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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _________________ to _________________
Commission file number 0-12220
THE FIRST OF LONG ISLAND CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
NEW YORK 11-2672906
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
10 Glen Head Road, Glen Head, New York 11545
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (516) 671-4900
Not Applicable
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 4, 2003
- ----- -----------------------------
Common stock, par value 4,078,392
$.10 per share
THE FIRST OF LONG ISLAND CORPORATION
JUNE 30, 2003
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2003 And December 31, 2002 1
Consolidated Statements Of Income
Six and Three Months Ended June 30, 2003 And 2002 2
Consolidated Statements Of Changes In
Stockholders' Equity
Six Months Ended June 30, 2003 And 2002 3
Consolidated Statements Of Cash Flows
Six Months Ended June 30, 2003 And 2002 4
Notes To Consolidated Financial Statements 5
Item 2. Management's Discussion And Analysis Of
Financial Condition And Results Of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters To A Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
ITEM 1. - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2003 2002
------------- -------------
Assets:
Cash and due from banks ....................................... $ 32,566,000 $ 33,229,000
Federal funds sold ............................................ 59,000,000 34,000,000
------------- -------------
Cash and cash equivalents ................................... 91,566,000 67,229,000
------------- -------------
Investment securities:
Held-to-maturity, at amortized cost (fair
value of $272,313,000 and $282,438,000) ............. 264,889,000 273,102,000
Available-for-sale, at fair value (amortized cost
of $190,583,000 and $173,794,000) ................... 198,514,000 180,406,000
------------- -------------
463,403,000 453,508,000
------------- -------------
Loans:
Commercial and industrial .............................. 41,530,000 37,329,000
Secured by real estate ................................. 228,200,000 217,730,000
Consumer ............................................... 5,746,000 6,414,000
Other .................................................. 528,000 628,000
------------- -------------
276,004,000 262,101,000
Unearned income ........................................ (893,000) (993,000)
------------- -------------
275,111,000 261,108,000
Allowance for loan losses .............................. (2,222,000) (2,085,000)
------------- -------------
272,889,000 259,023,000
------------- -------------
Bank premises and equipment, net .............................. 6,908,000 6,398,000
Prepaid income taxes .......................................... 215,000 --
Other assets .................................................. 6,175,000 6,184,000
------------- -------------
$ 841,156,000 $ 792,342,000
============= =============
Liabilities:
Deposits:
Checking ............................................... $ 278,013,000 $ 256,444,000
Savings and money market ............................... 432,849,000 412,815,000
Time, other ............................................ 17,524,000 17,359,000
Time, $100,000 and over ................................ 19,481,000 13,107,000
------------- -------------
747,867,000 699,725,000
Accrued expenses and other liabilities ........................ 3,770,000 4,492,000
Current income taxes payable .................................. -- 289,000
Deferred income taxes payable ................................. 2,813,000 2,394,000
------------- -------------
754,450,000 706,900,000
------------- -------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 4,074,571 and 4,161,173 shares .... 407,000 416,000
Surplus ....................................................... 965,000 724,000
Retained earnings ............................................. 80,572,000 80,354,000
------------- -------------
81,944,000 81,494,000
Accumulated other comprehensive income net of tax ............. 4,762,000 3,948,000
------------- -------------
86,706,000 85,442,000
------------- -------------
$ 841,156,000 $ 792,342,000
============= =============
See notes to consolidated financial statements
1
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended June 30, Three Months Ended June 30,
---------------------------- ---------------------------
2003 2002 2003 2002
----------- ------------ ---------- -----------
Interest income:
Loans ....................................................... $ 9,017,000 $ 8,209,000 $4,214,000 $ 4,232,000
Investment securities:
Taxable ................................................. 5,818,000 6,677,000 2,720,000 3,455,000
Nontaxable .............................................. 3,047,000 2,895,000 1,543,000 1,457,000
Federal funds sold .......................................... 310,000 361,000 190,000 194,000
----------- ------------ ---------- -----------
18,192,000 18,142,000 8,667,000 9,338,000
----------- ------------ ---------- -----------
Interest expense:
Savings and money market deposits ........................... 1,788,000 2,122,000 849,000 1,094,000
Time deposits ............................................... 231,000 350,000 117,000 160,000
----------- ------------ ---------- -----------
2,019,000 2,472,000 966,000 1,254,000
----------- ------------ ---------- -----------
Net interest income ..................................... 16,173,000 15,670,000 7,701,000 8,084,000
Provision for loan losses ....................................... 150,000 150,000 75,000 50,000
----------- ------------ ---------- -----------
Net interest income after provision for loan losses ............. 16,023,000 15,520,000 7,626,000 8,034,000
----------- ------------ ---------- -----------
Noninterest income:
Investment Management Division income ....................... 618,000 566,000 298,000 282,000
Service charges on deposit accounts ......................... 1,795,000 1,905,000 906,000 1,010,000
Net gains (losses) on sales of available-for-sale
securities ................................................ 233,000 (12,000) 110,000 (12,000)
Other ....................................................... 356,000 349,000 203,000 199,000
----------- ------------ ---------- -----------
3,002,000 2,808,000 1,517,000 1,479,000
----------- ------------ ---------- -----------
Noninterest expense:
Salaries .................................................... 5,128,000 4,852,000 2,616,000 2,459,000
Employee benefits ........................................... 2,362,000 2,173,000 1,169,000 1,121,000
Occupancy and equipment expense ............................. 1,628,000 1,500,000 794,000 756,000
Other operating expenses .................................... 2,439,000 2,223,000 1,293,000 1,111,000
----------- ------------ ---------- -----------
11,557,000 10,748,000 5,872,000 5,447,000
----------- ------------ ---------- -----------
Income before income taxes .............................. 7,468,000 7,580,000 3,271,000 4,066,000
Income tax expense .............................................. 1,865,000 1,965,000 761,000 1,099,000
----------- ------------ ---------- -----------
Net income .............................................. $ 5,603,000 $ 5,615,000 $2,510,000 $ 2,967,000
=========== ============ ========== ===========
Weighted average:
Common shares ............................................... 4,092,547 4,184,331 4,068,770 4,182,222
Dilutive stock options ...................................... 81,035 47,856 78,927 47,805
----------- ------------ ---------- -----------
4,173,582 4,232,187 4,147,697 4,230,027
=========== ============ ========== ===========
Earnings per share:
Basic ....................................................... $ 1.37 $ 1.34 $ .62 $ .71
=========== ============ ========== ===========
Diluted ..................................................... $ 1.34 $ 1.32 $ .60 $ .70
=========== ============ ========== ===========
See notes to consolidated financial statements
2
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------------------------
Six Months Ended June 30, 2003
----------------------------------------------------------------------------------------------
Accumulated
Other
Common Stock Compre- Compre-
----------------------- hensive Retained hensive
Shares Amount Surplus Income Earnings Income Total
--------- ----------- ----------- ----------- ------------ ------------ ------------
Balance, January 1, 2003 .......... 4,161,173 $ 416,000 $ 724,000 $ 80,354,000 $ 3,948,000 $ 85,442,000
Net Income ...................... $ 5,603,000 5,603,000 5,603,000
Repurchase and retirement
of common stock ............... (122,085) (12,000) (4,352,000) (4,364,000)
Exercise of stock options ....... 35,483 3,000 536,000 539,000
Tax benefit of stock options .... 57,000 57,000
Cash dividends declared -
$.34 per share ................ (1,385,000) (1,385,000)
Unrealized gains on available-
for-sale-securities, net of
income taxes ................ 814,000 814,000 814,000
Transfer from retained
earnings to surplus ........... 4,000,000 (4,000,000) --
-----------
Comprehensive income ............ $ 6,417,000
--------- ----------- ----------- =========== ------------ ----------- ------------
Balance, June 30, 2003 ............ 4,074,571 $ 407,000 $ 965,000 $ 80,572,000 $ 4,762,000 $ 86,706,000
========= =========== =========== ============ =========== ============
----------------------------------------------------------------------------------------------
Six Months Ended June 30, 2002
----------------------------------------------------------------------------------------------
Accumulated
Other
Common Stock Compre- Compre-
----------------------- hensive Retained hensive
Shares Amount Surplus Income Earnings Income Total
--------- ----------- ----------- ----------- ------------ ------------ ------------
Balance, January 1, 2002 .......... 2,792,902 $ 279,000 $ 955,000 $ 72,550,000 $ 962,000 $ 74,746,000
Net Income ...................... $ 5,615,000 5,615,000 5,615,000
Repurchase and retirement
of common stock ............... (18,223) (2,000) (723,000) (725,000)
Exercise of stock options ....... 9,064 1,000 136,000 137,000
Tax benefit of stock options .... 12,000 12,000
Cash dividends declared -
$.29 per share ................ (1,197,000) (1,197,000)
3-for-2 stock split ............. 1,391,870 139,000 (139,000) --
Unrealized gains on available-
for-sale-securities, net of
income taxes ................ 2,082,000 2,082,000 2,082,000
-----------
Comprehensive income ............ $ 7,697,000
--------- ----------- ----------- =========== ------------ ----------- ------------
Balance, June 30, 2002 ............ 4,175,613 $ 417,000 $ 380,000 $ 76,829,000 $ 3,044,000 $ 80,670,000
========= =========== =========== ============ =========== ============
See notes to consolidated financial statements
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
------------------------------
2003 2002
------------ ------------
Cash Flows From Operating Activities:
Net income ............................................................ $ 5,603,000 $ 5,615,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses ........................................... 150,000 150,000
Deferred income tax credit .......................................... (86,000) (12,000)
Depreciation and amortization ....................................... 635,000 639,000
Premium amortization on investment securities, net .................. 2,352,000 1,274,000
Losses (gains) on sales of available-for-sale securities ............ (233,000) 12,000
Decrease (increase) in prepaid income taxes ......................... (215,000) 1,000
Decrease (increase) in other assets ................................. 9,000 (183,000)
Decrease in accrued expenses and other liabilities .................. (693,000) (298,000)
Increase (decrease) in income taxes payable ......................... (232,000) 237,000
------------ ------------
Net cash provided by operating activities ......................... 7,290,000 7,435,000
------------ ------------
Cash Flows From Investing Activities:
Proceeds from sales of available-for-sale securities .................. 237,000 687,000
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity .................................................... 50,295,000 71,196,000
Available-for-sale .................................................. 35,006,000 4,431,000
Purchase of investment securities:
Held-to-maturity .................................................... (43,946,000) (49,657,000)
Available-for-sale .................................................. (52,287,000) (43,522,000)
Net increase in loans to customers .................................... (14,015,000) (19,576,000)
Purchases of bank premises and equipment .............................. (1,145,000) (178,000)
Proceeds from sale of equipment ....................................... -- 3,000
------------ ------------
Net cash used in investing activities ............................. (25,855,000) (36,616,000)
------------ ------------
Cash Flows From Financing Activities:
Net increase in total deposits ........................................ 48,142,000 68,498,000
Proceeds from exercise of stock options ............................... 539,000 137,000
Repurchase and retirement of common stock ............................. (4,364,000) (725,000)
Cash dividends paid ................................................... (1,415,000) (1,200,000)
------------ ------------
Net cash provided by financing activities ......................... 42,902,000 66,710,000
------------ ------------
Net increase in cash and cash equivalents ............................... 24,337,000 37,529,000
Cash and cash equivalents, beginning of year ............................ 67,229,000 55,209,000
------------ ------------
Cash and cash equivalents, end of period ................................ $ 91,566,000 $ 92,738,000
============ ============
Supplemental Schedule of Noncash:
Investing Activities
Unrealized gains on available-for-sale securities ..................... $ 1,319,000 $ 3,478,000
Writeoff of premises and equipment against reserve .................... -- 60,000
Financing Activities
Cash dividends payable ................................................ 1,385,000 1,197,000
Tax benefit from exercise of employee stock options ................... 57,000 12,000
The Corporation made interest payments of $2,036,000 and $2,497,000 and income
tax payments of $2,398,000 and $1,738,000 during the first six months of 2003
and 2002, respectively.
See notes to consolidated financial statements
4
THE FIRST OF LONG ISLAND CORPORATION AND SUBSIDIARY
JUNE 30, 2003
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accounting and reporting policies of the Corporation reflect banking
industry practice and conform to generally accepted accounting principles in the
United States. 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 and the disclosure of
contingent assets and liabilities. Actual results could differ significantly
from those estimates. The results of operations for the six-month period ended
June 30, 2003 are not necessarily indicative of the results to be expected for
the full year.
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") (collectively referred to as the
"Corporation"). The Corporation's financial condition and operating results
principally reflect those of the Bank. All intercompany balances and amounts
have been eliminated. For further information refer to the consolidated
financial statements and notes thereto included in the Corporation's Annual
Report on Form 10-K for the year ended December 31, 2002.
The consolidated financial information included herein as of and for the
periods ended June 30, 2003 and 2002 is unaudited; however, such information
reflects all adjustments which are, in the opinion of management, necessary for
a fair statement of results for the interim periods. The December 31, 2002
consolidated balance sheet was derived from the Corporation's December 31, 2002
audited consolidated financial statements.
2. STOCK-BASED COMPENSATION
At June 30, 2003, the Corporation had two stock option and appreciation
rights plans. 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 periodically 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.
5
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.
Six Months Ended
------------------------
6/30/03 6/30/02
--------- ---------
(in thousands)
Net income, as reported .......................... $ 5,603 $ 5,615
Deduct: Total cost of stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects ................. (160) (108)
--------- ---------
Pro forma net income ............................. $ 5,443 $ 5,507
========= =========
Earnings per share:
Basic - as reported ............................ $ 1.37 $ 1.34
Basic - pro forma .............................. $ 1.33 $ 1.32
Diluted - as reported .......................... $ 1.34 $ 1.32
Diluted - pro forma ............................ $ 1.31 $ 1.30
3. NEW ACCOUNTING PRONOUNCEMENTS
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 ("FIN No. 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." The Corporation adopted the disclosure provisions of FIN No. 45 in the
fourth quarter of 2002 and, for guarantees issued or modified after December 31,
2002, adopted the initial recognition and measurement provisions on January 1,
2003. Adoption of the initial recognition and measurement provisions did not
impact the Corporation's financial condition or results of operations at or for
the six months ended June 30, 2003.
While certain guarantees are only subject to the disclosure provisions of
this Interpretation, others are subject to both the disclosure and initial
recognition and measurement provisions. For guarantees that fall within the
scope of the initial recognition and measurement provisions, FIN No. 45 requires
a guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. Under the
previous accounting rules, the Bank did not record a liability when guaranteeing
obligations unless it became probable that the Bank would have to perform under
the guarantee.
The Bank issues financial and performance standby letters of credit, both
of which are subject to the disclosure and initial recognition and measurement
provisions of FIN No. 45. Financial and performance standby letters of credit
are conditional commitments issued by the Bank to assure the financial and
performance obligations of a customer to a third party. At June 30, 2003, the
Bank was contingently liable on financial and performance standby letters of
credit totaling $2,580,000 and $86,000, respectively, $1,993,000 of which were
originated in the first six months of this year. The Bank's commitments under
standby letters of credit expire at various dates through June 2004; however,
some are effectively automatically renewable. The Bank generally holds
collateral and/or obtains personal guarantees supporting these commitments. The
extent of collateral held for these commitments at June 30, 2003 varied from 0%
to 100%, and on a weighted average basis was 81%. In the event that the Bank is
required to fulfill its
6
contingent liability under a standby letter of credit, it could liquidate the
collateral held if any and/or enforce the personal guarantee(s) held, if any, to
recover all or a portion of the amount paid under the letter of credit.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN No.
46"). FIN No. 46, which is an interpretation of Accounting Research Bulletin No.
51, "Consolidated Financial Statements", addresses the accounting and reporting
for variable interest entities, as defined. FIN No. 46 is not currently
applicable to the Corporation.
In April 2003, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 149 "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149 is
generally effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. All provisions of
this Statement shall be applied prospectively. Based on the Corporation's
current business operations, management expects that the provisions of SFAS No.
149 will not materially impact the Corporation's financial condition, results of
operations, or disclosures.
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS No.
150"). SFAS No. 150 is generally effective for financial instruments entered
into or modified after May 31, 2003, and otherwise effective at the beginning of
the first interim period beginning after June 15, 2003. Based on the
Corporation's current business operations, management expects that the
provisions of SFAS No. 150 will not impact the Corporation's financial
condition, results of operations, or disclosures.
7
ITEM 2. - 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 has
historically been Nassau and Suffolk Counties, Long Island. However, the Bank
opened three new commercial banking branches in Manhattan in the most recent
quarter.
Overview
The Corporation earned $1.34 per share for the first half of 2003 as
compared to $1.32 for the same period last year. Based on net income of
5,603,000, the Corporation returned 1.40% on average total assets ("ROA") and
13.26% on average total equity ("ROE"). This compares to returns on assets and
equity of 1.58% and 14.65%, respectively, for the first half of last year. Total
assets and deposits each grew by approximately 11% when comparing balances at
June 30, 2003 to those at June 30, 2002, and total capital before unrealized
gains and losses on available-for-sale securities grew by approximately 6%. The
Corporation's capital ratios continue to substantially exceed the current
regulatory criteria for a well-capitalized bank.
The most significant items positively affecting earnings for the six
months were a 14% increase in average checking balances and an unusually large
commercial mortgage prepayment fee received in the first quarter; the prepayment
fee, the recurrence of which is unlikely, is equivalent to approximately 8 cents
per share. In addition, the fee added .09% to ROA and .80% to ROE for the six
months ended June 30, 2003. Other important factors also favorably impacting
earnings were gains on sales of equity securities and continued growth in money
market type savings balances and residential mortgages.
Overwhelmingly, the most negative influence on earnings is the effects of
the severe decline in interest rates. On a sequential quarter-to-quarter basis,
after a modest uptick in the first quarter, net interest margin continued to
decrease. As we have cautioned in the past, sustained lower interest rates
should exacerbate the decline in our net interest margin and further negatively
impact our income. Also adversely affecting earnings, especially in the second
quarter, were expenses of our growth strategies, particularly the opening of our
three New York City branches.
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.
8
Six Months Ended June 30,
-------------------------------------------------------------------------------
2003 2002
------------------------------------- -------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------- -------- ------- --------- -------- -------
(dollars in thousands)
Assets
Federal funds sold .................. $ 52,725 $ 310 1.19% $ 42,601 $ 361 1.71%
Investment Securities:
Taxable ........................... 292,519 5,818 4.01 273,973 6,677 4.91
Nontaxable (1) .................... 149,999 4,617 6.16 125,626 4,386 6.98
Loans (1)(2) ........................ 266,223 9,023 6.83 234,256 8,218 7.07
--------- -------- ---- --------- -------- ----
Total interest-earning assets ....... 761,466 19,768 5.22 676,456 19,642 5.84
-------- ---- -------- ----
Allowance for loan losses ........... (2,136) (2,085)
--------- ---------
Net interest-earning assets ......... 759,330 674,371
Cash and due from banks ............. 33,341 30,670
Premises and equipment, net ......... 6,394 6,866
Other assets ........................ 5,413 5,924
--------- ---------
$ 804,478 $ 717,831
========= =========
Liabilities and
Stockholders' Equity
Savings and money market deposits ... $ 418,414 1,788 0.86 $ 371,447 2,122 1.15
Time deposits ....................... 33,220 231 1.40 34,891 350 2.02
--------- -------- ---- --------- -------- ----
Total interest-bearing deposits ..... 451,634 2,019 0.90 406,338 2,472 1.23
--------- -------- ---- --------- -------- ----
Checking deposits (3) ............... 261,838 230,575
Other liabilities ................... 5,788 3,623
--------- ---------
719,260 640,536
Stockholders' equity ................ 85,218 77,295
--------- ---------
$ 804,478 $ 717,831
========= =========
Net interest income (1) ............. $ 17,749 $ 17,170
======== ========
Net interest spread (1) ............. 4.32% 4.61%
==== ====
Net interest margin (1) ............. 4.70% 5.12%
==== ====
(1) Tax-equivalent basis. Interest income on a tax-equivalent basis includes
the additional amount of interest income that would have been earned if
the Corporation's investment in tax-exempt loans and investment securities
had been made in loans and investment securities subject to Federal income
taxes yielding the same after-tax income. The tax-equivalent amount of
$1.00 of nontaxable income was $1.52 in each period presented, based on a
Federal income tax rate of 34%.
(2) For the purpose of these computations, nonaccruing loans are included in
the daily average loan amounts outstanding.
(3) Includes official check and treasury tax and loan balances.
As can be seen from the above table, net interest margin declined by .42%
when comparing the first half of 2003 to the same period last year. This decline
in net interest margin, when applied to average total interest-earning assets of
approximately $761 million for the first half of 2003, negatively impacted net
interest income by approximately $1.6 million. Also shown in the table is a
decline in net interest spread of .29% resulting from a decrease in the yield on
interest-earning assets of .62% accompanied by a less than offsetting decrease
in the cost of total interest-bearing deposits of .33%.
9
It should be noted that during the first quarter of 2003 the Bank
collected a $564,000 prepayment fee on one commercial mortgage. This fee, the
recurrence of which is unlikely, is included in interest income on loans. The
fee added .15% to net interest margin for the first half of 2003, .13% to net
interest spread, and .43% to loan yield.
The fundamental reason for the decreases in net interest margin and spread
was the very low interest rate environment. Proceeds from the maturity,
amortization, and prepayment of assets, primarily securities and loans, were
reinvested at lower rates and variable rate loans adjusted to lower rates. To
the extent that such assets were funded by noninterest-bearing checking deposits
and capital, there was no offsetting cost reduction. To the extent that such
assets were funded by interest-bearing deposits, there was a reduction in the
cost of such deposits but such reduction was not totally offsetting.
Rate/Volume Analysis. The following table sets forth the effect of changes
in volumes, changes in rates, and changes in rate/volume on tax-equivalent
interest income, interest expense and net interest income.
Six Months Ended June 30,
-------------------------------------------
2003 Versus 2002
Increase (decrease) due to changes in:
-------------------------------------------
Rate/ Net
Volume Rate Volume (2) Change
------- ------- ---------- ------
(in thousands)
Interest Income:
Federal funds sold ............. $ 86 $ (111) $ (26) $ (51)
Investment securities:
Taxable ...................... 452 (1,228) (83) (859)
Nontaxable (1) ............... 851 (519) (101) 231
Loans (1) ...................... 1,121 (278) (38) 805
------- ------- ----- -----
Total interest income .......... 2,510 (2,136) (248) 126
------- ------- ----- -----
Interest Expense:
Savings and money
market deposits .............. 268 (535) (67) (334)
Time deposits .................. (17) (107) 5 (119)
------- ------- ----- -----
Total interest expense ......... 251 (642) (62) (453)
------- ------- ----- -----
Increase (decrease) in net
interest income .............. $ 2,259 $(1,494) $(186) $ 579
======= ======= ===== =====
(1) Tax-equivalent basis.
(2) Represents the change not solely attributable to change in rate or change
in volume but a combination of these two factors.
Net interest income on a tax-equivalent basis increased by $579,000, or
3.4%, from $17,170,000 for the first half of 2002 to $17,749,000 for the first
half of this year. As can be seen from the above rate/volume analysis, the
increase is primarily comprised of a positive volume variance of $2,259,000 and
a negative rate variance of $1,494,000. It should be noted that without the
large commercial mortgage prepayment fee previously discussed, net interest
income on a tax-equivalent basis would have been virtually flat when comparing
the six month periods and the negative rate variance for loans would have been
$564,000 higher.
10
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 the first
half of 2003 to the same period last year, average checking deposits increased
by $31,263,000, or approximately 14%. 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 type deposit balances and the use of such funds to
purchase investment securities and originate loans. When comparing the first
half of 2003 to the same period last year, average savings and money market
deposit balances increased by $46,967,000, or almost 13%. Although the largest
components of this increase were growth in "Select Savings", a statement savings
account that earns a higher money market rate, and nonpersonal money market
accounts, the Bank also experienced nice growth in traditional savings, IOLA
(interest on lawyer) accounts, and escrow service accounts.
The Bank's new business program is a significant factor that favorably
impacted the growth in average checking balances. 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. 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.
Rate Variance. Interest rates began to decline in early 2001. By the end
of the year, short-term interest-rates had fallen significantly as evidenced by
a reduction in both the federal funds target rate and the Bank's prime lending
rate of 4.75%. 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%. 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. In addition, the largest portion of the decrease occurred
in the latter half of the year. During the first half of 2003, longer-term rates
continued to erode. In addition, in late June 2003, the federal funds target
rate and the Bank's prime lending rate were reduced further, by an additional
..25%. Although both short and long-term rates are now at extremely low levels,
they could still decline even further.
As a result of the sharp decrease in interest rates, net interest margin
trended downward during the latter half of 2002 as interest-earning assets
repriced at lower yields and proceeds from the maturity, amortization and
prepayment of such assets were reinvested at lower yields without an equal and
offsetting reduction in the cost of funds. Excluding the effect of the large
prepayment fee, there was a modest uptick in net interest margin for the first
quarter of 2003 followed by a continuation of the downward trend for the second
quarter. It should be noted that a portion of the decline in the Bank's net
interest margin was caused by an acceleration of prepayments on mortgage
securities and the resulting need to amortize premiums on these securities
faster.
If available yields remain at relatively low levels or decrease even
further, and assets continue to reprice and be reinvested at lower yields
without an offsetting reduction in the cost of funds, the Bank's net interest
margin will continue downward which trend could
11
become more severe. In addition, the rate variance as depicted in the preceding
table should become more negative. This obviously exerts a great deal of
pressure on earnings.
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, 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 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 include nonaccruing loans, foreclosed real estate, loans that are
contractually past due 90 days or more as to principal or interest payments and
still accruing and troubled debt restructurings. These assets present more than
the normal risk that the Corporation will be unable to eventually collect or
realize their full carrying value. The Corporation's risk elements at June 30,
2003 and December 31, 2002 are as follows:
June 30, December 31,
2003 2002
-------- ------------
(dollars in thousands)
Nonaccruing loans .................................... $ 97 $ --
Foreclosed real estate ............................... -- --
---- -----
Total nonperforming assets ......................... 97 --
Troubled debt restructurings ......................... 7 --
Loans past due 90 days or more as to
principal or interest payments and still accruing .. 19 2
---- -----
Total risk elements ................................ $123 $ 2
==== =====
Nonaccruing loans as a percentage of total loans ..... .04% .00%
==== =====
Nonperforming assets as a percentage of total loans
and foreclosed real estate ......................... .04% .00%
==== =====
Risk elements as a percentage of total loans and
foreclosed real estate ............................. .04% .00%
==== =====
Allowance and Provision For Loan Losses
The allowance for loan losses grew by $137,000 during the first half of
2003, amounting to $2,222,000 at June 30, 2003 as compared to $2,085,000 at
December 31, 2002. The allowance represented approximately .8% of total loans at
both dates. During the first six months of 2003, the Bank had loan chargeoffs
and recoveries of $27,000 and $14,000, respectively, and recorded a $150,000
provision for loan losses.
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
12
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.
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
June 30, 2003. 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 good 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.
Future provisions and chargeoffs could also be affected by environmental
impairment of properties securing the Bank's mortgage loans. Environmental
audits for commercial mortgages were instituted by the Bank in 1987. Under the
Bank's current policy, an environmental audit is required on practically all
commercial-type properties that are considered for a mortgage loan. At the
present time, the Bank is not aware of any existing loans in the portfolio where
there is environmental pollution originating on the mortgaged properties that
would materially affect the value of the portfolio.
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. When
comparing the first six months of 2003 to the same period last year, noninterest
income increased by $194,000, or 6.9%. The increase is primarily comprised of
gains on sales of available-for-sale equity securities of $233,000 during the
first half of 2003 as partially offset by a $110,000 decrease in service charges
on deposit accounts. The decrease in service charges is believed to be partially
attributable to the
13
fact that in a low interest rate environment customers tend to keep higher
balances and thereby incur lower service 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 increased by
$809,000, or 7.5%, from $10,748,000 for the first half of 2002 to 11,557,000 for
the same period this year. The increase is comprised of an increase in salaries
of $276,000, an increase in employee benefits expense of $189,000, an increase
in occupancy and equipment expense of $128,000, and an increase in other
operating expenses of $216,000.
The increase in salaries is primarily attributable to normal annual salary
increases. The increase in employee benefit expense is largely attributable to
increases in retirement plan expense and the cost of group health insurance. The
increase in occupancy and equipment expense was principally caused by increases
in rent expense and maintenance costs. The largest component of the increase in
other operating expenses is an increase in general insurance expense due
primarily to conditions in the insurance marketplace and increased levels of
liability coverage. In addition, a portion of the increase in each category of
expense resulted from the Bank's three new commercial banking branches in
Manhattan.
Income tax expense as a percentage of book income ("effective tax rate")
was 25.0% for the first half of 2003 as compared to 25.9% for the same period
last year. These percentages vary from the statutory Federal income tax rate of
34% primarily because of state income taxes and tax-exempt interest on municipal
securities. The decrease in the Bank's effective tax rate is largely
attributable to the fact that income on tax-exempt securities became a larger
component of the Bank's gross income.
Results of Operations - Three Months Ended June 30, 2003 Versus June 30, 2002
Net income for the second quarter of 2003 was $2,510,000, or $.60 per
share, as compared to $2,967,000, or $.70 per share, earned for the same quarter
last year. The decrease in net income is largely comprised of a decrease in net
interest income of $383,000 and an increase in noninterest expense of $425,000.
Despite very good growth in checking balances and money market type
savings balances, net interest income declined because of the decrease in
interest rates and the resulting negative impact on net interest margin. Net
interest income was more adversely affected by low interest rates in the second
quarter of 2003 than the first. First quarter 2003 net interest margin was
significantly helped by the large commercial mortgage prepayment fee previously
discussed and the .50% reduction in the federal funds rate in December 2002. The
rate cut produced a short-term benefit because the Bank has more liabilities
than assets subject to immediate repricing with changes in short-term interest
rates.
The increase in noninterest expense is largely comprised of increases in
salaries and other operating expenses. The increase in salaries is primarily
attributable to normal annual salary increases. The largest components of the
increase in other operating expenses are increases in general insurance expense
and marketing expense. The reasons for the increase in general insurance expense
are the same as those discussed with respect to the six month periods. A portion
of the increase in both salaries and other operating expenses resulted from the
Bank's three new commercial banking branches in Manhattan.
14
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 27.85%, 27.11% and 10.06%, respectively, at June 30,
2003 substantially exceed the requirements for a well-capitalized bank.
Total stockholders' equity increased by $1,264,000, or from $85,442,000 at
December 31, 2002 to $86,706,000 at June 30, 2003. Net income for the first half
of 2003 was the largest contributor to the growth in stockholders' equity.
However, amounts expended for share repurchases largely offset the contribution
made by net income.
Stock Repurchase Program. Since 1988, the Corporation has had a stock
repurchase program under which it can purchase, from time to time, shares of its
own common stock in market or private transactions. During the first half of
2003, the Corporation purchased 122,085 shares under plans approved by the Board
of Directors in 2002 and during the first quarter of 2003. Including a 50,000
share plan approved in April 2003, the Corporation is authorized to purchase
60,957 shares.
The stock repurchase program has been used by management to enhance
earnings per share. When comparing the first six months of 2003 to the same
period last year, earnings per share are up 2 cents. Without the impact of the
shares purchased in 2002 and thus far this year, earnings would have been flat.
On a full-year basis, these repurchases should add approximately 6 cents to
earnings per share.
Market Liquidity. Trading in the Corporation's common stock is limited.
The total trading volume for the twelve months ended June 30, 2003 as reported
by Nasdaq was 1,273,584 shares, with an average daily volume of 5,054 shares.
During this same twelve month period, the Corporation purchased 147,598 shares
under its share repurchase program, 123,900 of which were purchased in market
transactions. These market purchases represent approximately 9.7% of the total
trading volume reported by Nasdaq. Although the Corporation has had a stock
repurchase program since 1988, if the Company reduces or 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 most 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 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.
15
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. At the July 1, 2003 reconstitution date, the Corporation's common stock
was once again included in the Russell 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.
Cash Flows and Liquidity
Cash Flows. During the first half of 2003, cash and cash equivalents
increased by $24,337,000. This occurred primarily because the cash provided from
maturities and pay downs of investment securities, checking growth, money market
type deposit growth, and operations exceeded the cash used for loan and
securities portfolio growth and share repurchases.
Liquidity. The Corporation's primary sources of liquidity are its
overnight position in federal funds sold; its short-term investment securities
portfolio which generally consists of securities purchased to mature within two
years and securities with 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. In addition, the Corporation has the ability to borrow on a
secured and/or an unsecured basis to meet liquidity needs.
At June 30, 2003, the Corporation had $59,000,000 in federal funds sold, a
short-term securities portfolio not subject to pledge agreements of
$134,679,000, and longer-term available-for-sale securities not subject to
pledge agreements of $122,138,000. The Corporation's liquidity is enhanced by
its stable deposit base which primarily consists of checking, savings, and money
market accounts. Such accounts comprised 95.1% of total deposits at June 30,
2003, while time deposits of $100,000 and over and other time deposits comprised
only 2.6% and 2.3%, respectively.
The Bank attracts all of its deposits through its banking offices
primarily from the communities in which those banking offices are located and
does not rely on brokered deposits. In addition, the Bank has not historically
relied on purchased or borrowed funds as sources of liquidity.
Legislation
Commercial checking deposits currently account for approximately 28% of
the Bank's total deposits. Congress is considering legislation that would allow
corporate customers to cover checks by sweeping funds from interest-bearing
deposit accounts each business day and repeal the prohibition of the payment of
interest on corporate checking deposits in the future. Although management
currently believes that the Bank's earnings could be more severely impacted by
permitting the payment of interest on corporate checking deposits than the daily
sweeping of funds from interest-bearing accounts to cover checks, either could
have a material adverse impact on the Bank's future results of operations.
Forward Looking Statements
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" contains various forward-looking statements with respect to
financial
16
performance and business matters. Such statements are generally contained in
sentences including the words "expect" or "could" or "should" or "would" or
"believe". 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Bank invests in interest-earning assets which are funded by
interest-bearing deposits, noninterest-bearing deposits, and capital. The Bank's
results of operations are subject to risk resulting from interest rate
fluctuations generally and having assets and liabilities that have different
maturity, repricing, and prepayment/withdrawal characteristics. The Bank defines
interest rate risk as the risk that the Bank's earnings and/or net portfolio
value will change when interest rates change. The principal objective of the
Bank's asset/liability management activities is to maximize net interest income
while at the same time 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 at lower yields and loans are originated
or repriced at lower yields, the impact on net interest income should be
negative because 41% 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, the prime lending rate, and other short-term
market rates, 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.
It is believed that the Corporation's interest rate risk profile has not
changed materially since December 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
17
The Company's Chief Executive Officer, J. William Johnson, and Chief
Financial Officer, Mark D. Curtis, have evaluated the Corporation's disclosure
controls and procedures as of the end of the period covered by this report.
Based upon that evaluation, they have concluded that these controls and
procedures are effective in ensuring that material information related to the
Corporation is made known to them by others within the Corporation.
(b) Changes in Internal Control Over Financial Reporting
There have been no significant changes in internal control over financial
reporting that occurred during the fiscal quarter covered by this report that
have materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time the Corporation and the Bank may be involved in
litigation that arises in the normal course of business. As of the date of this
Form 10-Q, neither the Corporation nor the Bank is a party to any litigation
that management believes could reasonably be expected to have a material adverse
effect on the Corporation's or the Bank's financial position or results of
operations for an annual period.
Item 4. Submission Of Matters To A Vote Of Security Holders
The Annual Meeting of Stockholders of The First of Long Island Corporation
(the "Corporation") held April 15, 2003 was called to elect five directors to
serve for two-year terms and until their successors have been elected and
qualified.
For the election of directors, each share is entitled to as many votes as
there are directors to be elected, and such votes may be cumulated and voted for
one nominee or divided among as many different nominees as is desired. If
authority to vote for any nominee or nominees is withheld on any proxy, the
votes are spread among the remaining nominees. The following table lists the
Class I directors elected at the annual meeting and, for each director elected,
the number of votes cast for and the number of votes withheld. No other persons
were nominated and no other persons received any votes.
- --------------------------------------------------------------------------------
Number of Votes
---------------------------
Directors Elected At
Annual Meeting Cast For Withheld
- --------------------------------------------------------------------------------
Howard Thomas Hogan, Jr. 3,188,654 7,383
J. Douglas Maxwell, Jr. 3,189,329 6,708
John R. Miller III 3,193,433 2,604
Walter C. Teagle III 3,189,329 6,708
Michael N. Vittorio 3,180,143 15,894
- --------------------------------------------------------------------------------
The name of each Class II director whose term of office as a director
continued after the annual meeting is as follows:
Term as Director
Name Expires
- ---- ----------------
Allen E Busching 2004
Paul T. Canarick 2004
Beverly Ann Gehlmeyer 2004
J. William Johnson 2004
Item 5. Other Information
a) Stock Repurchase Program And Market Liquidity
Trading in the Corporation's common stock is limited. The total trading
volume for the twelve months ended June 30, 2003 as reported by Nasdaq was
1,273,854 shares, with an average daily volume of 5,054 shares. During this same
twelve month period, the Corporation purchased 147,598 shares under its share
repurchase program, 123,900 of which were purchased in market transactions.
These market purchases represent approximately 9.7% of the total trading volume
reported by Nasdaq. Although the Corporation has had a stock repurchase program
since 1988, if the Company reduces or
19
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.
For a further discussion of the Corporation's share repurchase program,
including its impact on earnings per share, please see the "Capital" section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
b) Addition To Board of Directors
In accordance with the Corporation's and the Bank's By-Laws, Alex L. Cover
was elected to serve as a director of both entities effective June 17, 2003. He
was also selected to be a member of the Corporation's and the Bank's Audit
Committee. Mr. Cover will serve as a Class II director of the Corporation until
the next annual meeting of stockholders.
Mr. Cover is currently an independent business consultant providing
strategic planning and financial management advisory services to his clients.
Previously he spent twenty eight years with Ernst & Young, an international
public accounting firm, where he retired as a partner. During his career with
Ernst & Young, he served as partner in charge of services to financial
institutions on Long Island and also coordinated management consulting
engagements, including strategic planning, quality control, process improvement,
ethics, and best business practices.
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are included herein.
Exhibit No. Name
- ----------- ----
31 Certifications pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act)
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. Section 1350)
b) Reports on Form 8-K
During the quarter ended June 30, 2003 (and thereafter to the date hereof)
the Corporation filed the following reports on Form 8-K with the Securities and
Exchange Commission:
1) The Corporation filed a Form 8-K dated April 24, 2003 to report that it
had: (1) issued a press release disclosing material non-public information
regarding the Corporation's financial condition and results of operations as of
and for the three month period ended March 31, 2003, (2) announced an additional
stock repurchase plan and (3) mailed a quarterly report to shareholders
disclosing substantially similar non-public information regarding the
Corporation's financial condition and results of operations. The press release
was furnished as Exhibit 99.1 to the Form 8-K filing and the quarterly report to
shareholders was furnished as Exhibit 99.2 to the Form 8-K filing.
2) The Corporation filed a Form 8-K dated July 23, 2003 to report that it
had: (1) issued a press release disclosing material non-public information
regarding the Corporation's financial condition and results of operations as of
and for the six and three month periods ended June 30, 2003, and (2) mailed a
quarterly report to shareholders disclosing substantially similar non-public
information regarding the Corporation's financial condition and results of
operations. The press release was furnished as Exhibit 99.1 to the Form 8-K
filing and the quarterly report to shareholders was furnished as Exhibit 99.2 to
the Form 8-K filing.
20
SIGNATURES
Pursuant To The Requirements Of The Securities Exchange Act Of 1934, The
Registrant Has Duly Caused This Report To Be Signed On Its Behalf By The
Undersigned Thereunto Duly Authorized.
THE FIRST OF LONG ISLAND CORPORATION
----------------------------------------
(Registrant)
Date: August 11, 2003 By /s/ J. WILLIAM JOHNSON
----------------------------------------
J. WILLIAM JOHNSON, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
(principal executive officer)
By /s/ MARK D. CURTIS
----------------------------------------
MARK D. CURTIS
SENIOR VICE PRESIDENT AND TREASURER
(principal financial and accounting
officer)
21
EXHIBIT INDEX
EXHIBIT BEGINS
ON SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- --------------
31 Certifications pursuant to Section 302 of the 23
Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14
of the Exchange Act)
32 Certification pursuant to Section 906 of the 25
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
22