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 September 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 NOVEMBER 3, 2003
- ----- -------------------------------
Common stock, par value 4,082,462
$.10 per share
THE FIRST OF LONG ISLAND CORPORATION
SEPTEMBER 30, 2003
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets (Unaudited)
September 30, 2003 And December 31, 2002 1
Consolidated Statements Of Income (Unaudited)
Nine and Three Months Ended September 30, 2
2003 And 2002
Consolidated Statements Of Changes In
Stockholders' Equity (Unaudited)
Nine Months Ended September 30, 2003 And 2002 3
Consolidated Statements Of Cash Flows (Unaudited)
Nine Months Ended September 30, 2003 And 2002 4
Notes To Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion And Analysis Of
Financial Condition And Results Of Operations 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 20
ITEM 1. - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31,
2003 2002
------------- -------------
Assets:
Cash and due from banks .................................. $ 33,069,000 $ 33,229,000
Federal funds sold ....................................... 39,500,000 34,000,000
------------- -------------
Cash and cash equivalents .............................. 72,569,000 67,229,000
------------- -------------
Investment securities:
Held-to-maturity, at amortized cost (fair
value of $263,269,000 and $282,438,000) ........ 257,562,000 273,102,000
Available-for-sale, at fair value (amortized cost
of $268,454,000 and $173,794,000) .............. 274,387,000 180,406,000
------------- -------------
531,949,000 453,508,000
------------- -------------
Loans:
Commercial and industrial ......................... 41,363,000 37,329,000
Secured by real estate ............................ 249,336,000 217,730,000
Consumer .......................................... 5,895,000 6,414,000
Other ............................................. 602,000 628,000
------------- -------------
297,196,000 262,101,000
Unearned income ................................... (866,000) (993,000)
------------- -------------
296,330,000 261,108,000
Allowance for loan losses ......................... (2,399,000) (2,085,000)
------------- -------------
293,931,000 259,023,000
------------- -------------
Bank premises and equipment, net ......................... 6,813,000 6,398,000
Other assets ............................................. 8,241,000 6,184,000
------------- -------------
$ 913,503,000 $ 792,342,000
============= =============
Liabilities:
Deposits:
Checking .......................................... $ 292,079,000 $ 256,444,000
Savings and money market .......................... 452,454,000 412,815,000
Time, other ....................................... 17,742,000 17,359,000
Time, $100,000 and over ........................... 16,170,000 13,107,000
------------- -------------
778,445,000 699,725,000
Securities sold under repurchase agreements .............. 41,697,000 --
Accrued expenses and other liabilities ................... 2,831,000 4,492,000
Current income taxes payable ............................. 233,000 289,000
Deferred income taxes payable ............................ 1,926,000 2,394,000
------------- -------------
825,132,000 706,900,000
------------- -------------
Commitments and Contingent Liabilities
Stockholders' Equity:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 4,082,462 and 4,161,173 shares 408,000 416,000
Surplus .................................................. 946,000 724,000
Retained earnings ........................................ 83,455,000 80,354,000
------------- -------------
84,809,000 81,494,000
Accumulated other comprehensive income net of tax ........ 3,562,000 3,948,000
------------- -------------
88,371,000 85,442,000
------------- -------------
$ 913,503,000 $ 792,342,000
============= =============
See notes to unaudited consolidated financial statements
1
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------- --------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Interest income:
Loans .................................................... $ 13,391,000 $ 12,438,000 $ 4,374,000 $ 4,229,000
Investment securities:
Taxable .............................................. 8,967,000 10,189,000 3,149,000 3,512,000
Nontaxable ........................................... 4,637,000 4,336,000 1,590,000 1,441,000
Federal funds sold ....................................... 389,000 639,000 79,000 278,000
------------ ------------ ------------ ------------
27,384,000 27,602,000 9,192,000 9,460,000
------------ ------------ ------------ ------------
Interest expense:
Savings and money market deposits ........................ 2,542,000 3,313,000 754,000 1,191,000
Time deposits ............................................ 340,000 506,000 109,000 156,000
Securities sold under repurchase agreements .............. 43,000 -- 43,000 --
------------ ------------ ------------ ------------
2,925,000 3,819,000 906,000 1,347,000
------------ ------------ ------------ ------------
Net interest income .................................. 24,459,000 23,783,000 8,286,000 8,113,000
Provision for loan losses (credit) ........................... 335,000 50,000 185,000 (100,000)
------------ ------------ ------------ ------------
Net interest income after provision for loan losses (credit) . 24,124,000 23,733,000 8,101,000 8,213,000
------------ ------------ ------------ ------------
Noninterest income:
Investment Management Division income .................... 932,000 841,000 314,000 275,000
Service charges on deposit accounts ...................... 2,713,000 2,809,000 918,000 904,000
Net gains (losses) on sales of available-for-sale
securities ............................................. 444,000 (12,000) 211,000 --
Other .................................................... 564,000 489,000 208,000 140,000
------------ ------------ ------------ ------------
4,653,000 4,127,000 1,651,000 1,319,000
------------ ------------ ------------ ------------
Noninterest expense:
Salaries ................................................. 7,734,000 7,332,000 2,606,000 2,480,000
Employee benefits ........................................ 3,389,000 3,277,000 1,027,000 1,104,000
Occupancy and equipment expense .......................... 2,503,000 2,250,000 875,000 750,000
Other operating expenses ................................. 3,830,000 3,315,000 1,391,000 1,092,000
------------ ------------ ------------ ------------
17,456,000 16,174,000 5,899,000 5,426,000
------------ ------------ ------------ ------------
Income before income taxes ........................... 11,321,000 11,686,000 3,853,000 4,106,000
Income tax expense ........................................... 2,834,000 3,077,000 969,000 1,112,000
------------ ------------ ------------ ------------
Net income ........................................... $ 8,487,000 $ 8,609,000 $ 2,884,000 $ 2,994,000
============ ============ ============ ============
Weighted average:
Common shares ............................................ 4,087,964 4,182,053 4,078,796 4,177,494
Dilutive stock options ................................... 82,102 50,761 84,236 56,570
------------ ------------ ------------ ------------
4,170,066 4,232,814 4,163,032 4,234,064
============ ============ ============ ============
Earnings per share:
Basic .................................................... $ 2.08 $ 2.06 $ .71 $ .72
============ ============ ============ ============
Diluted .................................................. $ 2.04 $ 2.03 $ .70 $ .71
============ ============ ============ ============
See notes to unaudited consolidated financial statements
2
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (UNAUDITED)
---------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2003
---------------------------------------------------------------------------------------------
Accumulated
Other
Compre- Compre-
Common Stock 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 ...................... $ 8,487,000 8,487,000 8,487,000
Repurchase and retirement
of common stock ............... (131,808) (13,000) (4,758,000) (4,771,000)
Exercise of stock options ....... 53,097 5,000 875,000 880,000
Tax benefit of stock options .... 105,000 105,000
Cash dividends declared -
$.34 per share ................ (1,386,000) (1,386,000)
Unrealized losses on available-
for-sale-securities, net of
income taxes ................ (386,000) (386,000) (386,000)
Transfer from retained
earnings to surplus ........... 4,000,000 (4,000,000) --
-----------
Comprehensive income ............ $ 8,101,000
--------- --------- ----------- =========== ----------- ---------- -----------
Balance, September 30, 2003 ...... 4,082,462 $ 408,000 $ 946,000 $83,455,000 $3,562,000 $88,371,000
========= ========= =========== =========== ========== ===========
---------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2002
---------------------------------------------------------------------------------------------
Accumulated
Other
Compre- Compre-
Common Stock 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 ...................... $ 8,609,000 8,609,000 8,609,000
Repurchase and retirement
of common stock ............... (24,103) (2,000) (925,000) (927,000)
Exercise of stock options ....... 15,840 2,000 270,000 272,000
Tax benefit of stock options .... 46,000 46,000
Cash dividends declared -
$.29 per share ................ (1,197,000) (1,197,000)
3-for-2 stock split ............. 1,391,667 139,000 (139,000) --
Cash in lieu of fractional shares
on 3-for-2 stock split ........ (8,000) (8,000)
Unrealized gains on available-
for-sale-securities, net of
income taxes ................ 3,565,000 3,565,000 3,565,000
-----------
Comprehensive income ............ $12,174,000
--------- --------- ----------- =========== ----------- ---------- -----------
Balance, September 30, 2002 ...... 4,176,306 $ 418,000 $ 346,000 $79,815,000 $4,527,000 $85,106,000
========= ========= =========== =========== ========== ===========
* Comprehensive income for the three months ended September 30, 2003 and 2002
was $1,684,000 and $4,477,000, respectively, and consists solely of net income
and unrealized gains and losses on available-for-sale securities, net of income
taxes.
See notes to unaudited consolidated financial statements
3
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
---------------------------------
2003 2002
------------- -------------
Cash Flows From Operating Activities:
Net income ....................................................... $ 8,487,000 $ 8,609,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses ..................................... 335,000 50,000
Deferred income tax credit .................................... (174,000) (35,000)
Depreciation and amortization ................................. 965,000 959,000
Premium amortization on investment securities, net ............ 3,624,000 2,094,000
Losses (gains) on sales of available-for-sale securities ...... (444,000) 12,000
Decrease (increase) in prepaid income taxes ................... -- 1,000
Increase in other assets ...................................... (2,057,000) (75,000)
Increase (decrease) in accrued expenses and other liabilities . (247,000) 361,000
Increase in income taxes payable .............................. 49,000 318,000
------------- -------------
Net cash provided by operating activities ................ 10,538,000 12,294,000
------------- -------------
Cash Flows From Investing Activities:
Proceeds from sales of available-for-sale securities ............. 10,903,000 687,000
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity .............................................. 81,838,000 90,797,000
Available-for-sale ............................................ 69,306,000 7,428,000
Purchase of investment securities:
Held-to-maturity .............................................. (69,114,000) (99,051,000)
Available-for-sale ............................................ (175,233,000) (43,522,000)
Net increase in loans to customers ............................... (35,243,000) (20,314,000)
Purchases of bank premises and equipment ......................... (1,380,000) (308,000)
Proceeds from sale of equipment .................................. -- 3,000
------------- -------------
Net cash used in investing activities .................... (118,923,000) (64,280,000)
------------- -------------
Cash Flows From Financing Activities:
Net increase in total deposits ................................... 78,720,000 90,951,000
Net increase in securities sold under repurchase agreements ...... 41,697,000 --
Proceeds from exercise of stock options .......................... 880,000 272,000
Repurchase and retirement of common stock ........................ (4,771,000) (927,000)
Cash dividends paid .............................................. (2,801,000) (2,397,000)
Cash in lieu of fractional shares on 3-for-2 stock split ......... -- (8,000)
------------- -------------
Net cash provided by financing activities ................ 113,725,000 87,891,000
------------- -------------
Net increase in cash and cash equivalents .......................... 5,340,000 35,905,000
Cash and cash equivalents, beginning of year ....................... 67,229,000 55,209,000
------------- -------------
Cash and cash equivalents, end of period ........................... $ 72,569,000 $ 91,114,000
============= =============
Supplemental Schedule of Noncash:
Investing Activities
Unrealized gains (losses) on available-for-sale securities ....... $ (679,000) $ 5,960,000
Writeoff of premises and equipment against reserve ............... -- 60,000
Financing Activities
Tax benefit from exercise of employee stock options .............. 105,000 46,000
The Corporation made interest payments of $2,924,000 and $3,846,000 and income
tax payments of $2,961,000 and $2,792,000 during the first nine months of 2003
and 2002, respectively.
See notes to unaudited consolidated financial statements
4
THE FIRST OF LONG ISLAND CORPORATION AND SUBSIDIARY
SEPTEMBER 30, 2003
NOTES TO UNAUDITED 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 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 September 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 September 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 recorded for stock options, as all
options granted 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.
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.
5
Nine Months Ended
-----------------------------
9/30/03 9/30/02
--------- ---------
(in thousands)
Net income, as reported ............................... $ 8,487 $ 8,609
Deduct: Total cost of stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects ..................... (250) (164)
--------- ---------
Pro forma net income .................................. $ 8,237 $ 8,445
========= =========
Earnings per share:
Basic - as reported ................................. $ 2.08 $ 2.06
Basic - pro forma ................................... $ 2.01 $ 2.02
Diluted - as reported ............................... $ 2.04 $ 2.03
Diluted - pro forma ................................. $ 1.98 $ 2.00
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 nine months ended September 30, 2003.
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. Management anticipates that FIN No.
46, the provisions of which are not yet effective, will not impact 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, the provisions of SFAS No. 149 do not 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, the provisions of SFAS No. 150 do not
impact the Corporation's financial condition, results of operations, or
disclosures.
6
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 second quarter
of this year.
Overview
The Corporation earned $2.04 per share for the first nine months of 2003
as compared to $2.03 for the same period last year. Based on net income of
$8,487,000, the Corporation returned 1.37% on average total assets ("ROA") and
13.32% on average total equity ("ROE"). This compares to returns on assets and
equity of 1.56% and 14.59%, respectively, for the first nine months of last
year. Total assets and deposits grew by approximately 16% and 12%, respectively,
when comparing balances at September 30, 2003 to those at September 30, 2002,
and total capital before unrealized gains and losses on available-for-sale
securities grew by approximately 5%. The Corporation's capital ratios continue
to significantly exceed all current regulatory criteria for a well-capitalized
bank.
The most significant items positively affecting earnings for the nine
months were a 14% increase in average checking balances and an unusually large
commercial mortgage prepayment fee received in the first quarter. Other
important factors also favorably impacting earnings were gains on sales of
equity securities and the continued growth of money market type savings balances
and residential mortgages.
Overwhelmingly, the most negative influence on earnings is the overall
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 result
in continued margin pressure and further negatively impact our income.
Also affecting earnings were expenses of our growth strategies
particularly the opening of our three New York City commercial branches. The New
York City branches were opened on June 2, 2003 and so far the results are
encouraging. While it is premature to predict their ultimate success, we remain
optimistic regarding the long-term results of our New York City strategy and
investment. Our free checking campaign was started at the end of the first
quarter and is attracting consumer checking business to the Bank resulting in a
growth of over 10% in the number of net new consumer checking accounts so far
this year.
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.
7
Nine Months Ended September 30,
--------------------------------------------------------------------------
2003 2002
---------------------------------- -----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------- -------- ------- --------- -------- -------
(dollars in thousands)
Assets
Federal funds sold .......................... $ 45,945 $ 389 1.13% $ 50,221 $ 639 1.70%
Investment Securities:
Taxable ................................... 315,462 8,967 3.80 281,887 10,189 4.83
Nontaxable (1) ........................... 152,809 7,026 6.13 126,142 6,570 6.94
Loans (1)(2) ............................... 271,062 13,395 6.61 238,842 12,451 6.97
--------- ------- ------- --------- ------- -------
Total interest-earning assets ............... 785,278 29,777 5.07 697,092 29,849 5.72
------- ------- ------- -------
Allowance for loan losses (2,180) (2,112)
--------- ---------
Net interest-earning assets 783,098 694,980
Cash and due from banks ..................... 32,859 30,879
Premises and equipment, net ................. 6,553 6,752
Other assets ................................ 5,628 5,872
--------- ---------
$ 828,138 $ 738,483
========= =========
Liabilities and
Stockholders' Equity
Savings and money market deposits ........... $ 426,830 2,542 0.80 $ 383,662 3,313 1.15
Time deposits ............................... 34,212 340 1.33 35,514 506 1.90
Securities sold under
repurchase agreements ..................... 6,963 43 0.83 -- -- --
--------- ------- ------- --------- ------- -------
Total interest-bearing liabilities .......... 468,005 2,925 0.84 419,176 3,819 1.22
--------- ------- ------- --------- ------- -------
Checking deposits(3) 269,614 236,022
Other liabilities ........................... 5,312 4,387
--------- ---------
742,931 659,585
Stockholders' equity ........................ 85,207 78,898
--------- ---------
$ 828,138 $ 738,483
========= =========
Net interest income (1) .................... $26,852 $26,030
======= =======
Net interest spread (1) .................... 4.23% 4.50%
======= =======
Net interest margin (1) .................... 4.57% 4.99%
======= =======
(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 nine months of 2003 to the same period last year. This
decline in net interest margin, when applied to average total interest-earning
assets of approximately $785 million for the first nine months of 2003,
negatively impacted net interest income by approximately $2.5 million. Also
shown in the table is a decline in net interest spread of .27% resulting from a
decrease in the yield on interest-earning assets of .65% accompanied by a less
than offsetting decrease in the cost of total interest-bearing deposits of .38%.
8
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 .10% to net interest margin for the first nine months of 2003, .10% to
net interest spread, and .28% 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.
Nine Months Ended September 30,
--------------------------------------------------
2003 Versus 2002
Increase (decrease) due to changes in:
--------------------------------------------------
Rate/ Net
Volume Rate Volume (2) Change
------- ------- ---------- -------
(in thousands)
Interest Income:
Federal funds sold ......................................... $ (54) $ (214) $ 18 $ (250)
Investment securities:
Taxable .................................................. 1,214 (2,176) (260) (1,222)
Nontaxable (1) ........................................... 1,389 (770) (163) 456
Loans (1) .................................................. 1,680 (648) (88) 944
------- ------- ------- -------
Total interest income ...................................... 4,229 (3,808) (493) (72)
------- ------- ------- -------
Interest Expense:
Savings and money
market deposits .......................................... 373 (1,028) (116) (771)
Time deposits .............................................. (19) (153) 6 (166)
Securities sold under repurchase agreements ................ 43 -- -- 43
------- ------- ------- -------
Total interest expense ..................................... 397 (1,181) (110) (894)
------- ------- ------- -------
Increase (decrease) in net
interest income .......................................... $ 3,832 $(2,627) $ (383) $ 822
======= ======= ======= =======
(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 $822,000, or
3.2%, from $26,030,000 for the first nine months of 2002 to $26,852,000 for the
first nine months of this year. As can be seen from the above rate/volume
analysis, the increase is primarily comprised of a positive volume variance of
$3,832,000 and a negative rate variance of $2,627,000. 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 up by only $258,000,
or 1%, when comparing the nine month periods and the negative rate variance for
loans would have been $564,000 higher.
9
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
nine months of 2003 to the same period last year, average checking deposits
increased by $33,592,000, or approximately 14%. Funding interest-earning asset
growth with growth in checking deposits has a greater positive 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
nine months of 2003 to the same period last year, average savings and money
market deposit balances increased by $43,168,000, or 11%. Although the largest
components of this increase were growth in "Select Savings", a statement savings
account that earns a higher money market rate, and IOLA (interest on lawyer)
accounts, the Bank also experienced growth in nonpersonal money market accounts,
traditional savings, and escrow service accounts.
The Bank's new business solicitation program is a significant factor that
favorably impacted the growth in average checking and money market type deposit
balances. Competitive pricing, customer demographics, and troubled conditions in
the equity markets are also believed to be important factors with respect to the
growth in average money market type deposit balances. 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 of 4.75% 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%. 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 nine months of 2003,
longer-term rates remained low. 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 decline more.
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
and third quarters. 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, the
Bank's net interest margin will
10
continue downward. In addition, the rate variance as depicted in the preceding
table should become more negative. This obviously exerts 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 September
30, 2003 and December 31, 2002 are as follows:
September 30, December 31,
2003 2002
------------- ------------
(dollars in thousands)
Nonaccruing loans ......................................... $ 97 $ --
Foreclosed real estate .................................... -- --
-------- --------
Total nonperforming assets 97 --
Troubled debt restructurings .............................. 6 --
Loans past due 90 days or more as to
principal or interest payments and still accruing ....... 1 2
-------- --------
Total risk elements ..................................... $ 104 $ 2
======== ========
Nonaccruing loans as a percentage of total loans .......... .03% .00%
======== ========
Nonperforming assets as a percentage of total loans
and foreclosed real estate .............................. .03% .00%
======== ========
Risk elements as a percentage of total loans and
foreclosed real estate .................................. .04% .00%
======== ========
11
Allowance and Provision For Loan Losses
The allowance for loan losses grew by $314,000 during the first nine
months of 2003, amounting to $2,399,000 at September 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 nine months of 2003, the Bank had
loan chargeoffs and recoveries of $40,000 and $19,000, respectively, and
recorded a $335,000 provision for loan losses. The provision is up from $50,000
recorded for the same period last year primarily because of growth in the
portfolio.
The allowance for loan losses is an amount that management currently
believes will be adequate to absorb estimated probable 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 loans in its portfolio and, for those
individual 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 individually deemed to be
impaired 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 is a very small piece of the total allowance and 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 could affect the financial strength of the Bank's borrowers and do
effect the value of real estate collateral securing the Bank's mortgage loans.
Loans secured by real estate represent approximately 84% of the Bank's total
loans outstanding at September 30, 2003. Most 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
12
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 nine months of 2003 to the same period last year,
noninterest income increased by $526,000, or 12.7%. The increase is primarily
attributable to gains on sales of available-for-sale securities of $444,000,
most of which resulted from the sale of an equity security which the Bank was
once required to acquire and hold as part of a government sponsored loan
program. As of September 30, 2003, the Bank still has a position in this
security with a market value of $196,000.
Noninterest expense is comprised of salaries, employee benefits, occupancy
and equipment expense and other operating expenses incurred in supporting the
various business activities of the Corporation. Noninterest expense increased by
$1,282,000, or 7.9%, from $16,174,000 for the first nine months of 2002 to
17,456,000 for the same period this year. The increase is comprised of an
increase in salaries of $402,000, an increase in employee benefits expense of
$112,000, an increase in occupancy and equipment expense of $253,000, and an
increase in other operating expenses of $515,000.
The increase in salaries is primarily attributable to normal annual salary
increases and the opening of three branches in New York City in June 2002. 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 largely caused by increases in rent expense
and maintenance costs, a significant portion of which resulted from the opening
of the three New York City branches. The largest components of the increase in
other operating expenses are an increase in general insurance expense, due
primarily to conditions in the insurance marketplace and increased levels of
liability coverages, and an increase in marketing expense, a substantial portion
of which is attributable to the Bank's free checking campaign and the New York
City branches.
Income tax expense as a percentage of book income ("effective tax rate")
was 25.0% for the first nine months of 2003 as compared to 26.3% for the same
period last year. These percentages vary from the statutory Federal income tax
rate of 34% primarily because of state income taxes and tax-exempt interest on
municipal securities. The decrease in the 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 income.
Results of Operations - Three Months Ended September 30, 2003 Versus September
30, 2002
Net income for the third quarter of 2003 was $2,884,000, or $.70 per
share, as compared to $2,994,000, or $.71 per share, earned for the same quarter
last year. The decrease in net income is attributable to an increase in
noninterest expense of $473,000 and an increase in the provision for loan losses
of $285,000.
The increase in noninterest expense is attributable to increases in
salaries, occupancy and equipment expense, and other operating expenses. The
reasons for the increases in salaries and occupancy and equipment expense are
the same as those discussed above with respect to the nine month periods. The
largest component of the increase in other operating expenses is an increase in
insurance related expense, which includes increased premiums and meeting an
insurance policy deductible.
13
Employee benefits expense is down for the third quarter primarily because
of decreases in profit sharing and retirement plan expense.
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 27.74%, 26.98% and 9.69%, respectively, at September
30, 2003 substantially exceed the requirements for a well-capitalized bank.
Total stockholders' equity increased by $2,929,000, or from $85,442,000 at
December 31, 2002 to $88,371,000 at September 30, 2003. Net income for the first
nine months of 2003 was the largest contributor to the growth in stockholders'
equity. However, amounts expended for share repurchases and cash dividends
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 nine months
of 2003, the Corporation purchased 131,808 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 currently
authorized to purchase 68,302 shares.
The stock repurchase program has been used by management to enhance
earnings per share. When comparing the first nine months of 2003 to the same
period last year, earnings per share are up 1 cent. Without the impact of the
shares purchased in 2002 and thus far this year, earnings would have been down
approximately 2 cents.
Market Liquidity. Trading in the Corporation's common stock is limited.
The total trading volume for the twelve months ended September 30, 2003 as
reported by Nasdaq was 1,153,990 shares, with an average daily volume of 4,579
shares. During this same twelve month period, the Corporation purchased 151,441
shares under its share repurchase program, 123,900 of which were purchased in
market transactions. These market purchases represent approximately 11% 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,
14
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, 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 nine months of 2003, cash and cash
equivalents increased by $5,340,000. This occurred primarily because the cash
provided from maturities and pay downs of investment securities, checking
growth, money market type deposit growth, borrowings under repurchase
agreements, and operations exceeded the cash used for loan and securities
portfolio growth, share repurchases, and cash dividends.
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 September 30, 2003, the Corporation had $39,500,000 in federal funds
sold, a short-term securities portfolio not subject to pledge agreements of
$130,229,000, and longer-term available-for-sale securities not subject to
pledge agreements of $180,270,000. The Corporation's liquidity is enhanced by
its stable deposit base which primarily consists of checking, savings, and money
market accounts. Such accounts comprised 95.6% of total deposits at September
30, 2003, while time deposits of $100,000 and over and other time deposits
comprised only 2.1% 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. Recently the Bank began using short-term
borrowings with the intent that these borrowings could be repaid using proceeds
from the maturity and amortization of securities which will be received in the
next three to six months.
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.
15
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 (present value of expected future cash flows from assets less the present
value of expected future cash flows from liabilities) 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 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, 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.
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 net portfolio value at
September 30, 2003 arrived at by discounting estimated future cash flows at
current market rates and (2) an estimate of net interest income for the year
ended September 30, 2004 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 net portfolio value at
September 30, 2003 and net interest income for the year ended September 30, 2004
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
16
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.
Net Interest Income
Net Portfolio Value Year Ended
at September 30, 2003 September 30, 2004
--------------------- -----------------------
Percent Percent
Change Change
From From
Rate Change Scenario Amount Base Case Amount Base Case
- -------------------------------------------------- ------ --------- ------ ---------
(dollars in thousands)
+ 200 basis point rate shock ..................... $ 56,081 (42.8)% $ 27,180 (17.0)%
+ 100 basis point rate shock ..................... 76,505 (22.0) 29,972 (8.5)
Base case (no rate change) ..................... 98,053 -- 32,765 --
- - 100 basis point rate shock ..................... 120,838 23.2 33,902 3.5
- - 200 basis point rate shock ..................... 145,035 47.9 32,203 (1.7)
Forward Looking Statements
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Quantitative and Qualitative Disclosures About Market Risk"
contain various forward-looking statements with respect to financial performance
and business matters. Such statements are generally contained in sentences
including the words "expect" or "could" or "should" or "would" 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 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer, Michael N. Vittorio, 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 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.
(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.
17
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 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 September 30, 2003 as reported by Nasdaq was
1,153,990 shares, with an average daily volume of 4,579 shares. During this same
twelve month period, the Corporation purchased 151,441 shares under its share
repurchase program, 123,900 of which were purchased in market transactions.
These market purchases represent approximately 11% 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.
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.
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are included herein.
Exhibit No. Name
- ----------- ----
10.1 Amendment to Employment Agreement Between Registrant and J.
William Johnson
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 September 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 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
18
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 November 4, 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 nine and three month periods ended September 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.
3) The Corporation filed a Form 8-K dated October 24, 2003 to report that the
Audit Committee of the Board of Directors approved the dismissal of the
Company's independent public accountant, Grant Thornton LLP, and selected
and engaged Crowe Chizek and Company LLC as its new independent public
accountant. Crowe Chizek and Company LLC will audit the Company's
financial statements for the fiscal year ended December 31, 2003.
19
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: November 4, 2003 By /s/ MICHAEL N. VITTORIO
--------------------------------------------
MICHAEL N. VITTORIO, CHIEF
EXECUTIVE OFFICER
(principal executive officer)
By /s/ MARK D. CURTIS
--------------------------------------------
MARK D. CURTIS
SENIOR VICE PRESIDENT AND TREASURER
(principal financial and accounting officer)
20
EXHIBIT INDEX
EXHIBIT BEGINS
ON SEQUENTIAL
EXHIBIT DESCRIPTION PAGE NO.
- -------- ----------- --------------
10.1 Amendment To Employment Agreement between Registrant 22
and J. William Johnson
31 Certification by Chief Executive Officer and Chief 24
Financial Officer In Accordance With Section 302 Of
The Sarbanes-Oxley Act of 2002
32 Certification by Chief Executive Officer and Chief 26
Financial Officer In Accordance With Section 906 Of
The Sarbanes-Oxley Act of 2002
21