime
lending rate decreased by 475 basis points. As more fully discussed in the
Market Risk section of this discussion and analysis, a decline in interest rates
should initially have a positive impact on net interest income. However, net
interest income in 2001 was not positively impacted by declining interest rates
because the Bank did not decrease the rates paid on its money market type
deposit accounts as quickly or in the same amount as market decreases in the
overnight federal funds rate or the prime lending rate.
33
Noninterest Income, Noninterest Expense, and Income Taxes
Noninterest income includes service charges on deposit accounts, Investment
Management Division income, gains or losses on sales of available-for-sale
securities, and all other items of income, other than interest, resulting from
the business activities of the Corporation. Noninterest income was $5,488,000,
$4,949,000, and $4,525,000 in 2002, 2001, and 2000, respectively. The 10.9%
increase in noninterest income in 2002 is primarily attributable to a revised
service charge schedule which went into effect on March 1, 2002 and the fact
that losses on sales of available-for-sale securities decreased by $237,000 in
2002. The 9.4% increase in noninterest income in 2001 is primarily attributable
to revisions made to the Bank's service charge schedule in the third quarter of
2000 and the resulting impact on overdraft check charges and
maintenance/activity charges.
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
$21,488,000 and $19,767,000 in 2002 and 2001, respectively, representing
increases over prior year amounts of $1,721,000, or 8.7%, and $2,200,000, or
12.5%. The increase for 2002 is primarily comprised of an increase in salaries
of $871,000, or 9.7%, and an increase in employee benefits expense of $731,000,
or 20.1%. The increase in salaries is attributable to normal annual salary
adjustments and additions to staff. The increase in employee benefits expense is
largely attributable to increases in the cost of health care insurance, profit
sharing expense, and incentive compensation. The strong growth in earnings per
share for 2002 was the primary reason for the increase in profit sharing
expense. Earnings per share growth, goals being exceeded, and a further move
toward performance based compensation are the primary reasons for the increase
in incentive compensation.
The increase in noninterest expense for 2001 is comprised of an increase in
salaries of $822,000, or 10.1%, an increase in employee benefits expense of
$413,000, or 12.8%, an increase in occupancy and equipment expense of $409,000,
or 17.0%, and an increase in other operating expenses of $556,000, or 14.6%. The
increase in salaries is attributable to normal annual salary adjustments,
filling of staff vacancies, and additions to staff resulting from, among other
things, the opening of three new branch offices in the latter part of 2000 and
one new branch office in the early part of 2001. The increase in employee
benefits expense is largely attributable to the increased number of employees,
an increase in retirement plan expense resulting from decreased interest rates
and lower returns on retirement plan assets, revisions made to the Bank's
incentive compensation program, and an increase in medical insurance premiums.
The increase in occupancy and equipment expense is primarily attributable to
increases in depreciation and rental expense resulting from improvements in
technology and new branch openings, respectively. A substantial portion of the
increase in other operating expenses resulted from increases in mortgage
recording tax, appraisal fees, stationery and supplies expense, marketing
expense, and charges associated with the January 2002 closing of the Bank's
Cross Island Plaza branch. The increases in mortgage recording tax and appraisal
fees resulted from increased mortgage origination activity and the increase in
stationery and supplies expense is partially attributable to the new branch
openings and form changes necessitated by the implementation of imaging
technology.
The Bank currently expects to open several new commercial banking offices
in Manhattan during the first half of 2003. 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 2003 net income before income taxes should not exceed
$400,000.
Income tax expense as a percentage of book income was 26.4%, 25.9%, and
26.9% in 2002, 2001, and 2000, respectively. The increase in the percentage for
2002 is primarily attributable to the fact that tax-exempt interest income
became a smaller component of income before income taxes. The decrease in the
percentage for 2001 is primarily attributable to an increase in the amount of
tax-exempt income on municipal securities and increased funding by the Bank of
its REIT (real estate investment trust) and investment subsidiaries.
Application of Critical Accounting Policies
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported asset and liability
balances and revenue and expense amounts. Our determination of the allowance for
loan losses is a critical accounting estimate because it is based on our
subjective evaluation of a variety of factors at a specific point in time. As
discussed more fully in the Allowance and Provision For Loan Losses section
below and in Note A to the consolidated financial statements, some of the
factors we evaluate in determining an appropriate allowance for loans losses
include expected future cash flows and/or collateral values on loans considered
to be impaired, national and local economic conditions, the strength of the
local real estate market, and environmental risks. Changes in the
34
estimated impact of these factors on the ultimate collectibility of loans in the
Bank's portfolio could require a significant change in the allowance, and this
change could have a material impact on the Bank's results of operations.
Asset Quality
The Corporation has identified certain assets as risk elements. These
assets present more than the normal risk that the Bank will be unable to
eventually collect or realize their full carrying value. Information about the
Corporation's risk elements is as follows:
December 31,
---------------------------------------------------
2002 2001 2000 1999 1998
------- ------- ------- ------- -------
(dollars in thousands)
Nonaccruing loans ............................................... $ -- $ 105 $ -- $ 28 $ 22
Foreclosed real estate .......................................... -- -- -- -- --
------- ------- ------- ------- -------
Total nonperforming assets .................................... -- 105 -- 28 22
Troubled debt restructurings .................................... -- 10 -- -- --
Loans past due 90 days or more as to
principal or interest payments and still accruing ............. 2 236 173 5 --
------- ------- ------- ------- -------
Total risk elements ........................................... $ 2 $ 351 $ 173 $ 33 $ 22
======= ======= ======= ======= =======
Nonaccruing loans as a percentage of total loans ................ .00% .05% .00% .02% .01%
======= ======= ======= ======= =======
Nonperforming assets as a percentage of total loans
and foreclosed real estate .................................... .00% .05% .00% .02% .01%
======= ======= ======= ======= =======
Risk elements as a percentage of total loans and
foreclosed real estate ........................................ .00% .15% .09% .02% .01%
======= ======= ======= ======= =======
Year Ended December 31,
---------------------------------------------------
2002 2001 2000 1999 1998
------- ------- ------- ------- -------
(dollars in thousands)
Gross interest income that would have been
recorded during the year under original terms:
Nonaccrual loans .............................................. $ -- $ 8 $ -- $ 4 $ 2
Restructured loans ............................................ -- -- -- -- --
Gross interest income recorded during the year:
Nonaccrual loans .............................................. -- 4 -- 3 2
Restructured loans ............................................ -- -- -- -- --
Commitments for additional funds - Nonaccrual, restructured,
past due loans .................................................. None 150 150 None None
Allowance and Provision for Loan Losses
The allowance for loan losses was $2,085,000, or .8% of total loans at
December 31, 2002 as compared to $2,020,000, or .9% of total loans, at December
31, 2001. The change in the allowance during 2002 is due to a $100,000 provision
for loan losses, chargeoffs of $84,000, and recoveries of $49,000.
The allowance for loan losses is an amount that management currently
believes will be adequate to absorb estimated inherent losses in the Bank's loan
portfolio. The process for estimating credit losses and determining the
allowance for loan losses as of any balance sheet date is subjective in nature
and requires material estimates. Actual results could differ significantly from
these estimates.
In determining the allowance for loan losses, there is not an exact amount
but rather a range for what constitutes an appropriate allowance. In estimating
losses the Bank reviews individual credits in its portfolio and, for those loans
deemed to be impaired, measures impairment losses based on either the fair value
of collateral or the discounted value of expected future cash flows. Estimated
losses for loans that are not specifically reviewed are determined on a pooled
basis taking into account a variety of factors including historical losses;
levels of and trends in delinquencies and nonaccruing loans; trends in volume
and terms of loans; changes in lending policies and procedures; experience,
ability and depth of lending staff; national and local economic conditions;
concentrations of credit; and environmental risks. Management also considers
relevant loan loss statistics for the Bank's peer group. The estimated losses on
the loans specifically reviewed plus those determined on a pooled basis make up
the allocated component of the allowance for loan
35
losses. The unallocated or general component of the allowance for loan losses
could cover losses in the portfolio that have not otherwise been identified
through the review of specific loans or pools of loans.
The following table sets forth the allocation of the Bank's total allowance
for loan losses by loan type.
December 31,
--------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------------ ------------------ ------------------ ------------------ ------------------
% 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 ............. $ 438 14.3% $ 667 18.1% $ 566 15.8% $ 397 16.5% $ 730 16.9%
Real-estate secured .... 1,469 83.4 1,252 79.4 1,160 80.5 1,304 80.8 2,325 77.5
Consumer and other ..... 94 2.3 94 2.5 129 3.7 137 2.7 249 5.6
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total allocated ..... 2,001 100.0 2,013 100.0 1,855 100.0 1,838 100.0 3,304 100.0
Unallocated ............ 84 -- 7 -- 88 -- 195 -- 347 --
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
$2,085 100.0% $2,020 100.0% $1,943 100.0% $2,033 100.0% $3,651 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
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. Loans secured by
real estate represent approximately 83% of the Bank's total loans outstanding at
December 31, 2002. The majority of these loans were made to borrowers domiciled
on Long Island and are secured by Long Island properties. In recent years,
economic conditions on Long Island have been strong and residential real estate
values have grown to unprecedented highs. Such conditions and values could
deteriorate in the future, and such deterioration could be substantial. If this
were to occur, some of the Bank's borrowers may be unable to make the required
contractual payments on their loans, and the Bank may be unable to realize the
full carrying value of such loans through foreclosure. However, management
believes that the Bank's underwriting policies for residential mortgages are
relatively conservative and, as a result, the Bank should be less affected than
the overall market.
Cash Flows and Liquidity
Cash Flows. As shown in the consolidated statement of cash flows, cash and
cash equivalents increased by $12,020,000 during 2002. This occurred primarily
because the cash provided by checking growth, money market type deposit growth,
and operations exceeded the cash used for loan and securities portfolio growth.
Liquidity. The Corporation's primary sources of near-term liquidity are its
overnight position in federal funds sold; its short-term investment securities
portfolio which generally consists of securities purchased to mature within two
years or have average lives of approximately two years; maturities and monthly
payments on the balance of the investment securities portfolio and the loan
portfolio; and longer-term investment securities designated as
available-for-sale. At December 31, 2002, the Corporation had $34,000,000 in
federal funds sales, a short-term securities portfolio not subject to pledge
agreements of $154,175,000, and longer-term available-for-sale securities not
subject to pledge agreements of $89,874,000. The Corporation's liquidity is
enhanced by its substantial core deposit base which primarily consists of
checking, savings, and money market accounts. Such accounts comprised 95.6% of
total deposits at December 31, 2002, while time deposits comprised only 4.4%.
The Bank attracts all of its deposits through its banking offices primarily from
the communities in which those banking offices are located and has not
historically relied on purchased or borrowed funds as sources of liquidity.
As shown in the Consolidated Statement of Cash Flows, the Corporation uses
cash and cash equivalents to fund loan growth, pay cash dividends, and
repurchase common stock under its share repurchase program. To the extent the
Corporation has cash in excess of that needed to meet these requirements, it is
generally used to purchase a combination of short, intermediate, and longer-term
investment securities. While the shorter-term securities in the Corporation's
portfolio provide a significant source of near term liquidity, the intermediate
and longer-term securities provide higher current returns and will provide a
significant source of liquidity in the future. The amount of cash needed by the
Corporation to satisfy the commercial commitments it has outstanding at December
31, 2002 is indicated in the table that follows. As can be seen from the table,
loan commitments make up the majority of the Corporation's commercial
commitments and a significant portion of the Corporation's commercial
commitments expire within one year. Since some of these commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Corporation believes that
its current sources of near-term liquidity are more than sufficient to fulfill
its outstanding commercial commitments at December 31, 2002.
36
Amount of Commitment Expiration Per Period
---------------------------------------------------------
Over Over
Total One One Year Three Years Over
Amounts Year Through Through Five
Committed or Less Three Years Five Years Years
--------- --------- ----------- ----------- ---------
(in thousands)
Commitments to extend credit ...... $ 58,962 $ 30,721 $ 6,654 $ 16,742 $ 4,845
Standby letters of credit ......... 1,077 1,077 -- -- --
Commercial letters of credit ...... -- -- -- -- --
--------- --------- --------- --------- ---------
$ 60,039 $ 31,798 $ 6,654 $ 16,742 $ 4,845
========= ========= ========= ========= =========
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 30.28%, 29.52% and 10.25%, respectively, at December
31, 2002 substantially exceed the requirements for a well-capitalized bank.
During the 2002 year, total stockholders' equity increased by $10,696,000
from $74,746,000 at December 31, 2001 to $85,442,000 at December 31, 2002. The
increase in stockholders' equity is primarily attributable to net income of
$11,563,000 plus unrealized gains on sales of available-for-sale securities of
$2,986,000 and less repurchases of common stock amounting to $1,592,000 and cash
dividends declared of $2,613,000.
Stock Repurchase Program. Since 1988, the Corporation has had a stock
repurchase program under which it is authorized to purchase, from time to time,
shares of its own common stock in market or private transactions. Under plans
approved by the Board of Directors in 2001, and as adjusted for the 3-for-2
stock split paid July 2002, the Corporation purchased 52,848 shares in 2002 and
can purchase 28,421 shares in the future. In addition, in January 2003, the
Corporation's Board of Directors approved an additional share repurchase plan
for 100,000 shares. Share repurchases under this plan will be financed through
available corporate cash.
The stock repurchase program has been used by management to enhance
earnings per share. When comparing 2002 to 2001, earnings per share are up 40
cents. The stock repurchase program is estimated to have contributed
approximately 5 cents of the 40-cent increase in earnings per share. The
estimated contribution to earnings per share includes the full-year impact of
the shares purchased in 2001 plus the additional impact of the shares purchased
throughout 2002.
Market Liquidity. Trading in the Corporation's common stock is limited. The
total trading volumes for 2002 and 2001 as reported by Nasdaq and as adjusted
for the 3-for-2 stock split declared June 18, 2002 were 743,903 and 534,408
shares, respectively, with average daily trading volumes of 2,952 and 2,155
shares, respectively. During 2002, the Corporation purchased 52,848 shares,
12,000 of which were purchased in market transactions, and in 2001 purchased
178,427 shares, 121,050 of which were purchased in market transactions. These
market purchases represent approximately 2% and 23% of the total trading volumes
reported by Nasdaq for 2002 and 2001, respectively. Although the Corporation has
had a stock repurchase program since 1988, if the Company discontinues the
program it could adversely affect market liquidity for the Corporation's common
stock, the price of the Corporation's common stock, or both.
Russell 3000(R) and 2000(R) Indices
Frank Russell Company ("Russell") currently maintains 21 U.S. common stock
indices. The indices are reconstituted each July 1st using objective criteria,
primarily market capitalization, and do not reflect subjective opinions. All
indices are subsets of the Russell 3000(R)Index which represents approximately
98% of the investable U. S. equity market.
The broad market Russell 3000(R) Index includes the largest 3,000 companies
in terms of market capitalization and the small cap Russell 2000(R) Index is
comprised of the smallest 2,000 companies in the Russell 3000(R) Index. The
37
Corporation's capitalization, as computed by Russell, would place it at the low
end of the range for both the Russell 3000(R) and 2000(R) Indices.
Effective July 1, 2002, and for the first time in its history, the
Corporation's common stock was included in the Russell 3000(R) and 2000(R)
Indices. The Corporation believes that inclusion in the Russell indices has
positively impacted the price of its common stock and has increased the stock's
trading volume and liquidity. Conversely, if the Corporation's market
capitalization falls below the minimum necessary to be included in the indices
at any future reconstitution date, the Corporation believes that this could
adversely affect the price, volume and liquidity of its common stock.
Market Risk
The Bank invests in interest-earning assets which are funded by
interest-bearing deposits, noninterest-bearing deposits, and capital. The Bank's
results of operations are subject to risk resulting from interest rate
fluctuations generally and having assets and liabilities that have different
maturity, repricing, and prepayment/withdrawal characteristics. The Bank defines
interest rate risk as the risk that the Bank's earnings and/or net portfolio
value (defined below) will change when interest rates change. The principal
objective of the Bank's asset/liability management activities is to maximize net
interest income while at the same time maintaining acceptable levels of interest
rate and liquidity risk and facilitating the funding needs of the Bank.
Because the Bank's loans and investment securities generally reprice slower
than its interest-bearing deposit accounts, a decrease in interest rates
uniformly across the yield curve should initially have a positive impact on the
Bank's net interest income. However, if the Bank does not decrease the rates
paid on its money market type deposit accounts as quickly or in the same amount
as market decreases in the overnight federal funds rate or the prime lending
rate, the magnitude of the positive impact will decline. In addition, rates may
decrease to the point that the Bank can not reduce its money market rates any
further.
If interest rates decline and are sustained at the lower levels and, as a
result, the Bank purchases securities and originates loans at yields lower than
those maturing, the impact on net interest income should be negative because 40%
of the Bank's average interest-earning assets are funded by noninterest-bearing
checking deposits and capital.
Conversely, an immediate increase in interest rates uniformly across the
yield curve should initially have a negative effect on net interest income.
However, if the Bank does not increase the rates paid on its money market type
deposit accounts as quickly or in the same amount as market increases in the
overnight federal funds rate or the prime lending rate, the magnitude of the
negative impact will decline. Over a longer period of time, and assuming that
interest rates remain stable after the initial rate increase and the Bank
purchases securities and originates loans at yields higher than those maturing
and reprices loans at higher yields, the impact of an increase in interest rates
should be positive. This occurs primarily because with the passage of time more
loans and investment securities will reprice at the higher rates and there will
be no offsetting increase in interest expense for those loans and investment
securities funded by noninterest-bearing checking deposits and capital.
The Bank monitors and controls interest rate risk through a variety of
techniques including the 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 adjust because of
projected 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
fully take into account the fact that the repricing of some assets and
liabilities is discretionary and subject to competitive and other pressures.
38
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 changes in the interest rate environment 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, like certain other statements
included herein, a forward-looking statement. The base case information in the
table shows (1) an estimate of the Corporation's NPV at December 31, 2002
arrived at by discounting estimated future cash flows at current market rates
and (2) an estimate of net interest income for 2003 assuming that maturing
assets or liabilities are replaced with new balances of the same type, in the
same amount, and at current rate levels and repricing balances are adjusted to
current rate levels. The rate change information in the table shows estimates of
NPV at December 31, 2002 and net interest income for 2003 assuming rate changes
of plus 100 and 200 basis points and minus 100 and 200 basis points. Rate
changes are assumed to be shock or immediate changes and occur uniformly across
the yield curve regardless of the duration to maturity or repricing of specific
assets and liabilities. In projecting future net interest income under the
indicated rate change scenarios, activity is simulated by replacing maturing
balances with new balances of the same type, in the same amount, but at the
assumed rate level and adjusting repricing balances to the assumed rate level.
Based on the foregoing assumptions and as depicted in the table that
follows, an immediate increase in interest rates of 100 or 200 basis points
would have a negative effect on net interest income over a one-year time period.
This is principally because the Bank's interest-bearing deposit accounts reprice
faster than its loans and investment securities. However, if the Bank does not
increase the rates paid on its money market type deposit accounts as quickly or
in the same amount as market increases in the overnight federal funds rate or
the prime lending rate, the magnitude of the negative impact will decline. Over
a longer period of time, and assuming that interest rates remain stable after
the initial rate increase and the Bank purchases securities and originates loans
at yields higher than those maturing and reprices loans at higher yields, the
impact of an increase in interest rates should be positive. This occurs
primarily because with the passage of time more loans and investment securities
will reprice at the higher rates and there will be no offsetting increase in
interest expense for those loans and investment securities funded by
noninterest-bearing checking deposits and capital.
Net Portfolio Value (NPV) Net Interest Income
at December 31, 2002 for 2003
------------------------- -------------------
Percent Percent
Change Change
From From
Rate Change Scenario Amount Base Case Amount Base Case
- -------------------- ------ --------- ------ ---------
(dollars in thousands)
+ 200 basis point rate shock ..... $ 71,552 (28.6)% $ 26,901 (13.5)%
+ 100 basis point rate shock ..... 85,533 (14.6) 29,006 (6.8)
Base case (no rate change) .... 100,200 -- 31,112 --
- - 100 basis point rate shock ..... 115,633 15.4 32,594 4.8
- - 200 basis point rate shock ..... 131,952 31.7 31,340 0.7
39
The following table summarizes the Corporation's cumulative interest rate
sensitivity gap at December 31, 2002 based upon significant estimates and
assumptions that the Corporation believes to be reasonable.
Repricing Date
----------------------------------------------------
Over Over
Three Six
Three Months Months Total
Months Through Through Within
or Less Six Months One Year One Year
---------- ---------- ---------- ----------
(in thousands)
Assets:
Federal funds sold .................... $ 34,000 $ -- $ -- $ 34,000
Investment securities ................. 40,768 32,529 69,085 142,382
Loans ................................. 94,132 16,507 33,012 143,651
Other assets .......................... -- -- -- --
---------- ---------- ---------- ----------
168,900 49,036 102,097 320,033
---------- ---------- ---------- ----------
Liabilities and Stockholders' Equity:
Checking deposits ..................... -- -- -- --
Savings and money market deposits ..... 309,128 8,380 12,018 329,526
Time deposits ......................... 21,665 4,361 3,310 29,336
Other liabilities ..................... -- -- -- --
Stockholders' equity .................. -- -- -- --
---------- ---------- ---------- ----------
330,793 12,741 15,328 358,862
---------- ---------- ---------- ----------
Interest-rate sensitivity gap ............ $ (161,893) $ 36,295 $ 86,769 $ (38,829)
========== ========== ========== ==========
Cumulative interest-rate
sensitivity gap ......................... $ (161,893) $ (125,598) $ (38,829) $ (38,829)
========== ========== ========== ==========
Repricing Date
----------------------------------------------------
Over
One Year
Through Over Non-
Five Five interest-
Years Years Sensitive Total
---------- ---------- ---------- ----------
(in thousands)
Assets:
Federal funds sold .................... $ -- $ -- $ -- $ 34,000
Investment securities ................. 207,339 97,042 6,745 453,508
Loans ................................. 84,081 32,748 (1,457) 259,023
Other assets .......................... -- -- 45,811 45,811
---------- ---------- ---------- ----------
291,420 129,790 51,099 792,342
---------- ---------- ---------- ----------
Liabilities and Stockholders' Equity:
Checking deposits ..................... -- -- 256,444 256,444
Savings and money market deposits ..... 35,083 48,206 -- 412,815
Time deposits ......................... 1,110 20 -- 30,466
Other liabilities ..................... -- -- 7,175 7,175
Stockholders' equity .................. -- -- 85,442 85,442
---------- ---------- ---------- ----------
36,193 48,226 349,061 792,342
---------- ---------- ---------- ----------
Interest-rate sensitivity gap ............ $ 255,227 $ 81,564 $ (297,962) $ --
========== ========== ========== ==========
Cumulative interest-rate
sensitivity gap ......................... $ 216,398 $ 297,962 $ -- $ --
========== ========== ========== ==========
Regulatory Matters
Pending Legislation. Commercial checking deposits currently account for
approximately 28% of the Bank's total deposits. Congress is currently
considering legislation that would allow customers to cover checks by sweeping
funds from interest-bearing deposit accounts each business day and repeal the
prohibition of the payment of interest on corporate checking deposits in the
future. Although management currently believes that the Bank's earnings could be
more severely impacted by permitting the payment of interest on corporate
checking deposits than the daily sweeping of funds from interest-bearing
accounts to cover checks, either could have a material adverse impact on the
Bank's future results of operations.
Examinations. The subsidiary Bank was examined by the Office of the
Comptroller of the Currency in the third quarter of 2002. The examination was a
regularly scheduled safety and soundness examination. Management is not aware,
nor has it been apprised, of any recommendations by regulatory authorities that
would have a material adverse impact on the Corporation's liquidity, capital
resources, or operations.
New Accounting Pronouncements
A discussion of new accounting pronouncements is included in Note A to the
Corporation's consolidated financial statements.
Forward Looking Statements
With respect to financial performance and business matters, Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains various "forward-looking statements" 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. Such statements are generally contained in sentences
including the words "may" or "expect" or "could" or "should" or "would". The
Corporation cautions that these forward-looking statements are subject to
numerous assumptions, risks and uncertainties, and therefore actual results
could differ materially from those contemplated by the forward-looking
statements. In addition, the Corporation assumes no duty to update
forward-looking statements.
40
MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL REPORTING
The management of The First of Long Island Corporation is responsible for
the preparation of the consolidated financial statements, related financial data
and other information in this annual report. The consolidated 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 consolidated 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 Audit 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 Audit Committee with
or without management present.
The consolidated financial statements for the year ended December 31, 2002
have been audited by Grant Thornton LLP, independent public accountants, and the
consolidated financial statements for each of the two years in the period ended
December 31, 2001 were audited by Arthur Andersen LLP. The Board of Directors of
the Corporation approves the appointment of independent public accountants. The
independent public accountants render a professional opinion on management's
consolidated financial statements and their examinations provide an objective
assessment of the degree to which the Corporation's management meets its
responsibility for financial reporting. Their opinion on the consolidated
financial statements is 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 consolidated financial statements are
fairly presented in all material respects.
41
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------------
2002 2001
------------- -------------
Assets:
Cash and due from banks ....................................... $ 33,229,000 $ 28,209,000
Federal funds sold ............................................ 34,000,000 27,000,000
------------- -------------
Cash and cash equivalents ................................... 67,229,000 55,209,000
------------- -------------
Investment securities:
Held-to-maturity, at amortized cost (fair
value of $282,438,000 and $257,670,000) ............ 273,102,000 252,215,000
Available-for-sale, at fair value (amortized cost
of $173,794,000 and $136,654,000) ................... 180,406,000 138,275,000
------------- -------------
453,508,000 390,490,000
------------- -------------
Loans:
Commercial and industrial .............................. 37,329,000 40,993,000
Secured by real estate ................................. 217,730,000 179,905,000
Consumer ............................................... 6,414,000 6,198,000
Other .................................................. 628,000 593,000
------------- -------------
262,101,000 227,689,000
Unearned income ........................................ (993,000) (1,001,000)
------------- -------------
261,108,000 226,688,000
Allowance for loan losses .............................. (2,085,000) (2,020,000)
------------- -------------
259,023,000 224,668,000
------------- -------------
Bank premises and equipment, net .............................. 6,398,000 7,156,000
Prepaid income taxes .......................................... -- 1,000
Other assets .................................................. 6,184,000 6,557,000
------------- -------------
$ 792,342,000 $ 684,081,000
============= =============
Liabilities:
Deposits:
Checking ............................................... $ 256,444,000 $ 222,822,000
Savings and money market ............................... 412,815,000 347,430,000
Time, other ............................................ 17,359,000 21,022,000
Time, $100,000 and over ................................ 13,107,000 13,596,000
------------- -------------
699,725,000 604,870,000
Accrued expenses and other liabilities ........................ 4,492,000 3,968,000
Current income taxes payable .................................. 289,000 --
Deferred income taxes payable ................................. 2,394,000 497,000
------------- -------------
706,900,000 609,335,000
------------- -------------
Commitments and Contingent Liabilities (Note G)
Stockholders' Equity:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 4,161,173 and 2,792,902 shares .... 416,000 279,000
Surplus ....................................................... 724,000 955,000
Retained earnings ............................................. 80,354,000 72,550,000
------------- -------------
81,494,000 73,784,000
Accumulated other comprehensive income net of tax ............. 3,948,000 962,000
------------- -------------
85,442,000 74,746,000
------------- -------------
$ 792,342,000 $ 684,081,000
============= =============
See notes to consolidated financial statements
42
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
--------------------------------------------
2002 2001 2000
------------ ------------ ------------
Interest income:
Loans ....................................................... $ 16,635,000 $ 16,750,000 $ 16,544,000
Investment securities:
Taxable ................................................. 13,669,000 12,643,000 12,725,000
Nontaxable .............................................. 5,802,000 5,305,000 4,509,000
Federal funds sold .......................................... 823,000 3,291,000 5,044,000
------------ ------------ ------------
36,929,000 37,989,000 38,822,000
------------ ------------ ------------
Interest expense:
Savings and money market deposits ........................... 4,472,000 7,944,000 11,127,000
Time deposits ............................................... 639,000 1,507,000 1,979,000
------------ ------------ ------------
5,111,000 9,451,000 13,106,000
------------ ------------ ------------
Net interest income ..................................... 31,818,000 28,538,000 25,716,000
Provision for loan losses (credit) .............................. 100,000 100,000 (75,000)
------------ ------------ ------------
Net interest income after provision for loan losses (credit) .... 31,718,000 28,438,000 25,791,000
------------ ------------ ------------
Noninterest income:
Investment Management Division income ....................... 1,133,000 1,081,000 1,131,000
Service charges on deposit accounts ......................... 3,747,000 3,481,000 2,972,000
Losses on sales of available-for-sale securities ............ (12,000) (249,000) (229,000)
Other ....................................................... 620,000 636,000 651,000
------------ ------------ ------------
5,488,000 4,949,000 4,525,000
------------ ------------ ------------
Noninterest expense:
Salaries .................................................... 9,829,000 8,958,000 8,136,000
Employee benefits ........................................... 4,359,000 3,628,000 3,215,000
Occupancy and equipment expense ............................. 2,937,000 2,819,000 2,410,000
Other operating expenses .................................... 4,363,000 4,362,000 3,806,000
------------ ------------ ------------
21,488,000 19,767,000 17,567,000
------------ ------------ ------------
Income before income taxes .............................. 15,718,000 13,620,000 12,749,000
Income tax expense .............................................. 4,155,000 3,526,000 3,431,000
------------ ------------ ------------
Net Income .............................................. $ 11,563,000 $ 10,094,000 $ 9,318,000
============ ============ ============
Weighted average:
Common shares ............................................... 4,180,029 4,266,114 4,383,518
Dilutive stock options ...................................... 63,221 59,288 59,103
------------ ------------ ------------
4,243,250 4,325,402 4,442,621
============ ============ ============
Earnings per share:
Basic ....................................................... $ 2.77 $ 2.37 $ 2.13
============ ============ ============
Diluted ..................................................... $ 2.73 $ 2.33 $ 2.10
============ ============ ============
See notes to consolidated financial statements
43
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
Accumulated
Other
Common Stock Compre- Compre-
----------------------- hensive Retained hensive
Shares Amount Surplus Income Earnings Income (Loss) Total
--------- ----------- ----------- ----------- ----------- ------------- ------------
Balance, January 1, 2000 ........... 2,962,803 $ 296,000 $ 2,258,000 $63,013,000 $(1,334,000) $ 64,233,000
Net Income ....................... $ 9,318,000 9,318,000 9,318,000
Repurchase and retirement ........
of common stock ................ (84,435) (8,000) (2,811,000) (2,819,000)
Exercise of stock options ........ 14,181 1,000 222,000 223,000
Unrealized gains on available-
for-sale-securities, net of
tax of $1,372,000 ............ 1,986,000 1,986,000 1,986,000
-----------
Comprehensive income ............. $11,304,000
===========
Cash dividends declared -
$.48 per share ................. (2,094,000) (2,094,000)
Tax benefit of stock options ..... 19,000 19,000
Transfer from retained
earnings to surplus ............ 1,500,000 (1,500,000)
--------- --------- ---------- ----------- ----------- ------------
Balance, December 31, 2000 ......... 2,892,549 289,000 1,188,000 68,737,000 652,000 70,866,000
Net Income ....................... $10,094,000 10,094,000 10,094,000
Repurchase and retirement
of common stock ................ (118,951) (12,000) (4,686,000) (4,698,000)
Exercise of stock options ........ 19,304 2,000 418,000 420,000
Unrealized gains on available-
for-sale-securities, net of
tax of $213,000 .............. 310,000 310,000 310,000
-----------
Comprehensive income ............. $10,404,000
===========
Cash dividends declared -
$.54 per share ................. (2,281,000) (2,281,000)
Tax benefit of stock options ..... 35,000 35,000
Transfer from retained
earnings to surplus ............ 4,000,000 (4,000,000)
--------- --------- ---------- ----------- ----------- ------------
Balance, December 31, 2001 ......... 2,792,902 279,000 955,000 72,550,000 962,000 74,746,000
Net Income ....................... $11,563,000 11,563,000 11,563,000
Repurchase and retirement
of common stock ................ (43,736) (4,000) (1,588,000) (1,592,000)
Exercise of stock options ........ 20,340 2,000 311,000 313,000
Unrealized gains on available-
for-sale-securities, net of
tax of $2,005,000 ............ 2,986,000 2,986,000 2,986,000
-----------
Comprehensive income ............. $14,549,000
===========
3-for-2 stock split .............. 1,391,667 139,000 (139,000)
Cash in lieu of fractional shares
on 3-for-2 stock split ........ (7,000) (7,000)
Cash dividends declared -
$.63 per share ................. (2,613,000) (2,613,000)
Tax benefit of stock options ..... 46,000 46,000
Transfer from retained
earnings to surplus ............ 1,000,000 (1,000,000)
--------- --------- ---------- ----------- ----------- ------------
Balance, December 31, 2002 ......... 4,161,173 $ 416,000 $ 724,000 $80,354,000 $ 3,948,000 $ 85,442,000
========= ========= ========== =========== =========== ============
See notes to consolidated financial statements
44
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------------------
2002 2001 2000
------------- ------------- -------------
Cash Flows From Operating Activities:
Net income ................................................................... $ 11,563,000 $ 10,094,000 $ 9,318,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses (credit) ......................................... 100,000 100,000 (75,000)
Deferred income tax provision (credit) ..................................... (109,000) (142,000) 252,000
Depreciation and amortization .............................................. 1,173,000 1,166,000 918,000
Premium amortization (discount accretion) on investment securities, net .... 2,908,000 174,000 (243,000)
Losses on sales of available-for-sale securities ........................... 12,000 249,000 229,000
Decrease in prepaid income taxes ........................................... 1,000 34,000 194,000
Decrease (increase) in other assets ........................................ 373,000 (265,000) (656,000)
Increase (decrease) in accrued expenses and other liabilities .............. 372,000 (270,000) 915,000
Increase (decrease) in income taxes payable ................................ 335,000 (91,000) 110,000
------------- ------------- -------------
Net cash provided by operating activities .............................. 16,728,000 11,049,000 10,962,000
------------- ------------- -------------
Cash Flows From Investing Activities:
Proceeds from sales of available-for-sale securities ....................... 687,000 5,270,000 7,423,000
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity ......................................................... 114,971,000 391,181,000 229,246,000
Available-for-sale ....................................................... 11,131,000 15,003,000 13,765,000
Purchase of investment securities:
Held-to-maturity ......................................................... (137,562,000) (416,922,000) (250,235,000)
Available-for-sale ....................................................... (50,174,000) (74,881,000) (16,005,000)
Net increase in loans to customers ......................................... (34,455,000) (33,802,000) (10,150,000)
Purchases of bank premises and equipment ................................... (480,000) (1,301,000) (1,193,000)
Proceeds from sale of equipment ............................................ 3,000 -- --
------------- ------------- -------------
Net cash used in investing activities .................................. (95,879,000) (115,452,000) (27,149,000)
------------- ------------- -------------
Cash Flows From Financing Activities:
Net increase in total deposits ............................................. 94,855,000 54,398,000 47,283,000
Proceeds from exercise of stock options .................................... 313,000 420,000 223,000
Repurchase and retirement of common stock .................................. (1,592,000) (4,698,000) (2,819,000)
Cash dividends paid ........................................................ (2,398,000) (2,180,000) (2,002,000)
Cash in lieu of fractional shares on 3-for-2 stock split ................... (7,000) -- --
------------- ------------- -------------
Net cash provided by financing activities .............................. 91,171,000 47,940,000 42,685,000
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ........................... 12,020,000 (56,463,000) 26,498,000
Cash and cash equivalents, beginning of year ................................... 55,209,000 111,672,000 85,174,000
------------- ------------- -------------
Cash and cash equivalents, end of year ......................................... $ 67,229,000 $ 55,209,000 $ 111,672,000
============= ============= =============
Supplemental Schedule of Noncash:
Investing Activities
Unrealized gains on available-for-sale securities ............................ $ 4,991,000 $ 523,000 $ 3,358,000
Transfer of available-for-sale securities to held-to-maturity category ....... -- -- 14,836,000
Writeoff of premises and equipment against reserve ........................... 62,000 -- --
Financing Activities
Tax benefit from exercise of employee stock options .......................... 46,000 35,000 19,000
Cash dividends payable ....................................................... 1,415,000 1,200,000 1,099,000
The Corporation made interest payments of $5,145,000, $9,632,000, and
$13,016,000 and income tax payments of $3,927,000, $3,726,000, and $2,875,000 in
2002, 2001 and 2000, respectively.
See notes to consolidated financial statements
45
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 expected 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 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 is reversed against current period income. The Bank
considers nonaccruing loans to be impaired under Statement of Financial
Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan"
("SFAS No. 114") as amended. The valuation allowance for nonaccrual and other
impaired loans 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 is an amount that management currently
believes will be adequate to absorb estimated inherent losses in the Bank's loan
portfolio. The process for estimating credit losses and determining the
allowance for loan losses as of any balance sheet date is subjective in nature
and requires material estimates. Actual results could differ significantly from
these estimates.
In determining the allowance for loan losses, there is not an exact amount
but rather a range for what constitutes an appropriate allowance. In estimating
losses the Bank reviews individual credits in its portfolio and, for those loans
deemed to be impaired, measures impairment losses based on either the fair value
of collateral or the discounted value of expected future cash flows. Estimated
losses for loans that are not specifically reviewed are determined on a pooled
basis taking into account a variety of factors including historical losses;
levels of and trends in delinquencies and nonaccruing loans; trends in volume
and terms of loans; changes in lending policies and procedures; experience,
ability and depth of lending staff; national and local economic conditions;
concentrations of credit; and environmental risks. Management also considers
relevant loan loss statistics for the Bank's peer group. The estimated losses on
the loans specifically reviewed plus those determined on a pooled basis make up
the allocated component of the allowance for loan losses. The unallocated or
general component of the allowance for loan losses could cover losses in the
portfolio that have not otherwise been identified through the review of specific
loans or pools of loans.
46
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 then remaining lives of the buildings. 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 ten years. Furniture, fixtures, and
equipment are depreciated over their estimated useful lives which range between
three and seven years. The straight-line method of depreciation is used for
furniture, fixtures, and equipment acquired after 1997 and the 150% declining
balance method is used for all other assets.
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 considered.
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 recorded book value of cash and cash
equivalents is their fair value.
Investment securities. For investment securities other than commercial
paper, fair values are based on quoted market prices. All of the commercial
paper in the Bank's investment portfolio as of December 31, 2001 had a remaining
maturity of less than thirty days. For these short-term instruments, the
recorded book value is deemed to be a reasonable estimate of fair value.
Loans. Fair values are estimated for portfolios of loans with similar
financial characteristics. The total loan portfolio is first divided into
adjustable and fixed rate interest terms. For adjustable rate loans that are
subject to immediate repricing, the recorded book value less the related
allowance for loan losses is a reasonable estimate of fair value. For adjustable
rate loans that are subject to repricing over time and fixed rate loans, fair
value is calculated by discounting anticipated future repricing amounts or cash
flows using discount rates equivalent to the rates at which the Bank would
currently make loans which are similar with regard to collateral, maturity, and
the type of borrower. The discounted value of the repricing amounts and cash
flows is reduced by the related allowance for loan losses to arrive at an
estimate of fair value.
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 recorded book value at December 31 of each year. The
fair value of time deposits is based on the discounted value of contractual cash
flows. The discount rate is equivalent to the rate currently offered by the Bank
for deposits of similar size, type and maturity.
Accrued interest receivable and payable. For these short-term instruments,
the recorded book value 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.
47
Stockholders' Equity
Earnings Per Share. 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 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. There were no antidilutive
stock options at December 31, 2002. Other than stock options described in Note I
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.
Stock Split. On June 18, 2002, the Corporation declared a 3-for-2 stock
split which was paid on July 24, 2002 by means of a 50% stock dividend. Where
applicable, all comparative share and per share amounts included in the
consolidated financial statements and notes thereto have been adjusted to
reflect the effect of the split.
Stock Repurchase Program. Since 1988, the Corporation has had a stock
repurchase program under which it is authorized to purchase shares of its own
common stock in market or private transactions. As of December 31, 2002, and in
accordance with prior approval by its Board of Directors, the Corporation was
authorized to purchase 28,410 shares of stock under the latest stock repurchase
plan. In addition, in January 2003, the Corporation's Board of Directors
approved an additional share repurchase plan for 100,000 shares. Share
repurchases under this plan will be financed through available corporate cash.
Stock-based Compensation
At December 31, 2002, the Corporation had two stock option and appreciation
plans, which are described more fully in Note I. The Corporation accounts for
those plans under the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and
related Interpretations. No stock-based employee compensation cost is reflected
in net income for stock options, as all options granted under those plans have
an exercise price equal to the market value of the underlying common stock on
the date of grant. If there were any stock appreciation rights outstanding,
compensation costs would be recorded annually based on the quoted market price
of the Corporation's stock at the end of the period.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 148 "Accounting for Stock-Based
Compensation--Transition and Disclosure" ("SFAS No. 148") in December 2002. SFAS
No. 148 amends the disclosure and certain transition provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation". The new disclosure provisions are effective for financial
statements for fiscal years ending after December 15, 2002 and for financial
reports containing condensed financial statements for interim periods beginning
after December 15, 2002.
The following table provides the disclosures required by SFAS No. 148 and
illustrates the effect on net income and earnings per share if the Corporation
had applied the fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation.
2002 2001 2000
---------- ---------- ----------
(in thousands)
Net income, as reported ........................ $ 11,563 $ 10,094 $ 9,318
Deduct: Total cost of stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects ............... (228) (64) (162)
---------- ---------- ----------
Pro forma net income ........................... $ 11,335 $ 10,030 $ 9,156
========== ========== ==========
Earnings per share:
Basic - as reported .......................... $ 2.77 $ 2.37 $ 2.13
Basic - pro forma ............................ $ 2.71 $ 2.35 $ 2.09
Diluted - as reported ........................ $ 2.73 $ 2.33 $ 2.10
Diluted - pro forma .......................... $ 2.68 $ 2.33 $ 2.06
48
Comprehensive Income
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.
Investment Management 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.
Derivative Financial Instruments
Statement of Financial Accounting Standards No. 119 "Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments" ("SFAS
No. 119") requires disclosures about derivative financial instruments, which are
defined as futures, forwards, swap and option contracts, and other financial
instruments with similar characteristics. Receivables and payables on the
balance sheet are excluded from this definition. The Corporation did not hold
any derivative financial instruments as defined by SFAS No. 119 at December 31,
2002 and 2001.
Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activity" ("SFAS No. 133") establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives either as assets or liabilities in the statement of financial
position and measure those instruments at fair value. In June 2000, Statement of
Financial Accounting Standards No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" ("SFAS No. 138") amended SFAS No.
133. SFAS No. 138 is effective for fiscal years beginning after June 30, 2000.
The adoption of SFAS No. 138 did not impact the Corporation's financial
condition or results of operations.
Adoption of New Accounting Pronouncements
On January 1, 2002, the Corporation adopted Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS No.
142"). SFAS No. 142 supersedes Accounting Principles Board Opinion No. 17,
"Intangible Assets" ("APB No. 17"). At January 1, 2002, the Corporation had
goodwill of $220,000. No goodwill impairment loss was recorded during 2002. In
2001 and 2000, and under the provisions of APB No. 17, the Corporation recorded
goodwill amortization of $18,000.
The Corporation adopted Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144") on January 1, 2002. SFAS No. 144 retains the existing requirements to
recognize and measure the impairment of long-lived assets to be held and used or
to be disposed of by sale. However, SFAS No. 144 makes changes to the scope and
certain measurement requirements of existing accounting guidance. SFAS No. 144
also changes the requirements relating to reporting the effects of a disposal or
discontinuation of a segment of a business. The adoption of this Statement did
not have an impact on the financial condition or results of operations of the
Corporation.
49
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, 2002, 2001 and 2000.
2002
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(in thousands)
Held-to-maturity Securities:
U.S. Treasury .................................. $ 27,770 $ 1,045 $ -- $ 28,815
U.S. government agencies ....................... 34,655 1,514 (22) 36,147
Corporates ..................................... 2,979 222 -- 3,201
State and municipals ........................... 63,899 3,389 (39) 67,249
Collateralized mortgage obligations ............ 143,799 3,255 (28) 147,026
---------- ---------- ---------- ----------
$ 273,102 $ 9,425 $ (89) $ 282,438
========== ========== ========== ==========
Available-for-sale Securities:
U.S. Treasury .................................. $ 93,616 $ 1,712 $ -- $ 95,328
Corporates ..................................... 5,964 477 -- 6,441
State and municipals ........................... 74,087 3,912 (27) 77,972
Equity ......................................... 127 538 -- 665
---------- ---------- ---------- ----------
$ 173,794 $ 6,639 $ (27) $ 180,406
========== ========== ========== ==========
2001
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(in thousands)
Held-to-Maturity Securities:
U.S. Treasury .................................. $ 84,579 $ 1,526 $ -- $ 86,105
U.S. government agencies ....................... 30,430 586 (125) 30,891
Commercial paper ............................... 7,994 -- -- 7,994
Corporates ..................................... 2,970 194 -- 3,164
State and municipals ........................... 55,511 1,789 (97) 57,203
Collateralized mortgage obligations ............ 70,731 1,761 (179) 72,313
---------- ---------- ---------- ----------
$ 252,215 $ 5,856 $ (401) $ 257,670
========== ========== ========== ==========
Available-for-Sale Securities:
U.S. Treasury .................................. $ 67,223 $ 891 $ (10) $ 68,104
Corporates ..................................... 5,951 187 -- 6,138
State and municipals ........................... 63,353 837 (284) 63,906
Equity ......................................... 127 -- -- 127
---------- ---------- ---------- ----------
$ 136,654 $ 1,915 $ (294) $ 138,275
========== ========== ========== ==========
2000 (unaudited)
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
(in thousands)
Held-to-Maturity Securities:
U.S. Treasury .................................. $ 56,172 $ 645 $ -- $ 56,817
U.S. government agencies ....................... 20,862 228 (125) 20,965
Commercial paper ............................... 22,962 -- -- 22,962
Corporates ..................................... 2,961 87 -- 3,048
State and municipals ........................... 57,747 1,510 (28) 59,229
Collateralized mortgage obligations ............ 65,657 640 (273) 66,024
---------- ---------- ---------- ----------
$ 226,361 $ 3,110 $ (426) $ 229,045
========== ========== ========== ==========
Available-for-Sale Securities:
U.S. Treasury .................................. $ 35,380 $ 358 $ -- $ 35,738
Corporates ..................................... 2,922 48 -- 2,970
State and municipals ........................... 44,153 722 (30) 44,845
Equity ......................................... 127 -- -- 127
---------- ---------- ---------- ----------
$ 82,582 $ 1,128 $ (30) $ 83,680
========== ========== ========== ==========
At December 31, 2002 and 2001, investment securities with a carrying value
of $59,944,000 and $37,793,000, respectively, were pledged as collateral to
secure public deposits and for other purposes. There were no gains on security
sales for each of the three years in the period ended December 31, 2002.
50
Maturities and Average Yields. The following table sets forth the
maturities and weighted average yields of the Bank's investment securities at
December 31, 2002.
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 .......................... $ 15,627 4.44% $ 12,143 5.76% $ -- --% $ -- --%
U.S. government agencies ............... 1,081 5.52 3,378 6.64 7,292 6.00 22,904 5.46
Corporates ............................. 1,007 7.31 983 7.56 -- -- 989 7.15
State and municipals (2) ............... 15,547 4.11 16,895 7.22 24,984 7.53 6,473 7.03
Collateralized mortgage obligations .... -- -- 1,171 6.15 7,004 6.23 135,624 4.77
-------- ---- -------- ---- -------- ---- -------- ----
$ 33,262 4.41% $ 34,570 6.63% $ 39,280 7.01% $165,990 4.97%
======== ==== ======== ==== ======== ==== ======== ====
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 .......................... $ 64,504 2.95% $ 30,824 4.04% $ -- --% $ -- --%
Corporates ............................. -- -- 6,441 6.17 -- -- -- --
State and municipals (2) ............... 3,795 2.81 12,172 6.89 39,008 6.99 22,997 7.16
-------- ---- -------- ---- -------- ---- -------- ----
Total debt securities ................ 68,299 2.94 49,437 5.02 39,008 6.99 22,997 7.16
Equity ................................. -- -- -- -- -- -- 665 1.70
-------- ---- -------- ---- -------- ---- -------- ----
$ 68,299 2.94% $ 49,437 5.02% $ 39,008 6.99% $ 23,662 7.00%
======== ==== ======== ==== ======== ==== ======== ====
(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.
51
NOTE C - LOANS
In the second quarter of 1999, the Bank made a transition adjustment to
reduce its allowance for loan losses by $1,600,000. The transition adjustment
was made in response to guidance issued by staff members of the Financial
Accounting Standards Board in April 1999 and further guidance issued by staff
members of the Securities and Exchange Commission.
The following table sets forth changes in the Bank's allowance for loan
losses.
Year ended December 31,
-------------------------------------------------------
2002 2001 2000* 1999* 1998*
------- ------- ------- ------- -------
(dollars in thousands)
Balance, beginning of year ................. $ 2,020 $ 1,943 $ 2,033 $ 3,651 $ 3,579
------- ------- ------- ------- -------
Loans charged off:
Commercial and industrial ................ (68) (17) (28) (32) (50)
Secured by real estate ................... -- -- -- -- --
Consumer and other ....................... (16) (35) (28) (28) (49)
------- ------- ------- ------- -------
(84) (52) (56) (60) (99)
------- ------- ------- ------- -------
Recoveries of loans charged off:
Commercial and industrial ................ 13 -- -- -- --
Secured by real estate ................... 16 16 17 16 257
Consumer and other ....................... 20 13 24 26 14
------- ------- ------- ------- -------
49 29 41 42 271
------- ------- ------- ------- -------
Net (chargeoffs) recoveries ................ (35) (23) (15) (18) 172
Provision for loan losses (credit) ......... 100 100 (75) -- (100)
Transition adjustment ...................... -- -- -- (1,600) --
------- ------- ------- ------- -------
Balance, end of year ....................... $ 2,085 $ 2,020 $ 1,943 $ 2,033 $ 3,651
======= ======= ======= ======= =======
Ratio of net (chargeoffs) recoveries to
average loans outstanding ................ (.01)% (.01)% (.01)% (.01)% .10%
======= ======= ======= ======= =======
*Unaudited
The Corporation's loan portfolio at December 31, 2002 and 2001 included
$923,000 and $1,503,000, respectively, of loans considered to be impaired under
SFAS No. 114. Of the Corporation's total impaired loans at December 31, 2002,
$546,000 had a related allowance for loan losses of $39,000 and the balance had
no related allowance for loan losses. The average recorded investment during
2002 in loans considered to be impaired as of December 31, 2002 was $944,000.
Interest income recognized during 2002 on loans considered to be impaired as of
December 31, 2002 and during the period in 2002 that such loans were impaired
amounted to $24,000. Of the Corporation's total impaired loans at December 31,
2001, $688,000 had a related allowance for loan losses of $347,000 and the
balance had no related allowance for loan losses. The average recorded
investment during 2001 in loans considered to be impaired as of December 31,
2001 was $1,611,000. Interest income recognized during 2001 on loans considered
to be impaired as of December 31, 2001 and during the period in 2001 that such
loans were impaired amounted to $122,000. All interest income recorded by the
Corporation during 2002 and 2001 on loans considered to be impaired was
recognized using the accrual method of accounting.
Certain directors, including their immediate families and companies in
which they are principal owners, and executive officers were loan customers of
the Bank during 2002 and 2001. 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 $2,108,000 and $2,239,000 at December 31, 2002 and 2001,
respectively. During 2002, $410,000 of new loans to such persons were made and
repayments totaled $541,000. There were no loans to directors or executive
officers which were nonaccruing at December 31, 2002 or 2001.
52
NOTE D - PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following:
December 31,
--------------------
2002 2001
-------- --------
(in thousands)
Land ........................................ $ 1,274 $ 1,274
Buildings ................................... 4,820 4,771
Leasehold improvements ...................... 1,888 1,953
Furniture and equipment ..................... 7,969 11,284
-------- --------
15,951 19,282
Accumulated depreciation and amortization ... (9,553) (12,126)
-------- --------
$ 6,398 $ 7,156
======== ========
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 had an initial term
of ten years and one month ending on October 30, 2002, was modified and extended
through October 31, 2007. The Bank may, on ninety (90) days written notice,
elect to extend the lease for an additional five (5) year period. The lease
provides for annual base rent of $30,184 for the year ending October 31, 2003.
In addition to base rent, the Bank is responsible for its proportionate share of
the real estate taxes on the building in which the leased premises are located.
The Bank believes that the terms of this lease are comparable to those that
could have been obtained from other persons.
NOTE E - DEPOSITS
The following table sets forth the remaining maturities of the Bank's time
deposits in amounts of $100,000 or more.
Year Amount
- ---- -------
(in thousands)
2003 .................... $12,750
2004 .................... 357
2005 .................... --
2006 .................... --
2007 .................... --
Thereafter .............. --
-------
$13,107
=======
53
NOTE F - INCOME TAXES
The Corporation and its subsidiary file a consolidated federal income tax
return. Income taxes charged to earnings in 2002, 2001, and 2000 had effective
tax rates of 26.4%, 25.9%, and 26.9%, 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,
-----------------------
2002 2001 2000
---- ---- ----
Statutory federal income tax rate .................................. 34.0% 34.0% 34.0%
State and local income taxes, net of federal income tax benefit .... 4.4 4.2 4.1
Tax-exempt interest on securities and loans, net of
disallowed cost of funding ......................................... (12.2) (12.6) (11.1)
Other .............................................................. .2 .3 (.1)
---- ---- ----
26.4% 25.9% 26.9%
==== ==== ====
Provision for Income Taxes. The following table sets forth the components
of the provision for income taxes.
Year Ended December 31,
-----------------------------
2002 2001 2000
------- ------- -------
(in thousands)
Current:
Federal ................................... $ 3,258 $ 2,840 $ 2,506
State and local ........................... 1,006 828 673
------- ------- -------
4,264 3,668 3,179
------- ------- -------
Deferred:
Federal ................................... (148) (175) 141
State and local ........................... 39 33 111
------- ------- -------
(109) (142) 252
------- ------- -------
$ 4,155 $ 3,526 $ 3,431
======= ======= =======
Net Deferred Tax Asset/Liability. The following table sets forth the
components of the Bank's net deferred tax asset/liability.
December 31,
------------------
2002 2001
------- -------
(in thousands)
Deferred tax assets:
Allowance for loan losses ............................ $ 387 $ 366
Supplemental executive retirement expense ............ 84 54
Directors' retirement expense ........................ 66 62
Postretirement benefits expense ...................... 42 41
Writeoff of bank premises and equipment .............. -- 32
Accrued professional fees ............................ 12 12
Other ................................................ 4 1
------- -------
595 568
Valuation allowance .................................. -- --
------- -------
595 568
------- -------
Deferred tax liabilities:
Pension expense ...................................... 105 117
Depreciation ......................................... 78 197
Accumulated earnings of Bank subsidiaries ............ 142 93
Unrealized gains on available-for-sale securities .... 2,664 658
------- -------
2,989 1,065
------- -------
Net deferred tax liability ........................... $(2,394) $ (497)
======= =======
54
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 to extend credit and generally uses the same
credit policies for letters of credit as it does for on-balance-sheet
instruments. At December 31, financial instruments whose contract amounts
represent credit risk are as follows:
2002 2001
------- -------
(in thousands)
Commitments to extend credit .... $58,962 $53,513
Standby letters of credit ....... 1,077 999
Commercial letters of credit .... -- 38
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 is based on management's
credit evaluation of the borrower. Collateral held varies but may include
security interests in business assets, mortgages on commercial and residential
real estate, deposit accounts with the Bank or other financial institutions, and
securities.
Standby letters of credit are conditional commitments issued by the Bank to
assure the performance or financial obligations of a customer to a third party.
The Bank's standby letters of credit extend through December 2003. 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, 2002 varied from
0% to 100%, and averaged 90%.
Commercial letters of credit are conditional commitments issued by the Bank
to assure the payment by a customer to a supplier. The credit risk involved in
issuing commercial letters of credit is believed to be generally less than that
involved in extending loans to customers. The Bank generally obtains personal
guarantees supporting these commitments.
Concentrations of Credit Risk. Most 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, most 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, 2002, minimum annual rental commitments
under noncancelable operating leases are as follows:
Year Amount
- ---- ------
(in thousands)
2003 .............................. $ 453
2004 .............................. 426
2005 .............................. 306
2006 .............................. 196
2007 .............................. 169
Thereafter ........................ 66
------
$1,616
======
In addition, the Bank has various renewal options on the above leases. Rent
expense was $461,000, $457,000, and $384,000 in 2002, 2001, and 2000,
respectively.
55
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 $56 (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, as amended, options to purchase up to 540,000 shares of common stock were
made available for grant to key employees and to non-employee directors of the
Corporation and its subsidiaries through January 15, 2006. The number of stock
options and stock appreciation rights that can be granted to any one person in
any one fiscal year is limited to 25,000. Each option granted under the 1996
Plan is granted at a price equal to the fair market value of one share of the
Corporation's stock on the date of grant. Options granted on or before December
31, 2000 are exercisable in whole or in part commencing six months from the date
of grant and ending ten years after the date of grant. Options granted after
December 31, 2000 are exercisable in whole or in part commencing three years
from the date of grant and ending ten years after the date of grant. The date on
which options first become exercisable is subject to acceleration in the event
of a change in control, retirement, death, disability, and certain other limited
circumstances.
Each option granted to an employee under the 1996 Plan may be granted with
or without a stock appreciation right ("SAR") attached. The 1996 Plan also
provides for the granting of stand-alone SARs to employees. Non-employee
directors are not eligible for SAR grants, whether stand-alone or attached to
options. As of December 31, 2002 there were 302,633 options available for grant
under the 1996 Plan, 207,441 options outstanding, and 70,167 options currently
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 except that the 1986 Plan did
not provide for the granting of stock options to non-employee directors and did
not limit to 25,000 the number of stock options and stock appreciation rights
that could be granted to any one person in any one fiscal year. At December 31,
2002, options to purchase 54,479 shares of Common Stock were outstanding and
exercisable under the 1986 Plan and there were no outstanding stock appreciation
rights.
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.
56
Stock Option Activity. The following table sets forth stock option activity
and the weighted average fair value of options granted.
Year Ended December 31,
------------------------------------------------------------------
2002 2001 2000
-------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- -------- -------- -------- --------
Outstanding, beginning of year .................... 214,391 $ 19.77 177,884 $ 16.81 166,530 $ 15.46
Granted ........................................... 76,891 25.17 68,532 25.51 34,650 20.06
Exercised ......................................... (24,870) 12.59 (28,956) 14.51 (21,271) 10.49
Forfeited ......................................... (4,492) 24.97 (3,069) 26.11 (2,025) 27.95
-------- -------- -------- -------- -------- --------
Outstanding, end of year .......................... 261,920 $ 21.95 214,391 $ 19.77 177,884 $ 16.81
======== ======== ======== ======== ======== ========
Exercisable, end of year .......................... 124,646 $ 18.21 148,102 $ 17.19 177,884 $ 16.81
======== ======== ======== ======== ======== ========
Weighted average fair value of options granted .... $ 4.92 $ 5.51 $ 4.67
======== ======== ========
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 3.69%, 4.85%, and 5.14% for options
granted in 2002, 2001, and 2000, respectively; volatility of 16.70%, 15.30%, and
15.80% for options granted in 2002, 2001, and 2000, respectively; expected
dividend yield of 2.0%, 2.0%, and 1.9% for options granted in 2002, 2001, and
2000 respectively; and expected lives of 7 years for options granted in 2002,
2001, and 2000.
Stock Options Outstanding. The following table sets forth information about
outstanding and exercisable stock options at December 31, 2002.
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 $13.26 ..... 54,479 2.07 $ 11.94 54,479 $ 11.94
$16.22 to $21.83 .... 36,342 5.92 18.63 36,342 18.63
$24.68 to $29.33 .... 171,099 8.03 25.84 33,825 27.86
------- ---- ----------- ------- -----------
261,920 6.50 $ 21.95 124,646 $ 18.21
======= ==== =========== ======= ===========
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 a percentage of average annual compensation during the period
of creditable service. The Bank makes annual contributions to the Pension Plan
in an amount sufficient to fund these benefits and participants contribute 2% of
their compensation. The Bank's funding policy, the 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).
Net Pension Cost. The following table sets forth the components of net
periodic pension cost.
2002 2001 2000
----- ----- -----
(in thousands)
Service cost ................................ $ 482 $ 410 $ 397
Interest cost ............................... 517 462 428
Expected return on plan assets .............. (594) (598) (540)
Net amortization and deferral ............... (21) (44) (44)
----- ----- -----
Net pension cost ............................ $ 384 $ 230 $ 241
===== ===== =====
57
Significant Actuarial Assumptions. The following table sets forth the
significant actuarial assumptions as of the end of each plan year.
2002 2001 2000
---- ---- ----
Discount rate ....................................... 6.75% 6.75% 6.75%
Rate of increase in compensation levels ............. 5.00% 5.00% 5.00%
Expected long-term rate of return on plan assets .... 7.50% 7.50% 7.00%
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,
-----------------------------
2002 2001 2000
------- ------- -------
(in thousands)
Change in projected benefit obligation
Projected benefit obligation at beginning of year .... $ 7,796 $ 6,969 $ 6,457
Service cost ......................................... 625 520 519
Plan participants' contributions ..................... (143) (110) (122)
Expenses ............................................. (59) (55) (63)
Interest cost ........................................ 517 462 428
Benefits paid ........................................ (324) (260) (312)
Additional prior service cost at valuation date ...... -- 302 --
Assumption changes and other ......................... 196 (32) 62
------- ------- -------
Projected benefit obligation at end of year .......... 8,608 7,796 6,969
------- ------- -------
Change in plan assets
Fair value of plan assets at beginning of year ....... 7,990 8,580 7,751
Actual return on plan assets ......................... (421) (712) 796
Employer contribution ................................ -- 327 286
Plan participants' contributions ..................... 143 110 122
Benefits paid ........................................ (324) (260) (312)
Expenses ............................................. (59) (55) (63)
------- ------- -------
Fair value of plan assets at end of year ............. 7,329 7,990 8,580
------- ------- -------
Funded status ........................................ (1,279) 194 1,611
Unrecognized net actuarial loss (gain) ............... 1,453 385 (784)
Unrecognized prior service cost ...................... 255 275 (31)
Unrecognized transition asset ........................ (46) (87) (127)
------- ------- -------
Prepaid benefit cost ................................. $ 383 $ 767 $ 669
======= ======= =======
The Bank has a combined profit sharing/401(k) plan (the "Profit Sharing
Plan"). Employees are eligible to participate provided they are at least 21
years of age and have completed one year of service in which they worked 1,000
hours if full-time and 700 hours if part-time. Participants may elect to
contribute, on a tax-deferred basis, up to 25% of gross compensation, as
defined, subject to the limitations of Section 401(k) of the Internal Revenue
Code. The Bank may, at its sole discretion, make "Additional" contributions to
each participant's account based on the amount of the participant's tax deferred
contributions and make profit sharing contributions to each participant's
account equal to a percentage of the participant's compensation, as defined.
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 $142,000, $130,000, and $113,000 for 2002, 2001,
and 2000, respectively, and profit sharing contributions were $743,000,
$587,000, and $446,000, 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 $250,000, $389,000, and $190,000 in 2002, 2001, and 2000,
respectively. The fluctuations in SERP expense during the three year period
ended December 31, 2002 are primarily attributable to the impact of changing
58
interest rates and stock market performance on required employer contributions
and, for 2002, an increase under the Internal Revenue Code of the amount of
compensation that can be covered by the Bank's qualified pension plan.
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 2002, 2001, and
2000 are as follows:
2002 2001 2000
---- ---- ----
(in thousands)
Computer services ..... $556 $543 $490
Insurance ............. 545 481 440
Marketing ............. 416 465 393
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.
The following table sets forth the Corporation's capital ratios at December
31, 2002 and 2001 and the minimum ratios necessary for a bank to be classified
as well capitalized and adequately capitalized. The capital ratios of the
Corporation's subsidiary bank at December 31, 2002 and 2001 are not
significantly different than those shown in the table below and substantially
exceed the requirements for a well-capitalized bank.
Corporation's Capital Ratios
at December 31:
---------------------------- Well Adequately
2002 2001 Capitalized Capitalized
----- ----- ----------- -----------
Total Risk-Based Capital Ratio .... 30.28% 29.22% 10.00% 8.00%
Tier 1 Risk-Based Capital Ratio .... 29.52 28.44 6.00 4.00
Tier 1 Leverage Capital Ratio ...... 10.25 10.63 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, 2002, the Bank had retained net income for the current
and two preceding calendar years of $16,114,000.
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 2002 was approximately $6,783,000.
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, 2002, the maximum amount available for
transfer from the Bank to the Corporation in the form of loans approximated
$12,621,000.
59
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.
The following table sets forth the carrying/contract amounts and estimated
fair values of the Corporation's financial instruments at December 31, 2002 and
2001.
2002 2001
--------------------- ---------------------
Carrying/ Carrying/
Contract Contract
Amount Fair Value Amount Fair Value
--------- ---------- --------- ----------
(in thousands)
Financial Assets:
Cash and due from banks ..................... $ 33,229 $ 33,229 $ 28,209 $ 28,209
Federal funds sold .......................... 34,000 34,000 27,000 27,000
Held-to-maturity securities ................. 273,102 282,438 252,215 257,670
Available-for-sale securities ............... 180,406 180,406 138,275 138,275
Loans ....................................... 259,023 264,500 224,668 226,675
Accrued interest receivable ................. 5,353 5,353 5,047 5,047
Financial Liabilities:
Checking deposits ........................... 256,444 256,444 222,822 222,822
Savings and money market deposits ........... 412,815 412,815 347,430 347,430
Time deposits ............................... 30,466 30,521 34,618 34,645
Accrued interest payable .................... 61 61 95 95
Off-Balance-Sheet Liabilities:
Commitments to extend credit ................ 58,962 -- 53,513 --
Standby and commercial letters of credit .... 1,077 11 1,037 10
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,
-------------------
2002 2001
-------- --------
(in thousands)
Assets:
Checking and money market accounts with subsidiary .... $ 2,653 $ 3,646
Investment in subsidiary bank, at equity .............. 84,138 72,255
Other assets .......................................... 66 45
-------- --------
$ 86,857 $ 75,946
======== ========
Liabilities:
Cash dividends payable ................................ $ 1,415 $ 1,200
-------- --------
Stockholders' Equity:
Common stock .......................................... 416 279
Surplus ............................................... 724 955
Retained earnings ..................................... 80,354 72,550
-------- --------
81,494 73,784
Accumulated other comprehensive income, net of tax .... 3,948 962
-------- --------
85,442 74,746
-------- --------
$ 86,857 $ 75,946
======== ========
60
CONDENSED STATEMENTS OF INCOME Year ended December 31,
--------------------------------
2002 2001 2000
-------- -------- --------
(in thousands)
Income:
Dividends from subsidiary bank ............................ $ 2,700 $ 7,700 $ 4,500
Interest on deposits with subsidiary bank ................. 24 33 73
-------- -------- --------
2,724 7,733 4,573
-------- -------- --------
Expenses:
Other operating expenses .................................. 79 59 58
-------- -------- --------
Income before income taxes ................................ 2,645 7,674 4,515
Income tax expense (credit) ................................. (22) (11) 6
-------- -------- --------
Income before undistributed earnings of
subsidiary bank ......................................... 2,667 7,685 4,509
Equity in undistributed earnings ............................ 8,896 2,409 4,809
-------- -------- --------
Net income ................................................ $ 11,563 $ 10,094 $ 9,318
======== ======== ========
CONDENSED STATEMENTS OF CASH FLOWS Year ended December 31,
Increase (Decrease) in Cash and Cash Equivalents* --------------------------------
2002 2001 2000
-------- -------- --------
(in thousands)
Cash Flows From Operating Activities:
Net income ................................................ $ 11,563 $ 10,094 $ 9,318
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of subsidiary bank ............. (8,896) (2,409) (4,809)
Decrease in other assets .............................. 24 2 13
-------- -------- --------
Net cash provided by operating activities ............... 2,691 7,687 4,522
-------- -------- --------
Cash Flows From Financing Activities:
Repurchase and retirement of common stock ................. (1,592) (4,698) (2,819)
Proceeds from exercise of stock options ................... 313 420 223
Cash dividends paid ....................................... (2,398) (2,180) (2,002)
Cash in lieu of fractional shares on 3-for-2 stock split .. (7) -- --
-------- -------- --------
Net cash used in financing activities ................... (3,684) (6,458) (4,598)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ...... (993) 1,229 (76)
Cash and cash equivalents, beginning of year .............. 3,646 2,417 2,493
-------- -------- --------
Cash and cash equivalents, end of year .................... $ 2,653 $ 3,646 $ 2,417
======== ======== ========
Supplemental Schedule of Noncash Financing Activities:
Tax benefit from exercise of employee stock options ....... $ 46 $ 35 $ 19
Cash dividends payable .................................... 1,415 1,200 1,099
* Cash and cash equivalents include the checking and money market accounts with
the Corporation's wholly-owned bank subsidiary.
61
NOTE O - QUARTERLY FINANCIAL DATA (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -------
(in thousands, except per share data)
2002
Interest income ....................... $ 8,804 $ 9,338 $ 9,460 $ 9,327 $36,929
Interest expense ...................... 1,218 1,254 1,347 1,292 5,111
Net interest income ................... 7,586 8,084 8,113 8,035 31,818
Provision for loan losses (credit) .... 100 50 (100) 50 100
Noninterest income .................... 1,329 1,479 1,319 1,361 5,488
Noninterest expense ................... 5,301 5,447 5,426 5,314 21,488
Income before income taxes ............ 3,514 4,066 4,106 4,032 15,718
Income taxes .......................... 866 1,099 1,112 1,078 4,155
Net income ............................ 2,648 2,967 2,994 2,954 11,563
Earnings per share:
Basic ............................... .63 .71 .72 .71 2.77
Diluted ............................. .62 .70 .71 .70 2.73
Comprehensive income .................. 2,264 5,433 4,477 2,375 14,549
2001
Interest income ....................... $ 9,881 $ 9,570 $ 9,524 $ 9,014 $37,989
Interest expense ...................... 3,127 2,494 2,281 1,549 9,451
Net interest income ................... 6,754 7,076 7,243 7,465 28,538
Provision for loan losses (credit) .... -- -- -- 100 100
Noninterest income .................... 1,280 1,385 1,281 1,003 4,949
Noninterest expense ................... 4,895 4,836 4,876 5,160 19,767
Income before income taxes ............ 3,139 3,625 3,648 3,208 13,620
Income taxes .......................... 804 975 974 773 3,526
Net income ............................ 2,335 2,650 2,674 2,435 10,094
Earnings per share:
Basic ............................... .54 .62 .63 .58 2.37
Diluted ............................. .53 .61 .62 .57 2.33
Comprehensive income .................. 2,938 2,458 3,613 1,395 10,404
62
[Grant Thornton Letterhead]
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
The First of Long Island Corporation
We have audited the accompanying consolidated balance sheet of The First of
Long Island Corporation and subsidiaries as of December 31, 2002, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of The First
of Long Island Corporation as of December 31, 2001, and for the two-year period
ended December 31, 2001, were audited by other auditors who have ceased
operations whose report dated January 22, 2002 expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The First of
Long Island Corporation as of December 31, 2002, and the consolidated results of
its operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
January 24, 2003
63
Official Staff
Administration
J. William Johnson
Chairman and Chief Executive Officer
Michael N. Vittorio
President
Arthur J. Lupinacci, Jr.
Executive Vice President
Lorraine Fogarty
Executive Assistant
Constance Miller
Executive Assistant
Auditing
Kitty W. Craig
Vice President
Margaret M. DeBonis
Assistant Vice President
Mathew Wallis
Administrative Assistant
Branch Administration
James Clavell
Vice President
Monica T. Baker
Assistant Vice President
Carole Ann Snayd
Assistant Vice President
JoAnn Diamond
Assistant Cashier
Leonora Mintz
Assistant Manager
Patricia Ovalle Wood
Assistant Manager
Sara Melamed
Administrative Assistant
Commercial Banking
Donald L. Manfredonia
Executive Vice President
Joseph G. Perri
Executive Vice President
Paul J. Daley
Senior Vice President
James P. Johnis
Senior Vice President
Albert Arena
Vice President
Stephen Durso
Vice President
MaryAnn Fiume
Vice President
Edward V. Mirabella
Vice President
64
William W. Riley
Vice President
John P. Solensky
Vice President
Margaret M. Curran
Assistant Vice President
Gretchen B. Nesky
Assistant Vice President
Frank Pelliccione
Assistant Vice President
Andrew W. Malone
Commercial Mortgage Originator
Maureen Cannarsa
Administrative Assistant
Diane Mucci
Executive Assistant
Compliance and Procedures
Wayne M. Sturges
Vice President
Computer Services
Conrad A. Lissade
Computer Services Manager
Data Center
Jose Diaz
Assistant Vice President
Kristen Mucci
Administrative Assistant
Linda Sue Rudloff
Administrative Assistant
Deposit Operations
Carmela Lalonde
Assistant Manager
Donna Long
Assistant Manager
Linda Bannen
Administrative Assistant
Neil Dastas
Administrative Assistant
Finance
Mark D. Curtis
Senior Vice President
Wayne B. Drake
Vice President
Howard Hoeberlein
Vice President
Matthew J. Mankowski
Assistant Vice President
Catherine Irvin
Assistant Manager
Cheryl Romanski
Assistant Manager
65
Diane Pascucci
Administrative Assistant
General Services
Daniel Sapanara
General Services Officer
Human Resources
Donna M. Kelly
Vice President
Takako Endo
Assistant Vice President
Susan J. Hempton
Assistant Vice President
Loan Center
Robert Jacobs
Assistant Vice President
John F. Darcy
Senior Mortgage Consultant
Frederick T. Hughes
Mortgage Originator
Eveline Ratte
Assistant Manager
Anna S. Fleming
Administrative Assistant
Veronica Gajkowski
Administrative Assistant
Barbara Johnson
Administrative Assistant
Patricia Lacorazza
Administrative Assistant
Marketing
Cathy M. Poturny
Assistant Vice President
Anne Urtnowski
Assistant Manager
Operations Administration
Richard Kick
Senior Vice President
Betsy Gustafson
Vice President
Counsel
Schupbach, Williams & Pavone LLP
Independent Auditors
Grant Thornton LLP
Form 10-K Report
A copy of the Corporation's annual report on Form 10-K for 2002, 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.
66
Executive Office
The First of Long Island Corporation
10 Glen Head Road
Glen Head, New York 11545
(516) 671-4900
www.fnbli.com
Transfer Agent and Registrar
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
(800) 368-5948
www.rtco.com
Annual Meeting Notice
The Annual Meeting of Stockholders will be held at the American Legion
Hall, 190 Glen Head Road, Glen Head, New York 11545 on Tuesday, April 15, 2003
at 3:30 P.M.
67
Business Development Board
[PHOTO OMITTED]
Robert J. Bogardt, CPA
Bogardt & Company, LLP
[PHOTO OMITTED]
Christopher S. Byczek, Esq.
Partner
Cronin & Byczek, LLP
[PHOTO OMITTED]
Louis Campanelli
Board Director
SCORE Foundation
[PHOTO OMITTED]
Emil V. Cianciulli, Esq.
Partner
Cianciulli & Meng, P.C.
[PHOTO OMITTED]
Thomas N. Dufek, CPA
Dufek & Associates
[PHOTO OMITTED]
William L. Edwards
Real Estate Investor
[PHOTO OMITTED]
C. J. Erickson, Esq.
Hodgson Russ LLP
[PHOTO OMITTED]
Bernard Esquenet
Chief Executive Officer
The Ruhof Corp.
[PHOTO OMITTED]
Leonard Gleicher
Partner
Goldberg Bros. Realtors
[PHOTO OMITTED]
Kenneth R. Going
GOING SIGN CO. Inc.
[PHOTO OMITTED]
Herbert Haber, Cpa
[PHOTO OMITTED]
Kevin J. Harding, Esq.
Partner
Harding and Harding
[PHOTO OMITTED]
Alan B. Katcher
Chief Executive Officer
Terry Alan Adv. Co., Inc.
68
[PHOTO OMITTED]
Kevin T. Kelly
Management Consultant
[PHOTO OMITTED]
Herbert Kotler, Esq.
[PHOTO OMITTED]
Kenneth R. Latham
Chairman of the Board
Latham Bros. Lumber Co., Inc.
[PHOTO OMITTED]
James J. Lynch, Esq.
[PHOTO OMITTED]
Susan Hirschfeld Mohr
President
J. W. Hirschfeld Agency, Inc.
[PHOTO OMITTED]
Richard E. Nussbaum, CPA
Managing Partner
Nussbaum Yates & Wolpow, P.C.
[PHOTO OMITTED]
James Panos, Esq.
Partner
Cianciulli & Meng, P.C.
[PHOTO OMITTED]
Douglas Pierce
President
Pierce Country Day School & Camp Inc.
[PHOTO OMITTED]
Quentin Sammis
President
Coldwell Banker Sammis
[PHOTO OMITTED]
Arthur C. Schupbach, Esq.
Partner
Schupbach, Williams & Pavone LLP
[PHOTO OMITTED]
H. Craig Treiber
Chairman/CEO
The Treiber Insurance Group
[PHOTO OMITTED]
Arthur Ventura
President
Badge Agency, Inc.
[PHOTO OMITTED]
Mark Wurzel
President
Calico Cottage, Inc.
Photos not available: David Black, CPA; Zachary Levy, Esq.; Lawrence F. Steiner
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Full Service Offices
Glen Head
10 Glen Head Road
Glen Head, NY 11545
(516) 671-4900
John J. Mulder, Jr.
Vice President and Branch Manager
Elaine Ballinger
Assistant Cashier
Patrice Goncalves
Administrative Assistant
Greenvale
7 Glen Cove Road
Greenvale, NY 11548
(516) 621-8811
Philip R. Thompson
Vice President and Branch Manager
Daphne Johnson
Assistant Manager
Huntington
253 New York Avenue
Huntington, NY 11743
(631) 427-4143
Rick Perro
Vice President and Branch Manager
Jenny Malandruccolo
Assistant Vice President
Margaret Hanrahan
Administrative Assistant
Marco Leon
Administrative Assistant
Locust Valley
108 Forest Avenue
Locust Valley, NY 11560
(516) 671-2299
John T. Noonan
Vice President and Branch Manager
Mary Lou Martin
Assistant Vice President
Carol Luzynski
Administrative Assistant
Northport
711 Fort Salonga Road
Northport, NY 11768
(631) 261-4000
Henry C. Suhr
Vice President and Branch Manager
David Lippa
Assistant Vice President
Janet Kittle
Administrative Assistant
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Old Brookville
209 Glen Head Road
Old Brookville, NY 11545
(516) 759-9002
Frank Plesche
Vice President and Branch Manager
Carolyn McIntyre
Assistant Vice President
Melissa Grella
Administrative Assistant
Rockville Centre
310 Merrick Road
Rockville Centre, NY 11570
(516) 763-5533
Raffaella Marciari
Vice President and Branch Manager
Theresa Crawford
Administrative Assistant
Roslyn Heights
130 Mineola Avenue
Roslyn Heights, NY 11577
(516) 621-1900
Frieda O'Mara
Vice President and Branch Manager
Susan Sciacca
Assistant Cashier
Lucile Pelliccione
Administrative Assistant
Woodbury
800 Woodbury Road
Woodbury, NY 11797
(516) 364-3434
George P. Knott
Vice President and Branch Manager
June Pipito
Assistant Vice President
Commercial Banking Offices
Allen Boulevard
22 Allen Boulevard
Farmingdale, NY 11735
(631) 753-8888
Patricia M. Gramble
Assistant Vice President and Branch Manager
Bohemia
30 Orville Drive
Bohemia, NY 11716
(631) 218-2500
Robert F. Covino
Vice President and Branch Manager
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Deer Park
60 E. Industry Court
Deer Park, NY 11729
(631) 243-2600
Albert M. Nordt, Jr.
Assistant Vice President and Branch Manager
Garden City
1050 Franklin Avenue
Garden City, NY 11530
(516) 742-6262
Elizabeth A. Materia
Assistant Vice President and Branch Manager
Great Neck
536 Northern Boulevard
Great Neck, NY 11021
(516) 482-6666
Janice B. Manditch
Assistant Vice President and Branch Manager
Joanne Bosco
Administrative Assistant
Hauppauge
330 Motor Parkway
Hauppauge, NY 11788
(631) 952-2900
Mark A. Ryan
Assistant Vice President and Branch Manager
Hicksville
106 Old Country Road
Hicksville, NY 11801
(516) 932-7150
Joyce C. Graber
Assistant Vice President and Branch Manager
Arlyne H. Kramer
Assistant Cashier
Lake Success
3000 Marcus Avenue
Lake Success, NY 11042
(516) 775-3133
Lucy Ortiz
Assistant Vice President and Branch Manager
Patricia Scrudato
Assistant Manager
Mineola
194 First Street
Mineola, NY 11501
(516) 742-1144
Herta Tscherne
Assistant Vice President and Branch Manager
Rosemary Kerrane
Assistant Manager
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New Highway
2091 New Highway
Farmingdale, NY 11735
(631) 454-2022
Barbara Cavalier
Assistant Vice President and Branch Manager
New Hyde Park
200 Jericho Turnpike
New Hyde Park, NY 11040
(516) 328-3100
Linda A. Cutter
Assistant Vice President and Branch Manager
Kathleen Martin
Assistant Manager
Valley Stream
133 E. Merrick Road
Valley Stream, NY 11580
(516) 825-0202
Peter J. Arebalo
Assistant Vice President and Branch Manager
Susan Costabile
Assistant Manager
Investment Management Division
800 Woodbury Road
Woodbury, NY 11797
(516) 364-3436
Brian J. Keeney
Senior Vice President
Robert M. Heyssel, Jr.
Vice President
Francis V. Liantonio
Vice President
Sharon E. Pazienza
Vice President
Joanne Buckley
Assistant Vice President
Quyen T. Pham
Operations Manager
Dawn LoBraico
Administrative Assistant
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