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 March 31, 2004
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 APRIL 26, 2004
- ----- -----------------------------
Common stock, par value 4,097,077
$.10 per share
THE FIRST OF LONG ISLAND CORPORATION
MARCH 31, 2004
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2004 (Unaudited) And December 31, 2003 1
Consolidated Statements Of Income (Unaudited)
Three Months Ended March 31, 2004 And 2003 2
Consolidated Statements Of Changes In
Stockholders' Equity (Unaudited)
Three Months Ended March 31, 2004 And 2003 3
Consolidated Statements Of Cash Flows (Unaudited)
Three Months Ended March 31, 2004 And 2003 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 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchase
of Equity Securities 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 22
ITEM 1. - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
March 31,
2004 December 31,
(Unaudited) 2003
------------- -------------
Assets:
Cash and due from banks .............................................. $ 34,844,000 $ 31,430,000
Federal funds sold ................................................... 40,000,000 30,000,000
------------- -------------
Cash and cash equivalents .......................................... 74,844,000 61,430,000
------------- -------------
Investment securities:
Held-to-maturity, at amortized cost (fair
value of $250,076,000 and $242,563,000) .................... 245,233,000 238,289,000
Available-for-sale, at fair value (amortized cost
of $259,707,000 and $275,745,000) .......................... 266,950,000 281,138,000
------------- -------------
512,183,000 519,427,000
------------- -------------
Loans:
Commercial and industrial ..................................... 53,152,000 47,886,000
Secured by real estate ........................................ 265,948,000 268,508,000
Consumer ...................................................... 5,996,000 5,730,000
Other ......................................................... 381,000 729,000
------------- -------------
325,477,000 322,853,000
Unearned income ............................................... (848,000) (882,000)
------------- -------------
324,629,000 321,971,000
Allowance for loan losses ..................................... (2,545,000) (2,452,000)
------------- -------------
322,084,000 319,519,000
------------- -------------
Bank premises and equipment, net ..................................... 6,516,000 6,795,000
Other assets ......................................................... 7,875,000 7,093,000
------------- -------------
$ 923,502,000 $ 914,264,000
============= =============
Liabilities:
Deposits:
Checking ...................................................... $ 300,940,000 $ 297,454,000
Savings and money market ...................................... 449,355,000 445,851,000
Time, other ................................................... 17,365,000 17,422,000
Time, $100,000 and over ....................................... 19,256,000 16,428,000
------------- -------------
786,916,000 777,155,000
Securities sold under repurchase agreements .......................... 37,184,000 41,184,000
Accrued expenses and other liabilities ............................... 2,202,000 4,332,000
Current income taxes payable ......................................... 988,000 267,000
Deferred income taxes payable ........................................ 2,770,000 2,035,000
------------- -------------
830,060,000 824,973,000
------------- -------------
Stockholders' Equity:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 4,097,077 and 4,083,733 shares ........... 409,000 408,000
Surplus .............................................................. 846,000 781,000
Retained earnings .................................................... 87,838,000 84,864,000
------------- -------------
89,093,000 86,053,000
Accumulated other comprehensive income net of tax .................... 4,349,000 3,238,000
------------- -------------
93,442,000 89,291,000
------------- -------------
$ 923,502,000 $ 914,264,000
============= =============
See notes to consolidated financial statements
1
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31,
------------------------------------
2004 2003
---------- ----------
Interest income:
Loans ..................................................... $4,544,000 $4,803,000
Investment securities:
Taxable ............................................... 3,289,000 3,098,000
Nontaxable ............................................ 1,590,000 1,504,000
Federal funds sold ........................................ 65,000 120,000
---------- ----------
9,488,000 9,525,000
---------- ----------
Interest expense:
Savings and money market deposits ......................... 725,000 939,000
Time deposits ............................................. 92,000 114,000
Securities sold under repurchase agreements ............... 106,000 --
---------- ----------
923,000 1,053,000
---------- ----------
Net interest income ................................... 8,565,000 8,472,000
Provision for loan losses ..................................... 100,000 75,000
---------- ----------
Net interest income after provision for loan losses ....... 8,465,000 8,397,000
---------- ----------
Noninterest income:
Investment Management Division income ..................... 356,000 320,000
Service charges on deposit accounts ....................... 940,000 889,000
Net gains on sales of available-for-sale securities ....... 93,000 123,000
Other ..................................................... 170,000 153,000
---------- ----------
1,559,000 1,485,000
---------- ----------
Noninterest expense:
Salaries .................................................. 2,636,000 2,512,000
Employee benefits ......................................... 1,193,000 1,193,000
Occupancy and equipment expense ........................... 955,000 834,000
Other operating expenses .................................. 1,247,000 1,146,000
---------- ----------
6,031,000 5,685,000
---------- ----------
Income before income taxes ............................ 3,993,000 4,197,000
Income tax expense ............................................ 1,019,000 1,104,000
---------- ----------
Net income ............................................ $2,974,000 $3,093,000
========== ==========
Weighted average:
Common shares ............................................. 4,091,153 4,116,325
Dilutive stock options .................................... 100,250 83,144
---------- ----------
4,191,403 4,199,469
========== ==========
Earnings per share:
Basic ..................................................... $ .73 $ .75
========== ==========
Diluted ................................................... $ .71 $ .74
========== ==========
See notes to consolidated financial statements
2
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (UNAUDITED)
--------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2004
--------------------------------------------------------------------------------------------------
Accumulated
Other
Common Stock Compre- Compre-
---------------------- hensive Retained hensive
Shares Amount Surplus Income Earnings Income Total
--------- --------- ------------ ----------- ----------- ---------- ------------
Balance, January 1, 2004 ...... 4,083,733 $ 408,000 $ 781,000 $84,864,000 $3,238,000 $ 89,291,000
Net Income ................... $ 2,974,000 2,974,000 2,974,000
Repurchase and retirement
of common stock ............ (7,264) (1,000) (357,000) (358,000)
Exercise of stock options .... 20,608 2,000 410,000 412,000
Tax benefit of stock options . 12,000 12,000
Unrealized gains on available-
for-sale-securities, net of
income taxes ............. 1,111,000 1,111,000 1,111,000
-----------
Comprehensive income ......... $ 4,085,000
--------- --------- ------------ =========== ----------- ---------- ------------
Balance, March 31, 2004 ....... 4,097,077 $ 409,000 $ 846,000 $87,838,000 $4,349,000 $ 93,442,000
========= ========= ============ =========== ========== ============
--------------------------------------------------------------------------------------------------
Three Months Ended March 31, 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 ................... $ 3,093,000 3,093,000 3,093,000
Repurchase and retirement
of common stock ............. (111,112) (11,000) (3,964,000) (3,975,000)
Exercise of stock options .... 17,474 2,000 322,000 324,000
Tax benefit of stock options . 42,000 42,000
Unrealized gains on available-
for-sale-securities, net of
income taxes ............... 61,000 61,000 61,000
Transfer from retained
earnings to surplus .......... 3,000,000 (3,000,000) --
-----------
Comprehensive income .......... $ 3,154,000
--------- --------- ------------ =========== ----------- ---------- ------------
Balance, March 31, 2003 ....... 4,067,535 $ 407,000 $ 124,000 $80,447,000 $4,009,000 $ 84,987,000
========= ========= ============ =========== ========== ============
See notes to consolidated financial statements
3
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
-------------------------------
2004 2003
------------ ------------
Cash Flows From Operating Activities:
Net income ......................................................................... $ 2,974,000 $ 3,093,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses ....................................................... 100,000 75,000
Deferred income tax credit ...................................................... (5,000) (41,000)
Depreciation and amortization ................................................... 353,000 326,000
Premium amortization on investment securities, net .............................. 779,000 1,097,000
Gains on sales of available-for-sale securities ................................. (93,000) (123,000)
Increase in other assets ........................................................ (782,000) (80,000)
Decrease in accrued expenses and other liabilities .............................. (660,000) (1,068,000)
Increase in income taxes payable ................................................ 733,000 832,000
------------ ------------
Net cash provided by operating activities .................................... 3,399,000 4,111,000
------------ ------------
Cash Flows From Investing Activities:
Proceeds from sales of available-for-sale securities ............................... 95,000 124,000
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity ................................................................ 22,954,000 26,535,000
Available-for-sale .............................................................. 24,130,000 18,249,000
Purchase of investment securities:
Held-to-maturity ................................................................ (30,366,000) (11,985,000)
Available-for-sale .............................................................. (8,404,000) (7,611,000)
Net increase in loans to customers ................................................. (2,665,000) (8,051,000)
Purchases of bank premises and equipment ........................................... (74,000) (188,000)
------------ ------------
Net cash provided by investing activities .................................... 5,670,000 17,073,000
------------ ------------
Cash Flows From Financing Activities:
Net increase in total deposits ..................................................... 9,761,000 13,534,000
Net decrease in securities sold under repurchase agreements ........................ (4,000,000) --
Proceeds from exercise of stock options ............................................ 412,000 324,000
Repurchase and retirement of common stock .......................................... (358,000) (3,975,000)
Cash dividends paid ................................................................ (1,470,000) (1,415,000)
------------ ------------
Net cash provided by financing activities ...................................... 4,345,000 8,468,000
------------ ------------
Net increase in cash and cash equivalents ............................................ 13,414,000 29,652,000
Cash and cash equivalents, beginning of year ......................................... 61,430,000 67,229,000
------------ ------------
Cash and cash equivalents, end of period ............................................. $ 74,844,000 $ 96,881,000
============ ============
Supplemental Schedule of Noncash:
Investing Activities
Unrealized gains on available-for-sale securities .................................. $ 1,851,000 $ 66,000
Financing Activities
Tax benefit from exercise of employee stock options ................................ 12,000 42,000
The Corporation made interest payments of $927,000 and $1,060,000 and income tax
payments of $292,000 and $314,000 during the first quarters of 2004 and 2003,
respectively.
See notes to consolidated financial statements
4
THE FIRST OF LONG ISLAND CORPORATION AND SUBSIDIARY
MARCH 31, 2004
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 and its wholly-owned subsidiary, The First National Bank
of Long Island, and the Bank's wholly-owned subsidiaries, The First of Long
Island Agency, Inc., The First of Long Island REIT, Inc., and FNY Service Corp.,
an investment company. The consolidated entity is referred to as the
"Corporation" and the Bank and its subsidiaries are collectively referred to as
the "Bank." 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, 2003.
The consolidated financial information included herein as of and for the
periods ended March 31, 2004 and 2003 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, 2003
consolidated balance sheet was derived from the Corporation's December 31, 2003
audited consolidated financial statements.
2. Stock-based Compensation
At March 31, 2004, 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 following table illustrates the effect on net income and earnings per
share of applying the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation"
to stock-based employee compensation.
5
Three Months Ended
----------------------------
3/31/04 3/31/03
--------- ---------
(in thousands)
Net income, as reported ................................... $ 2,974 $ 3,093
Deduct: Total cost of stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects .......................... (86) (84)
--------- ---------
Pro forma net income ...................................... $ 2,888 $ 3,009
========= =========
Earnings per share:
Basic - as reported ..................................... $ 0.73 $ 0.75
Basic - pro forma ....................................... $ 0.71 $ 0.73
Diluted - as reported ................................... $ 0.71 $ 0.74
Diluted - pro forma ..................................... $ 0.69 $ 0.72
3. Stockholders' Equity
The line captioned repurchase and retirement of common stock in the
Consolidated Statement of Changes in Stockholders' Equity for the three months
ended March 31, 2004 includes 5,604 shares of common stock tendered upon the
exercise of stock options with a value of $277,000. No shares were tendered upon
the exercise of stock options in the first quarter of 2003.
4. Defined Benefit Pension Plan
The following table sets forth the components of net periodic pension
cost.
Three Months Ended March 31,
----------------------------
2004 2003
---------- ---------
(in thousands)
Service cost, net of plan participant contributions ...................... $ 168 $ 126
Interest cost ............................................................ 157 143
Expected return on plan assets ........................................... (176) (136)
Net amortization and deferral ............................................ 18 6
---------- ---------
Net pension cost ......................................................... $ 167 $ 139
========== =========
5. Gain Contingency
The Bank recently negotiated a settlement with the Nassau County attorney
whereby the Bank agreed to discontinue its real estate tax protest proceedings
with respect to one of its branch locations in return for a refund of taxes
previously paid in the approximate amount of $440,000. This settlement is
subject to the approval of the Nassau County legislature and, if approved, the
Bank would be required to pay its legal counsel in these proceedings one-third
of the gross settlement amount.
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, and the Bank's wholly-owned subsidiaries, The First of Long
Island Agency, Inc., The First of Long Island REIT, Inc., and FNY Service Corp.,
an investment company, collectively referred to as 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 2003 and may open additional Manhattan
branches in the future.
Overview
During the first quarter of 2004 the Corporation experienced continued
growth in the average balances of several key deposit and loan products. When
compared to the same quarter last year, checking balances grew 16%, or $39.7
million, and residential mortgage balances, including home equity lines, grew
37%, or $47.4 million. In addition, money-market-type savings balances were up
6%, or $19.5 million, and attorney escrow balances were up 57%, or $6.1 million.
This growth, along with the continued impact of strategy changes made during the
latter half 2003 with respect to the Corporation's securities portfolio, were
the most significant items that positively impacted earnings in the current
quarter and helped to offset the negative impact of low interest rates.
For the first quarter of 2004 the Corporation earned 71 cents per share
and returned 1.31% on average total assets ("ROA") and 13.19% on average total
equity ("ROE"). This compares to earnings of 74 cents per share and returns on
assets and equity of 1.59% and 14.81%, respectively, for the same quarter last
year. Excluding an unusually large commercial mortgage prepayment fee that
accounted for 8 cents of first quarter 2003 earnings and added .29% to ROA and
2.70% to ROE, earnings for the current quarter are up 5 cents, or 8%. Despite
the first quarter increase, the negative influence on earnings of low interest
rates continues. Net interest margin decreased by 67 basis points (.67%) from
5.02% in the first quarter of 2003 to 4.35% for the current quarter. As
cautioned in the past and as more fully discussed in the market risk section of
this Form 10-Q, net interest margin should be further negatively impacted
whether interest rates continue at the present level, decline further, or
increase. If, however, interest rates do increase, net interest margin should
eventually be positively impacted.
7
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.
Three Months Ended March 31,
----------------------------------------------------------------------
2004 2003
-------------------------------- --------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------- -------- ------- --------- -------- -------
(dollars in thousands)
Assets
Federal funds sold ..................................... $ 27,427 $ 65 .95% $ 40,686 $ 120 1.20%
Investment Securities:
Taxable .............................................. 364,712 3,289 3.63 297,544 3,098 4.22
Nontaxable (1) ....................................... 151,014 2,409 6.38 145,188 2,279 6.28
Loans (1)(2) ........................................... 325,507 4,546 5.62 263,138 4,806 7.41
--------- ------- ------ --------- ------- ------
Total interest-earning assets .......................... 868,660 10,309 4.77 746,556 10,303 5.58
------- ------ ------- ------
Allowance for loan losses .............................. (2,499) (2,100)
--------- ---------
Net interest-earning assets ............................ 866,161 744,456
Cash and due from banks ................................ 35,903 32,187
Premises and equipment, net ............................ 6,646 6,301
Other assets ........................................... 6,654 5,421
--------- ---------
$ 915,364 $ 788,365
========= =========
Liabilities and
Stockholders' Equity
Savings and money market deposits ...................... $ 445,475 725 .65 $ 413,236 939 .92
Time deposits .......................................... 34,588 92 1.07 31,230 114 1.48
Securities sold under
repurchase agreements ................................ 46,029 106 .93 -- -- --
--------- ------- ------ --------- ------- ------
Total interest-bearing liabilities ..................... 526,092 923 .71 444,466 1,053 .96
------- ------ ------- ------
Checking deposits (3) .................................. 292,999 253,341
Other liabilities ...................................... 5,591 5,861
--------- ---------
824,682 703,668
Stockholders' equity ................................... 90,682 84,697
--------- ---------
$ 915,364 $ 788,365
========= =========
Net interest income (1) ................................ $ 9,386 $ 9,250
======= =======
Net interest spread (1) ................................ 4.06% 4.62%
====== ======
Net interest margin (1) ................................ 4.35% 5.02%
====== ======
(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.
8
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.
Three Months Ended March 31,
---------------------------------------------------------
2004 Versus 2003
Increase (decrease) due to changes in:
---------------------------------------------------------
Rate/ Net
Volume Rate Volume(2) Change
--------- --------- --------- ---------
(in thousands)
Interest Income:
Federal funds sold ................................................. $ (39) $ (25) $ 9 $ (55)
Investment securities:
Taxable ........................................................... 705 (441) (73) 191
Nontaxable (1) .................................................... 91 37 2 130
Loans (1) .......................................................... 1,149 (1,171) (238) (260)
--------- --------- --------- ---------
Total interest income .............................................. 1,906 (1,600) (300) 6
--------- --------- --------- ---------
Interest Expense:
Savings and money market deposits .................................. 74 (274) (14) (214)
Time deposits ...................................................... 12 (32) (2) (22)
Securities sold under repurchase agreements ........................ 106 -- -- 106
--------- --------- --------- ---------
Total interest expense ............................................. 192 (306) (16) (130)
--------- --------- --------- ---------
Increase (decrease) in net
interest income ................................................... $ 1,714 $ (1,294) $ (284) $ 136
========= ========= ========= =========
(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. The rate/volume variance
could be allocated between the volume and rate variances shown in the
table based on the absolute value of each to the total for both.
Net interest income on a tax-equivalent basis increased by $136,000, or
1.5%, from $9,250,000 for the first quarter of 2003 to $9,386,000 for the
current quarter. As can be seen from the above rate/volume analysis, the
increase is primarily comprised of a positive volume variance of $1,714,000 and
a negative rate variance of $1,294,000. It should be noted that without the
large commercial mortgage prepayment fee in the first quarter of 2003, net
interest income on a tax-equivalent basis would have been up by $700,000, or
8.1%, and the negative rate variance for loans would have been $564,000 lower.
Volume Variance. When comparing the first quarter of 2004 to the same
quarter last year, the Bank experienced continued growth in its core deposit
products, with the largest increases occurring in checking, money-market-type
savings balances, and attorney escrow balances. Core loan products also
continued to grow, with the most significant growth occurring in residential
mortgages and home equity lines. In addition, in response to continued downward
pressure on net interest margin caused by low interest rates, management
implemented strategy changes with respect to the Bank's securities portfolio in
the latter half of 2003 which are continuing to positively impact earnings.
These changes, which increased the volatility of the Bank's earnings, involved
reducing the size of the short-term securities portfolio, increasing the size of
the intermediate-term securities portfolio and loan portfolio, and using
borrowings under repurchase agreements to pre-invest future security and loan
cash flows. The aggregate positive impact of the core deposit and loan growth
and the strategy changes made with respect to the Bank's securities portfolio
largely comprise the positive volume
9
variance of $1,714,000 and more than offset the negative impact of the downtrend
in net interest margin discussed in the "Rate Variance" section that follows.
When comparing the first quarter of 2004 to the same quarter last year,
average checking deposits increased by $39.7 million, or 15.7%. Approximately
$8.4 million of this growth is attributable to the Bank's three Manhattan
branches which were opened in June 2003. In addition, at the end of the first
quarter of 2003, the Bank introduced a free consumer checking product. Free
checking balances increased by approximately $7 million when comparing the first
quarter of 2004 to the same quarter last year. Although some of the free
checking balances migrated from the Bank's other consumer checking products, a
substantial portion came from new household relationships. 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 when comparing first quarter of 2004 to the same quarter last year,
average money-market-type deposit balances increased by $19.5 million, or 6.4%,
and attorney escrow balances increased by $6.1 million, or 57.2%. In addition,
average borrowings under repurchase agreements amounted to $46.0 million. With
respect to the growth in money-market-type deposit balances, the largest
components were growth in Select Savings and nonpersonal money market accounts.
The Bank's new business solicitation program is a significant factor that
favorably impacted growth in the average balances of checking accounts,
money-market-type deposit accounts, and attorney escrow accounts. The Bank's
attention to customer service, favorable conditions in the local economy, and
the low interest rate environment are also believed to have made a contribution.
Competitive pricing and customer demographics are believed to be other important
factors with respect to growth in the average balance of money-market-type
deposits. Perceived risk in the equity markets may have also played a role.
The average balance of residential mortgage loans grew by $43.6 million,
or 46%, from $94.8 million in the first quarter of 2003 to $138.4 million for
the current quarter. Average outstandings on home equity loans and lines of
credit grew by $3.8 million, or 12%, from $33.0 million in the first quarter of
2003 to $36.8 million for the current quarter. The low interest rate environment
and a strong housing market on Long Island are important factors that favorably
impacted the growth in both residential mortgages and home equity loans and
lines. Another important factor was an aggressive promotion of 10-year
fixed-rate mortgages executed in the latter half of 2003.
Rate Variance. The persistence of low interest rates and the resulting
negative impact on net interest margin, along with the fact that the first
quarter of 2003 included the unusually large commercial mortgage prepayment fee
of $564,000, are the primary reasons for the negative rate variance of
$1,294,000. The fee added 31 basis points to net interest margin and net
interest spread and 87 basis points to loan yield.
Net interest margin decreased by 67 basis points when comparing the first
quarter of 2004 to the same quarter last year. When applied to average total
interest-earning assets of approximately $869 million for the first quarter of
2004, the decline in net interest margin results in a decrease in net interest
income of approximately $1.5 million. The decrease in net interest margin
occurred primarily because in the low interest rate environment variable rate
loans continued to be adjusted to lower rates and proceeds from
10
the maturity, amortization and prepayment of loans and securities continued to
be reinvested at lower rates. To the extent that such loans and securities 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.
Management believes that available yields will remain low in the upcoming
year. If this were to occur and as a result assets continue to reprice and be
reinvested at lower yields, the Bank's net interest margin will continue
downward. In addition, the rate variance as depicted in the preceding table
should become more negative. Conversely, while an increase in interest rates may
initially have a negative impact on net interest margin, sustained higher
interest rates should eventually have a positive impact.
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 and
involves difficult and complex judgments about matters that are inherently
uncertain. In the event that management's estimate needs to be adjusted based
on, among other things, additional information that comes to light after the
estimate is made or changes in circumstances, such adjustment could result in
the need for a significantly different allowance for loan losses and thereby
materially impact, either positively or negatively, the Bank's results of
operations.
The Bank's Reserve Committee, which is chaired by the Senior Lending
Officer, meets on a quarterly basis and is responsible for determining the
allowance for loan losses after considering, among other things, the results of
credit reviews performed by the Bank's loan review officer. In addition, and in
consultation with the Bank's Chief Financial Officer, the Reserve Committee is
responsible for implementing and maintaining policies and procedures surrounding
the calculation of the required allowance. The Bank's allowance for loan losses
is subject to periodic examination by the Office of the Comptroller of the
Currency, the Bank's primary federal banking regulator, whose safety and
soundness examination includes a determination as to its adequacy to absorb
probable losses.
The first step in determining the allowance for loan losses is to identify
loans in the Bank's portfolio that are individually deemed to be impaired. In
doing so, subjective judgments need to be made regarding whether or not it is
probable that a borrower will be unable to pay all principal and interest due
according to contractual terms. Once a loan is identified as being impaired,
management uses either the fair value of the underlying collateral or the
discounted value of expected future cash flows to determine the amount of the
impairment loss, if any, that needs to be included in the overall allowance for
loan losses. Although appraisals are used as a starting point in estimating the
fair value of real estate collateral, management also makes qualitative
judgments based on its knowledge of the local real estate market, analysis of
current economic conditions, and expectations with regard to conditions that may
prevail in the future. Estimating the fair value of collateral other than real
estate is also subjective in nature and sometimes requires difficult and complex
judgments. Determining expected future cash flows can be more subjective than
determining fair values. Expected future cash flows could differ significantly,
both in timing and amount, from the cash flows actually received over the loan's
remaining life.
11
In addition to estimating losses for loans individually deemed to be
impaired, management also estimates collective impairment losses for pools of
loans that are not specifically reviewed. Statistical information regarding the
Bank's historical loss experience over a period of time is considered in making
such estimates. However, future losses could vary significantly from those
experienced in the past. In addition, management also considers a variety of
general qualitative factors and then subjectively determines the weight to
assign to each in estimating losses. The factors include, among others, national
and local economic conditions, environmental risks, trends in volume and terms
of loans, concentrations of credit, changes in lending policies and procedures,
and experience, ability, and depth of the Bank's lending staff. Because of the
nature of the factors and the difficulty in assessing their impact, management's
resulting estimate of losses may not accurately reflect actual losses in the
portfolio.
Although the allowance for loan losses has two separate components, one
for impairment losses on individual loans and one for collective impairment
losses on pools of loans, the entire allowance for loan losses is available to
absorb realized losses as they occur whether they relate to individual loans or
pools of loans.
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 March 31,
2004 and December 31, 2003 are as follows:
March 31, December 31,
2004 2003
----------- ------------
(dollars in thousands)
Nonaccruing loans .................................................... $ 213 $ 97
Loans past due 90 days or more as to
principal or interest payments and still accruing ................... 272 348
Foreclosed real estate ............................................... -- --
----------- -----------
Total nonperforming assets .......................................... 485 445
Troubled debt restructurings ......................................... 3 5
----------- -----------
Total risk elements ................................................. $ 488 $ 450
=========== ===========
Nonaccruing loans as a percentage of total loans ..................... .07% .03%
=========== ===========
Nonperforming assets as a percentage of total loans
and foreclosed real estate .......................................... .15% .14%
=========== ===========
Risk elements as a percentage of total loans and
foreclosed real estate .............................................. .15% .14%
=========== ===========
Allowance and Provision For Loan Losses
The allowance for loan losses grew by $93,000 during the first quarter of
2004, amounting to $2,545,000 at March 31, 2004 as compared to $2,452,000 at
December 31, 2003. The allowance represented approximately .8% of total loans at
both dates. During the first quarter of 2004, the Bank had loan chargeoffs and
recoveries of $12,000 and $5,000, respectively, and recorded a $100,000
provision for loan losses.
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. In determining the allowance for loan losses, there is not an exact
amount but rather a range
12
for what constitutes an appropriate allowance. As more fully discussed in the
"Application of Critical Accounting Policies" section of this discussion and
analysis of financial condition and results of operations, 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.
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
affect the value of real estate collateral securing the Bank's mortgage loans.
Loans secured by real estate represent approximately 82% of the Bank's total
loans outstanding at March 31, 2004. 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 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 quarter of 2004 to the same period last year, noninterest
income increased by $74,000, or 5.0%. The increase is primarily comprised of an
increase in service charge income of $51,000 and an increase in investment
management income of $36,000.
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
$346,000, or 6.1%, from $5,685,000 for the first quarter of 2003 to $6,031,000
for the same quarter this year. The increase is comprised of an increase in
salaries of $124,000, or 4.9%, an increase in occupancy and equipment expense of
$121,000, or 14.5%, and an increase in other operating expenses of $101,000, or
8.8%.
The increase in salaries is primarily attributable to normal annual salary
increases. The largest component of the increase in occupancy and equipment
expense was an increase in rent expense resulting from the opening of the three
New York City branches in June 2003. The largest components of the increase in
other operating expenses are an increase in general insurance expense, due
primarily to conditions in the insurance
13
marketplace and increased levels of liability coverages, and an increase in
consulting expense.
Income tax expense as a percentage of book income ("effective tax rate")
was 25.5% for the first three months of 2004 as compared to 26.3% for the same
quarter 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.
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 27.66%, 26.89% and 9.78%, respectively, at March 31,
2004 substantially exceed the requirements for a well-capitalized bank.
Total stockholders' equity increased by $4,151,000, or from $89,291,000 at
December 31, 2003 to $93,442,000 at March 31, 2004. The increase is primarily
attributable to net income of $2,974,000 and unrealized gains on
available-for-sale securities of $1,111,000.
Stock Repurchase Program. Since 1988, the Corporation has had a stock
repurchase program under which it can purchase, from time to time, shares of its
own common stock in market or private transactions. During the first three
months of 2004, the Corporation purchased 1,660 shares. As of March 31, 2004,
the Corporation is authorized to purchase 52,083 shares under plans previously
approved by the Board of Directors.
The stock repurchase program has historically enhanced earnings per share
and return on average stockholders' equity. Although the program only
contributed one cent to per share earnings for the first quarter of 2004, it
contributed 4 cents to full year 2003 earnings. The contribution to earnings per
share is impacted by the volume of shares purchased, the price paid per share,
and current interest rates.
Market Liquidity. Trading in the Corporation's common stock is limited.
The total trading volume for the twelve months ended March 31, 2004 as reported
by Nasdaq was 887,425 shares, with an average daily volume of 3,508 shares.
During this same twelve month period, the Corporation purchased 15,226 shares
under its share repurchase program, 6,000 of which were purchased in open market
transactions. Although the Corporation has had a stock repurchase program since
1988, if the Company reduces or discontinues the program it may negatively
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.
14
The Corporation's common stock is included in the Russell 3000(R) and
2000(R) Indices. The Corporation believes that inclusion in the Russell Indices
positively impacts the price of its common stock and increases 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 annual 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. The Corporation's primary sources of cash are deposit growth,
maturities and amortization of investment securities, operations, and borrowings
under repurchase agreements. The Corporation uses cash from these and other
sources to first fund loan growth. Any remaining cash is used primarily to
purchase a combination of short, intermediate, and longer-term investment
securities, pay cash dividends, and repurchase common stock under the
Corporation's share repurchase program. During the first quarter of 2004, the
Corporation increased its cash and cash equivalent position by $13,414,000.
Liquidity. The Corporation has both internal and external sources of
near-term liquidity that can be used to fund loan growth and accommodate deposit
outflows. The primary internal 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 intermediate and longer-term investment securities designated as
available-for-sale. At March 31, 2004, the Corporation had $40,000,000 in
federal funds sold, a short-term securities portfolio not subject to pledge
agreements of $28,401,000, and intermediate and longer-term available-for-sale
securities not subject to pledge agreements of $215,503,000. While maturities of
shorter-term securities in the Corporation's portfolio provide a significant
source of near term liquidity, the intermediate and longer-term securities
provide higher current returns and their maturities will provide a significant
source of liquidity in the future.
The Corporation's primary external sources of liquidity are customer
deposits and borrowings from brokerage firms, other commercial banks, and the
Federal Reserve Bank of New York. The Bank's deposit base consists largely of
core deposits from businesses and consumers in its local market area and does
not include any brokered deposits. The Bank has the ability to borrow on a
secured basis from brokerage firms under repurchase agreements. Although the
Bank currently has repurchase agreements in place with three brokerage firms,
these agreements do not represent legal commitments on the part of the brokerage
firms to extend credit to the Bank. The amount that the Bank can potentially
borrow under these agreements is believed to be currently in excess of $100
million and depends on, among other things, the amount and quality of the Bank's
eligible collateral and the financial condition of the Bank. In 2003 the Bank
began utilizing short-term borrowings under repurchase agreements to pre-invest
cash flows from its securities and loan portfolios.
The Bank can also borrow overnight federal funds on an unsecured basis
under lines with other commercial banks. These lines in the aggregate amount of
$30 million do not represent legal commitments to extend credit on the part of
the other banks.
As a backup to borrowing from brokerage firms and other commercial banks,
the Bank is eligible to borrow on a secured basis at the Federal Reserve Bank
("FRB")
15
discount window under the primary credit program. Primary credit, which is
normally extended on a very short-term basis, typically overnight, at a rate 100
basis points above the federal funds target rate, is viewed by the FRB as a
backup source of short-term funds for sound depository institutions like the
Bank. The amount that the Bank can borrow under the primary credit program
depends on, among other things, the amount of available eligible collateral.
Legislation
Commercial checking deposits currently account for approximately 30% 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Bank invests in interest-earning assets which are funded by
interest-bearing deposits and borrowings, 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 savings and money market 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 savings and money market
rates any further.
If interest rates decline or have declined 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 39% 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 savings and money
market 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
16
than those maturing and reprices loans at higher yields, the impact of an
increase in interest rates should be positive. This occurs primarily because
with the passage of time more loans and investment securities will reprice at
the higher rates and there will be no offsetting increase in interest expense
for those loans and investment securities funded by noninterest-bearing checking
deposits and capital.
The Bank monitors and controls interest rate risk through a variety of
techniques including, among others, the use of interest rate sensitivity models.
Through use of the models, the Bank projects future net interest income and then
estimates the effect on projected net interest income of various changes in
interest rates and balance sheet growth rates. The Bank also uses the models to
calculate the change in net portfolio value over a range of interest rate change
scenarios.
Interest rate sensitivity modeling involves a variety of significant
estimates and assumptions and is done at a specific point in time. Interest rate
sensitivity modeling requires, among other things, estimates of: (1) how much
and when yields and costs on individual categories of interest-earning assets
and interest-bearing liabilities will adjust because of projected changes in
market interest rates; (2) future cash flows; and (3) discount rates.
Changes in the estimates and assumptions made for interest rate
sensitivity modeling could have a significant impact on projected results and
conclusions. Therefore, interest rate sensitivity modeling may not accurately
reflect the actual impact of changes in the interest rate environment on the
Bank's net interest income or net portfolio value.
The information provided in the following 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 March
31, 2004 arrived at by discounting estimated future cash flows at current market
rates and (2) an estimate of net interest income for the year ending March 31,
2005 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 March 31, 2004 and net interest
income for the year ending March 31, 2005 assuming rate changes of plus 100 and
200 basis points and minus 100 and 200 basis points. The changes in net
portfolio value from the base case have not been tax effected. In addition, rate
changes are assumed to be shock or immediate changes and occur uniformly across
the yield curve regardless of the duration to maturity or repricing of specific
assets and liabilities. In projecting future net interest income under the
indicated rate change scenarios, activity is simulated by replacing maturing
balances with new balances of the same type, in the same amount, but at the
assumed rate level and adjusting repricing balances to the assumed rate level.
Based on the foregoing assumptions and as depicted in the table that
follows, an immediate increase in interest rates of 100 or 200 basis points
would have a negative effect on net interest income over a one-year time period.
This is principally because the Bank's interest-bearing deposit accounts reprice
faster than its loans and investment securities. However, if the Bank does not
increase the rates paid on its saving and money market accounts as quickly or in
the same amount as market increases in the overnight federal funds rate or the
prime lending rate, the magnitude of the negative impact will decline. Over a
longer period of time, and assuming that interest rates remain stable after the
initial rate increase and the Bank purchases securities and originates loans at
yields higher than those maturing and reprices loans at higher yields, the
impact of an increase in interest rates should be positive. This occurs
primarily because with the
17
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. Generally, the reverse should be true of an immediate decrease in
interest rates of 100 or 200 basis points. However, deposit rates are currently
very low as indicated by the Bank's overall cost of deposits of 71 basis points
for the first quarter of 2004. Therefore, while rates on many of the Bank's
interest earning assets could drop by 100 or 200 basis points, deposit rates
could not. It is for this reason that in rates down 100 basis points the
projected increase in net interest income as compared to the base case is less
than the projected decrease in rates up 100 basis points. In addition, as shown
in the table, in rates down 200 basis points net income is actually less rather
than more than the base case.
Net Interest Income
Net Portfolio Value (NPV) Year Ended
at March 31, 2004 March 31, 2005
------------------------ ------------------------
Percent Percent
Change Change
From From
Rate Change Scenario Amount Base Case Amount Base Case
- -------------------------------------------------- -------- --------- -------- ---------
(dollars in thousands)
+ 200 basis point rate shock ..................... $ 56,844 (44.2)% $ 27,641 (16.9)%
+ 100 basis point rate shock ..................... 78,756 (22.7) 30,460 (8.5)
Base case (no rate change) ..................... 101,921 -- 33,279 --
- - 100 basis point rate shock ..................... 126,473 24.1 34,587 3.9
- - 200 basis point rate shock ..................... 152,761 49.9 32,925 (1.1)
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.
18
(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.
19
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 2. Changes in Securities, Use of Proceeds and Issuer Purchase of Equity
Securities
Since 1988, the Corporation has had a stock repurchase program under which
it is authorized to purchase, from time to time, shares of its own common stock
in market or private transactions. The details of the Corporation's purchases
under the stock repurchase program during the first quarter of 2004 are set
forth in the table that follows.
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of
Shares Purchased as Maximum Number of
Total Average Part of Publicly of Shares that May Yet
Number of Price Paid Announced Plans Be Purchased Under the
Period Shares Per Share or Programs (1) Plans or Programs (1)
- --------------------------------------------------- --------- ---------- ------------------- ----------------------
January 1, 2004 to January 31, 2004 ............... -- -- -- 53,743
February 1, 2004 to Februrary 29, 2004 ............ 1,660 $48.73 1,660 52,083
March 1, 2004 to March 31, 2004 ................... -- -- -- 52,083
(1) All shares purchased by the Corporation under its stock repurchase program
in the first quarter of 2004 were purchased under a 100,000 share plan
approved by the Corporation's board of directors on January 21, 2003 and
publicly announced on January 24, 2003. In addition, the Corporation
publicly announced a 50,000 share program on April 24, 2003 under which no
shares have yet been purchased. The Corporation's share repurchase plans
do not have fixed expiration dates.
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are included herein.
Exhibit No. Name
- ----------- ----
3 Bylaws, as amended
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 March 31, 2004 (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 January 26, 2004 to report
that it had: (1) issued a press release disclosing material
non-public information regarding the Corporation's financial
condition as of December 31, 2003 and results of operations for the
year and quarterly period then ended, and (2) mailed a newsletter to
its stockholders disclosing similar non-public information regarding
the Corporation's financial condition as of December 31, 2003 and
results
20
of operations for the year then ended. The press release was
furnished as Exhibit 99.1 to the Form 8-K filing and the newsletter
to stockholders was furnished as Exhibit 99.2 to the Form 8-K
filing.
2) The Corporation filed a Form 8-K dated April 27, 2004 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, 2004, 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.
21
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: April 30, 2004 By /s/ MICHAEL N. VITTORIO
---------------------------------------------
MICHAEL N. VITTORIO, PRESIDENT & CHIEF
EXECUTIVE OFFICER
(principal executive officer)
By /s/ MARK D. CURTIS
---------------------------------------------
MARK D. CURTIS
SENIOR VICE PRESIDENT AND TREASURER
(principal financial and accounting officer)
22
EXHIBIT INDEX
EXHIBIT BEGINS
EXHIBIT DESCRIPTION ON PAGE NO.
- ------- ----------- -----------
3 Bylaws, as amended 24
31 Certification by Chief Executive Officer and 38
Chief Financial Officer In Accordance With Section
302 Of The Sarbanes-Oxley Act of 2002
32 Certification by Chief Executive Officer and 40
Chief Financial Officer In Accordance With Section
906 Of The Sarbanes-Oxley Act of 2002
23