-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RPuYL2CAk2MCcVOQaAGdIDyb54wO1PXJYAW6/geB+ElToK7Y6oYNMl28pFQz4jq7 hs1gANpL1LZ/hPbA3a2xMA== 0000891554-99-000594.txt : 19990330 0000891554-99-000594.hdr.sgml : 19990330 ACCESSION NUMBER: 0000891554-99-000594 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST OF LONG ISLAND CORP CENTRAL INDEX KEY: 0000740663 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 112672906 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12220 FILM NUMBER: 99575604 BUSINESS ADDRESS: STREET 1: 10 GLEN HEAD RD CITY: GLEN HEAD STATE: NY ZIP: 11545 BUSINESS PHONE: 5166714900 MAIL ADDRESS: STREET 1: 10 GLEN HEAD ROAD CITY: GLEN HEAD STATE: NY ZIP: 11545 10-K 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _________ to _____________ Commission file Number 0-12220 THE FIRST OF LONG ISLAND CORPORATION - -------------------------------------------------------------------------------- (Exact Name Of Registrant As Specified In Its Charter) New York 11-2672906 - ------------------------------- ------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 10 Glen Head Road, Glen Head, NY 11545 - ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (516) 671-4900 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered - ------------------- ----------------------------------------- None N/A Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value per share -------------------------------------- (Title of class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes _X_ No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] [Cover page 1 of 2 pages] The aggregate market value of the Corporation's voting stock (based on the price at which the stock was last sold on March 15, 1999) held by non-affiliates was $109,771,689 (excludes $19,341,857 representing the market value of common stock beneficially owned by directors and executive officers of the Registrant). Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at March 15, 1999 - ---------------------------- ----------------------------- Common Stock, $.10 par value 3,092,540 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Corporation's Annual Report to shareholders for the fiscal year ended December 31, 1998 are incorporated by reference into Parts II and IV. Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held April 20, 1999 are incorporated by reference into Part III. [Cover page 2 of 2 pages] PART I ITEM 1. BUSINESS General The First of Long Island Corporation (the "Registrant" or the "Corporation") was incorporated on February 7, 1984 and on April 30, 1984 acquired 100% of the outstanding common stock of The First National Bank of Long Island (the "Bank"), its sole subsidiary. The Bank was organized in 1927 as a national banking association under the laws of the United States of America and was known as the First National Bank of Glen Head through June 30, 1978. The Bank has a Trust and Investment Services Department and conducts insurance business through The First of Long Island Agency, Inc. (the "Agency"), a wholly-owned subsidiary. The Bank serves the financial needs of privately owned businesses, professionals, consumers, public bodies, and other organizations primarily in Nassau and Suffolk Counties, Long Island. The principal business of the Bank has historically consisted of attracting business and consumer checking, money market and savings deposits and investing those funds in investment securities, commercial and residential mortgage loans, commercial loans, and home equity loans and lines. The Corporation's loan portfolio is primarily comprised of loans to borrowers in Nassau and Suffolk Counties and real estate loans are principally secured by properties located in these Counties. The Bank's investment securities portfolio is comprised of U.S. Treasury securities, U.S. government agency securities (principally modified pass-through, mortgage-backed securities of Federal agencies), state and municipal securities, and collateralized mortgage obligations. The Bank also regularly sells federal funds on an overnight basis to a number of banking institutions. The Bank offers a variety of deposit products having a wide range of interest rates and terms. The principal products include checking accounts, money market accounts, savings accounts, and time deposit accounts. In addition to its loan and deposit products, the Bank offers other services to its customers including the following: o ATM Banking o Collection Services o Counter Checks and Certified Checks o Drive-Through Banking o Fixed Rate Annuities o Foreign Drafts o Gift Checks and Personal Money Orders o Merchant Credit Card Depository Services o Mutual Funds o Night Depository Services o Payroll Services o PC Business Banking o Safe Deposit Boxes o Securities Transactions o Signature Guarantee Services o Telephone Banking o Travelers Checks o Trust and Investment Management Services o U.S. Savings Bonds o Wire Transfers and Foreign Cables o Withholding Tax Depository Services The Trust and Investment Services Department provides investment management, pension trust, personal trust, estate, and custody services and engages in the sale of mutual funds. The Agency is a licensed insurance agency which was organized in 1994 under the laws of the State of New York and is primarily engaged in the sale of fixed rate annuity products. During the thirteen month period ended January 31, 1999, the Bank opened four new branch offices in Nassau and Suffolk Counties, Long Island as follows: (1) a full service branch was opened in Rockville Centre in February 1998 upon simultaneously closing the Bank's Rockville Centre commercial banking office; (2) a commercial banking office was opened in Hauppauge in August 1998; (3) a commercial banking office was opened in Bohemia in September 1998; and (4) in January 1999, the Bank opened a commercial banking office in Garden City. Unlike the Bank's other commercial banking offices, the Hauppauge and Bohemia offices are located in areas deemed to be mostly industrial. In the coming years, the Bank will continue to search for favorable locations at which to establish new branches, with continued emphasis on the commercial banking unit type. In addition to the four new branch locations discussed above, the Bank has a main office located in Huntington, New York, seven other full service offices (Glen Head, Greenvale, Locust Valley, Northport, Old Brookville, Roslyn Heights, Woodbury) and six other commercial banking offices (Great Neck, Hicksville, Lake Success, Mineola, New Hyde Park, Valley Stream), all of which are in Nassau and Suffolk Counties. 1 The Bank's revenues are derived principally from interest on loans, interest on investment securities, service charges and fees on deposit accounts, and income from trust and investment management services. The Bank did not commence, abandon, or significantly change any of its lines of business during 1998. The Bank encounters substantial competition in its banking business from numerous other banking corporations which have offices located in the communities served by the Bank. Principal competitors are branches of large banks such as Fleet Bank, Citibank, Chase Manhattan Bank, Bank of New York, and European American Bank. Lending Activities General. The Bank's loan portfolio is primarily comprised of loans to small and medium-sized privately owned businesses, professionals, and consumers in Nassau and Suffolk Counties. The Bank offers a full range of lending services including commercial and residential mortgage loans, home equity loans and lines, construction loans, commercial loans, consumer loans, and commercial and standby letters of credit. Commercial loans include, among other things, short-term business loans; term and installment loans; revolving credit loans; and loans secured by marketable securities, the cash surrender value of life insurance policies, or deposit accounts. Consumer loans include, among other things, student loans guaranteed by the Federal government, auto loans, unsecured home improvement loans, secured and unsecured personal loans, overdraft checking lines, and VISA(R) credit cards. The Bank makes both fixed and variable rate loans. Variable rate loans are tied to and reprice with changes in the Bank's prime interest rate, The Wall Street Journal prime interest rate, or U.S. Treasury rates. Commercial mortgage loans are made with terms usually not in excess of fifteen years, while the maximum term on residential mortgage loans is thirty years. Commercial and consumer loans generally mature within five years. The Bank's current practice is to usually lend no more than 75% of appraised value on residential mortgage loans, 65% on home equity loans and lines, and 70% on commercial mortgage loans. The risks inherent in the Bank's loan portfolio primarily stem from the following factors: first, loans to small and medium-sized businesses sometimes involve a higher degree of risk than those to larger companies because such businesses may have shorter operating histories and higher debt-to-equity ratios than larger companies and may lack sophistication in internal record keeping and financial and operational controls; second, the ability of many of the Bank's borrowers to repay their loans is dependent on the strength of the Long Island economy; and finally, if it becomes necessary to foreclose a loan secured by real estate, the ability of the Bank to fully realize its investment is dependent on the strength of the Long Island real estate market and the absence of environmental contamination. The Bank does not have any significant industry concentrations or foreign loans. Except for home equity products that have more stringent approval requirements, loans from $300,000 to $500,000 generally require the approval of the Management Loan Committee. All loans in excess of $500,000 require the approval of the Management Loan Committee and two members of the Board Loan Committee, one of whom must be a non-management director. The Bank's lending is subject to written underwriting standards and loan origination procedures, as approved by the Bank's Board of Directors and contained in the Bank's loan policies. The Bank's loan policies allow for exceptions and set forth the specific approvals required. Decisions on loan applications are based on, among other things, the borrower's credit history, the financial strength of the borrower, estimates of the borrower's ability to repay the loan, and the value of the collateral, if any. All real estate appraisals must meet the requirements of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. Portfolio Composition and Selected Loan Maturity Information. The composition of the Bank's loan portfolio and maturity and rate information for the Bank's commercial and industrial loans can be found in "Note C - Loans" to the Corporation's consolidated financial statements which have been incorporated by reference into "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. Commercial Loans. The Bank makes commercial loans on a demand basis, short-term discounted basis, or installment basis. Short-term business loans are generally due and payable within one year and should be self liquidating during the normal course of the borrower's business cycle. Term and installment loans are usually due and payable within five years. Generally, it is the policy of the Bank to obtain personal guarantees of principal owners on loans made to privately-owned businesses. Real Estate Mortgage and Home Equity Loans and Lines. The Bank makes residential and commercial mortgage loans and home equity loans and establishes home equity lines of credit. Applicants for residential mortgage loans and home equity loans and lines will be considered for approval provided they have satisfactory credit history and the Bank believes that there is sufficient monthly income to service both the loan or line applied for and existing debt. Applicants for commercial mortgage loans will be considered for approval provided they, as 2 well as any guarantors, have satisfactory credit history and can demonstrate, through financial statements and otherwise, the ability to repay. If the source of repayment is rental income, such income must be more than sufficient to amortize the debt. In processing requests for commercial mortgage loans, the Bank almost always requires an environmental assessment to identify the possibility of environmental contamination on the subject property. The extent of the assessment procedures varies from property to property and is based on factors such as whether or not the subject property is an industrial building or there is a suspected environmental risk based on current or past use. Construction Loans. The Bank makes loans to finance the construction of both residential and commercial properties. The maturity of such loans generally does not exceed one year and advances are made as the construction progresses. The advances usually require the submission of bills by the contractor, verification by a Bank-approved inspector that the work has been performed, and obtaining title insurance updates to insure that no intervening liens have been placed. Consumer Loans and Lines. The Bank makes student loans, auto loans, home improvement loans, and other consumer loans, establishes revolving overdraft lines of credit, and issues VISA(R) credit cards. Consumer loans and lines may be secured or unsecured. With the exception of student loans, consumer loans are generally made on an installment basis over terms not exceeding five years. In reviewing loans and lines for approval, the Bank considers, among other things, ability to repay, stability of employment and residence, and past credit history. Past Due, Nonaccrual, and Restructured Loans. Selected information about the Bank's past due, nonaccrual, and restructured loans can be found in "Note C - - Loans" to the Corporation's consolidated financial statements which have been incorporated by reference into "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. The accrual of interest on loans is generally discontinued when principal or interest payments become past due 90 days or more. As of December 31, 1998, the Bank did not have any impaired loans or material potential problem loans except for the loans disclosed in "Note C" to its consolidated financial statements. Economic conditions in the Bank's market area improved during 1998. Future levels of past due, nonperforming, and restructured loans will be affected by the strength of the local economy. Allowance for Loan Losses. The allowance for loan losses is an amount that management currently believes will be adequate to absorb possible future losses on existing loans. Changes in the Bank's allowance for loan losses for each of the five years in the period ended December 31, 1998 and the allocation of the Bank's allowance for loan losses by loan type at the end of each of these years can be found in "Note C - Loans" to the Corporation's consolidated financial statements which have been incorporated by reference into "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. The allowance for loan losses is established through provisions for loan losses charged against income. Amounts deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. The allocated component of the allowance for loan losses is based on detailed reviews of specific loans, both performing and nonperforming, and is estimated to be the amount required to cover possible future losses on such loans. Loans selected for review during the course of a year will generally include loans previously identified as problems as well as a sample of significant loans, both newly originated and originated in prior years. At the conclusion of a review, a loan will either be rated satisfactory, or, if less than satisfactory, assigned to one of several problem categories. The problem categories, in ascending order of severity, are special mention, substandard, doubtful and loss. The allocated component of the allowance for loan losses is based on the individual characteristics of each problem loan. The unallocated or general component of the allowance, which is designed to cover possible future losses on loans in the portfolio that have not been identified as problems, is primarily based on factors such as the Company's 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. The amount of future chargeoffs and provisions for loan losses will be affected by, among other things, economic conditions on Long Island. Such conditions affect the financial strength of the Bank's borrowers and the value of real estate collateral securing the Bank's mortgage loans. In addition, future provisions and chargeoffs could be affected by environmental impairment of properties securing the Bank's mortgage loans. Loans secured by real estate represent approximately 77% of total loans outstanding at December 31, 1998. Since 1987, environmental audits have been instituted on commercial properties and the incidence and scope of these audits has been increased over the succeeding years. Under the Bank's current policy, an environmental audit is required on 3 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. Investment Activities General. The investment policy of the Bank, as approved by the Board of Directors and supervised by both the Board and the Investment Committee, is intended to promote investment practices which are both safe and sound and in full compliance with the Federal Financial Institutions Examination Council (FFIEC) Supervisory Policy Statement on Investment Securities and End-User Derivative Activities and all other applicable regulations. Investment authority will be granted and amended as is necessary by the Board of Directors. The Bank's investment decisions seek to maximize income while keeping both credit and market risk at acceptable levels, provide for the Bank's liquidity needs, assist in managing interest rate sensitivity, and provide securities that can be pledged, as needed, to secure deposits or borrowing lines. The Bank's investment policy limits individual maturities to fifteen years and average lives, in the case of collateralized mortgage obligations (CMOs) and other mortgage-backed securities, to 10 years. At the time of purchase, bonds of states and political subdivisions must generally be rated A or better, notes of states and political subdivisions must generally be rated MIG-2 (or equivalent) or better, and commercial paper must be rated A-1 or P-1. In addition, management periodically reviews issuer credit ratings for all securities in the Bank's portfolio other than those issued by the U.S. government or its agencies. Any deterioration in the creditworthiness of an issuer will be analyzed and appropriate action taken when deemed necessary. The Bank has not engaged in the purchase and sale of securities for the primary purpose of producing trading profits and its current investment policy does not allow such activity. At December 31, 1998, the Bank had net unrealized gains of $3,619,000 in its held-to-maturity portfolio, consisting of gross unrealized gains of $4,031,000 and gross unrealized losses of $412,000. The unrealized gains and losses were principally caused by decreases and increases, respectively, in interest rates since the securities were purchased. The Bank has the intent and ability to hold these securities to maturity and therefore expects that neither the unrealized gains nor the unrealized losses will ever be realized. However, the effect of holding securities with unrealized gains or losses is that more or less interest will be earned in future periods than could be earned on securities purchased currently. Portfolio Composition. The composition of the Bank's investment portfolio can be found in "Note B - Investment Securities" to the Corporation's consolidated financial statements which have been incorporated by reference into "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. Maturity Information. The maturities and weighted average yields of the Bank's investment securities at December 31, 1998 can be found in "Note B Investment Securities" to the Corporation's consolidated financial statements which have been incorporated by reference into "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. The Bank received dividends on its Federal Reserve Bank stock of $6,924 in 1998 representing a yield of 6.00%. Sources of Funds General. The Bank's primary sources of funds are deposits, retained earnings, collection of principal and interest on loans, maturity and redemption of investment securities, interest earned on investment securities and federal funds sold, and other funds provided from operations. The Bank offers checking and interest-bearing deposit products. In addition to business checking, the Bank has a variety of personal checking products including "First Class", regular, budget, senior citizen and special checking. Among other things, the personal products differ in minimum balance requirements, monthly maintenance fees, and per check charges. The interest-bearing deposit products, which have a wide range of interest rates and terms, consist of checking, including interest on lawyer accounts (IOLA); three money-market-type products, including a traditional money market savings account, "Select Savings" - a statement savings account that earns a money market rate, and "Diamond Savings" - a passbook savings account that earns a money market rate; traditional statement savings; traditional passbook savings; savings certificates (3 month, 6 month and 1 to 6 year terms); large and jumbo certificates; holiday club accounts; and individual retirement accounts (savings certificates with terms of 1 to 6 years). Total certificates of deposits, the majority of which mature within one year, were $38,501,000, or 8.0% of total deposits, at December 31, 1998. Certificates of deposit in amounts of $100,000 or more were $13,055,000 at December 31, 1998, or 2.7% of total deposits. 4 The Bank relies primarily on customer service, calling programs, competitive pricing, and advertising to attract and retain deposits. Currently, the Bank solicits deposits only from its local market area and does not have any deposits which qualify as brokered deposits under applicable Federal regulations. The flow of deposits is influenced by general economic conditions, changes in interest rates and competition. Classification of Average Deposits. The classification of the Bank's average deposits can be found in "Note E - Deposits" to the Corporation's consolidated financial statements which have been incorporated by reference into "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. Remaining Maturities of Time Deposits. The remaining maturities of the Bank's time deposits in amounts of $100,000 or more at December 31, 1998 can be found in "Note E - Deposits" to the Corporation's consolidated financial statements which have been incorporated by reference into "Item 8. Financial Statements and Supplemental Data" of this Form 10-K. Competition The heavy concentration of financial institutions in Nassau and Suffolk Counties has led to keen competition for both loans and deposits. Competition in originating commercial loans comes primarily from commercial institutions located in the Bank's market area. The Bank competes for commercial loans on the basis of the quality of service it provides to borrowers, the interest rates and loan fees it charges, and the types of loans it offers. The Bank attracts all of its deposits through its banking offices primarily from the communities in which those banking offices are located. Competition for deposits is principally from other commercial banks, savings banks, brokerage firms and credit unions located in these communities. The Bank competes for these deposits by offering a variety of account alternatives at competitive rates, a competitive service charge schedule, a high level of customer service and convenient branch locations. Employees As of December 31, 1998, the Bank had 166 full-time equivalent employees and considers employee relations to be satisfactory. Employees of the Bank are not represented by a collective bargaining unit. Regulation The Corporation is subject to the regulation and supervision of the Federal Reserve Board and the Securities and Exchange Commission. The primary banking agency responsible for regulating the Bank is the Comptroller of the Currency. The Bank is also subject to regulation and supervision by the Federal Reserve Board and the Federal Deposit Insurance Corporation. ITEM 2. PROPERTIES The Corporation neither owns nor leases any real estate. Office facilities of the Corporation are located at 10 Glen Head Road, Glen Head, NY in a building owned by the Bank. The Bank's designated main office is located at 253 New York Avenue, Huntington, New York. Including the main office, the Bank owns a total of ten buildings in fee and occupies ten other facilities under lease arrangements. All of the facilities owned or leased by the Bank are in Nassau and Suffolk Counties, New York. The Corporation believes that the physical facilities of the Bank are suitable and adequate at present and are being fully utilized. ITEM 3. LEGAL PROCEEDINGS Other than ordinary routine litigation incidental to the business, it is believed that there are no material legal proceedings, either individually or in the aggregate, to which the Corporation or the Bank is a party or to which any of their property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS None were submitted to a vote of security holders during the fourth quarter of 1998. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Corporation's common stock trades on the Nasdaq SmallCap Market tier of the Nasdaq Stock Market under the symbol "FLIC". The table appearing on page (i) of the Corporation's Annual Report to Shareholders for the 5 fiscal year ended December 31, 1998 showing the high and low sales prices, by quarter, for the years ended December 31, 1998 and 1997 is incorporated herein by reference. On March 15, 1999, there were 3,092,540 shares of the Corporation's common stock outstanding with 788 holders of record. The holders of record include banks and brokers who act as nominees, each of whom may represent more than one stockholder. During 1998 and 1997, the Corporation declared semi-annual cash dividends aggregating $.57 and $.49 per share, respectively. ITEM 6. SELECTED FINANCIAL DATA "Selected Financial Data" appearing on page (i) of the Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 1998 is incorporated herein by reference. The Corporation's dividend payout ratio was 21.59%, 20.42% and 20.00% for 1998, 1997 and 1996, respectively. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 4 through 13 of the Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 1998 is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk information included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and appearing on pages 10 and 11 of the Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 1998 is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and report of independent public accountants appearing on pages 15 through 37 of Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 1998 are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT "ELECTION OF DIRECTORS" appearing on pages 3 and 4 and "MANAGEMENT" appearing on page 7 of Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held April 20, 1999 are incorporated herein by reference. Mr. Joseph G. Perri, an executive officer of the Corporation, purchased 250 shares of the Corporation's common stock on March 5, 1998. This transaction was not reported timely on Form 4. ITEM 11. EXECUTIVE COMPENSATION "COMPENSATION OF DIRECTORS", "BOARD COMPENSATION COMMITTEE REPORT", "COMPENSATION OF EXECUTIVE OFFICERS", "SUMMARY COMPENSATION TABLE", "COMPENSATION PURSUANT TO PLANS", and "PERFORMANCE GRAPH" appearing on pages 5 and 8 through 16 of the Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held April 20, 1999 are incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT "VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS" appearing on Pages 1 through 3 of Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held April 20, 1999 is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS "TRANSACTIONS WITH MANAGEMENT AND OTHERS" appearing on page 17 of Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held April 20, 1999 is incorporated herein by reference. 6 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements The following consolidated financial statements of the Corporation and its subsidiary, and Report of Independent Public Accountants thereon, as required by Item 8 of this report are incorporated herein by reference. o Consolidated Balance Sheets - December 31, 1998 and 1997 o Consolidated Statements of Income - Years ended December 31, 1998, 1997 and 1996 o Consolidated Statement of Changes in Stockholders' Equity - Years ended December 31, 1998, 1997 and 1996 o Consolidated Statements of Cash Flows - Years ended December 31, 1998, 1997 and 1996 o Notes to Consolidated Financial Statements (a) 2. Financial Statement Schedules None Applicable. (a) 3. Listing of Exhibits The following exhibits are submitted herewith.
Exhibit No. Name Exhibits - ----------- ---- -------- 3 (i) Certificate of Incorporation, as amended 3 (ii) By-laws, as amended 10.1 Incentive Compensation Plan * 10.2 1986 Stock Option and Appreciation Rights Plan ** 10.3 1996 Stock Option and Appreciation Rights Plan *** 10.4 Employment Agreement between Registrant and J. William Johnson, dated January 31, 1996, as amended December 18, 1996, January 2, 1998, and January 6, 1999 **** 10.5 Special Severance Agreement between Registrant and Arthur J. Lupinacci, Jr., dated November 20, 1998 10.6 Special Severance Agreement between Registrant and Donald L. Manfredonia, dated November 20, 1998 10.7 Special Severance Agreement between Registrant and Joseph G. Perri, dated November 20, 1998 10.8 Special Severance Agreement between Registrant and John C. Sansone, dated November 20, 1998 10.9 Special Severance Agreement between Registrant and Richard Kick, dated November 20, 1998 10.10 Special Severance Agreement between Registrant and Mark D. Curtis, dated November 20, 1998 13 Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1998 21 Subsidiary of Registrant 23 Consent of Independent Public Accountants 27 Financial Data Schedule 99 Notice of 1999 Annual Meeting and Proxy Statement *****
* "Incentive Compensation Plan" and "Board Compensation Committee Report" appearing on pages 13 and 8, respectively, of the Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held April 20, 1999 are incorporated herein by reference. **Previously filed as an exhibit to Form 10-K which exhibit is incorporated herein by reference. *** Previously filed as part of Report on Form 10-K for 1995, filed on March 22, 1996, as exhibit 10(b), which exhibit is incorporated herein by reference. **** Employment agreement previously filed as part of Report on Form 10-K for 1995, filed on March 22, 1996, as exhibit 10(c), which exhibit is incorporated herein by reference. The December 18, 1996 amendment increased Mr. Johnson's base annual salary from $280,000 to $295,000, the January 2, 1998 amendment increased Mr. Johnson's base salary from $295,000 to $307,000, and the January 6, 1999 amendment increased Mr. Johnson's base annual salary from $307,000 to $325,000. 7 *****The Corporation's Proxy Statement for its Annual Meeting of Stockholders to be held April 20, 1999 was submitted in electronic format on March 9, 1999 and is incorporated herein by reference. (b) Reports on Form 8-K There were no reports filed on Form 8-K for the three-month period ended December 31, 1998. (c) Exhibits Exhibits as listed under 14(a) 3. above are submitted as a separate section of this report. (d) Financial Statement Schedules - None 8 Signatures Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE FIRST OF LONG ISLAND CORPORATION (Registrant) Dated: March 22, 1999 By /s/ J. WILLIAM JOHNSON -------------------------------------- J. WILLIAM JOHNSON, President (principal executive officer) By /s/ MARK D. CURTIS -------------------------------------- MARK D. CURTIS, Senior Vice President and Treasurer (principal financial officer and principal accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signatures Titles Date - ---------- ------ ---- /s/ J. WILLIAM JOHNSON President, Chairman MARCH 22, 1999 - ----------------------------- of the Board, Chief J. William Johnson Executive Officer /s/ PAUL T. CANARICK Director MARCH 22, 1999 - ----------------------------- Paul T. Canarick /s/ BEVERLY ANN GEHLMEYER Director MARCH 22, 1999 - ----------------------------- Beverly Ann Gehlmeyer /s/ HOWARD THOMAS HOGAN, JR. Director MARCH 22, 1999 - ----------------------------- Howard Thomas Hogan, Jr. /s/ J. DOUGLAS MAXWELL, JR. Director MARCH 22, 1999 - ----------------------------- J. Douglas Maxwell, Jr. /s/ JOHN R. MILLER III Director MARCH 22, 1999 - ----------------------------- John R. Miller III Director MARCH 22, 1999 - ----------------------------- Walter C. Teagle III 9 EXHIBIT INDEX
EXHIBIT BEGINS ON SEQUENTIAL EXHIBIT DESCRIPTION PAGE NO. - ------- ----------- -------------- 3 (i) Certificate of Incorporation, as amended 11 3 (ii) By-laws, as amended 19 10.1 Incentive Compensation Plan * 10.2 1986 Stock Option and Appreciation Rights Plan ** 10.3 1996 Stock Option and Appreciation Rights Plan *** 10.4 Employment Agreement Between Registrant and J. William Johnson, dated January 31, 1996, as amended December 18, 1996, January 2, 1998, and January 6, 1999 **** 10.5 Special Severance Agreement between Registrant and Arthur J. Lupinacci, Jr., dated November 20, 1998 31 10.6 Special Severance Agreement between Registrant and Donald L. Manfredonia, dated November 20, 1998 36 10.7 Special Severance Agreement between Registrant and Joseph G. Perri, dated November 20, 1998 41 10.8 Special Severance Agreement between Registrant and John C. Sansone, dated November 20, 1998 46 10.9 Special Severance Agreement between Registrant and Richard Kick, dated November 20, 1998 51 10.10 Special Severance Agreement between Registrant and Mark D. Curtis, dated November 20, 1998 56 13 Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1998 61 21 Subsidiary of Registrant 112 23 Consent of Independent Public Accountants 113 27 Financial Data Schedule 115 99 Notice of 1999 Annual Meeting and Proxy Statement *****
* "Incentive Compensation Plan" and "Board Compensation Committee Report" appearing on pages 13 and 8, respectively, of the Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held April 20, 1999 are incorporated herein by reference. **Previously filed as an exhibit to Form 10-K which exhibit is incorporated herein by reference. *** Previously filed as part of Report on Form 10-K for 1995, filed on March 22, 1996, as exhibit 10(b), which exhibit is incorporated herein by reference. **** Previously filed as part of Report on Form 10-K for 1995, filed on March 22, 1996, as exhibit 10(c), which exhibit is incorporated herein by reference. The December 18, 1996 amendment increased Mr. Johnson's base annual salary from $280,000 to $295,000, the January 2, 1998 amendment increased Mr. Johnson's base salary from $295,000 to $307,000, and the January 6, 1999 amendment increased Mr. Johnson's base salary from $307,000 to $325,000. *****The Corporation's Proxy Statement for its Annual Meeting of Stockholders to be held April 20, 1999 was submitted in electronic format on March 9, 1999 and is incorporated herein by reference. 10 EX-3.(I) 2 CERTIFICATE OF INCORPORATION, AS AMENDED EXHIBIT 3 (i) - CERTIFICATE OF INCORPORATION, AS AMENDED 11 CERTIFICATE OF INCORPORATION OF THE FIRST OF LONG ISLAND CORPORATION UNDER SECTION 402 OF THE BUSINESS CORPORATION LAW I, the undersigned, being a person of the age of eighteen years or older, for the purpose of forming a corporation pursuant to Section 402 of the Business Corporation Law of New York, do hereby certify: FIRST Name The name of the corporation is The First of Long Island Corporation. SECOND Business Purposes The purposes for which this corporation is formed are as follows: a. General business purposes including, but not limited to, holding the stock of The First National Bank of Long Island, New York, and managing the affairs of said Bank. b. To engage in any lawful act or activity for which a corporation may be organized under the New York Business Corporation Law. c. To do everything necessary, proper, advisable or convenient for the accomplishment of the purposes hereinabove set forth, and to do all other things incidental thereto or connected therewith, which are not forbidden by the laws under which this corporation is organized, by other laws, or by this Certificate of Incorporation. THIRD Corporate Office The office of the corporation is to be located within the Town of Oyster Bay, County of Nassau, State of New York. FOURTH Agent Section 1. The Secretary of State is designated as the agent of the corporation upon whom process may be served. The post office address to which the Secretary of State shall mail a copy of any process against the corporation served upon him is: c/o The First National Bank of Long Island, 10 Glen Head Road, Glen Head, New York 11545. Section 2. The name and address of the registered agent which is to be the agent of the corporation upon whom process against it may be served, are The First National Bank of Long Island, a corporation organized under the laws of the United States, located at 10 Glen Head Road, Glen Head, New York 11545. 12 FIFTH Capital Stock The aggregate number of shares which this corporation shall have authority to issue is 20,000,000 shares, par value $.10 each, which shall be known as "common stock." a. The holders of the common stock shall be entitled to receive dividends when and as legally declared by the Board of Directors. b. The common stock may be allotted as and when the Board of Directors shall determine, and, under and pursuant to the laws of the State of New York, the Board of Directors shall have the power to fix or alter, from time to time, in respect to shares then unallotted, any or all of the following: the dividend rate, the redemption price, the liquidation price, the conversion rights and the sinking or purchase fund rights of shares of any class, or of any series of any class, or the number of shares constituting any series of any class. The Board of Directors shall also have the power to fix the terms, provisions and conditions of options to purchase or subscribe for shares of any class or classes, including the price and conversion basis thereof, and to authorize the issuance thereof. The Board of Directors shall also have the power to issue shares of stock of the corporation for cash, services, property, the securities or assets of other business enterprises, as it may from time to time deem expedient. c. At all elections of directors of the corporation, each stockholder entitled generally to vote for the election of directors shall be entitled to as many votes as shall equal the number of votes which (except for this provision as to cumulative voting) he would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them as he may see fit. d. No holder of stock of the corporation shall have any preferential, preemptive or other rights of subscription to any shares of any class of stock of the corporation allotted or sold or to be allotted or sold now or hereafter authorized, or to any obligations convertible into the stock of the corporation of any class, or any right of subscription to any part thereof. SIXTH Board of Directors Section 1. The management and conduct of the business of the corporation shall be vested in a Board of Directors, which shall consist of such number of directors, not less than the minimum permitted by law, as shall be 13 fixed in the Bylaws, or in the absence of such provision in the Bylaws, as shall be determined by the shareholders at any annual or special meeting thereof. Section 2. The Board of Directors shall be divided into two classes, Class I, and Class II, which shall be as nearly equal in number as possible, and no class shall include less than three directors. Each director shall serve for a term ending on the date of the second annual meeting following the annual meeting at which such director was elected; provided, however, that each initial director in Class I shall hold office until the annual meeting of stockholders in 1985; and each initial director in Class II shall hold office until the annual meeting of stockholders in 1986. Section 3. In the event of any increase or decrease in the authorized number of directors (i) each director then serving as such shall nevertheless continue as a director of the class of which he is a member until the expiration of his current term, or his prior death, retirement, resignation or removal for cause, (ii) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors between the two classes of directors so as to maintain such classes as nearly equal as possible, and (iii) when the number of directors is increased by the board and any newly created directorships are filled by the board, there shall be no classification of the additional directors until the next annual meeting of shareholders. Section 4. Notwithstanding any of the foregoing provisions of this Article, each director shall serve until his successor is elected and qualified or until his death, retirement, resignation or removal for cause. Should a vacancy occur or be created, whether arising through death, resignation or removal for cause of a director or through an increase in the number of directors of any class, such vacancy shall be filled by a majority vote of the remaining directors of the class in which such vacancy occurs, or by the sole remaining director of that class if only one such director remains, or by the majority vote of the remaining directors of the other class if there is no remaining member of the class in which the vacancy occurs. A director so elected to fill a vacancy shall serve until the next meeting of stockholders at which the election of directors is in the regular order of business, and until his successor has been duly elected and qualified. Section 5. Notwithstanding any other provisions of this Certificate of Incorporation or the Bylaws of the corporation, any director or the entire Board of Directors of the corporation may be removed at any time, but only for cause. As used herein, "cause" shall mean either (i) a felony conviction no longer subject to appeal; (ii) a final adjudication of negligent or improper conduct in the performance of the director's duty to the corporation; or (iii) a final order of removal from office no longer subject to review, duly issued by the appropriate federal banking agency. Section 6. No director of the corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the New York Business Corporation Law as the same exists or may hereafter be amended. Any repeal or modification of the foregoing provision by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. Section 7. The affirmative vote of the holders of 70% or more of the outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter, change or repeal this Article Sixth of this Certificate of Incorporation. 14 SEVENTH Business Combinations Part A. For the purpose of this Article Seventh: Section 1. Any shares of Voting Stock of this corporation which any Major Stockholder has the right to vote or to acquire (i) pursuant to any agreement, (ii) by reason of tenders of shares by stockholders of the corporation in connection with or pursuant to a tender offer made by such Major Stockholder (whether or not any tenders have been accepted, but excluding tenders which have been rejected), or (iii) upon the exercise of conversion rights, warrants, options or otherwise, shall be deemed "beneficially owned" by such Major Stockholder. Section 2. The term "Business Combination" shall mean: a. Any merger or consolidation (whether in a single transaction or a series of related transactions, including a series of separate transactions with a Major Stockholder, any Affiliate or Associate thereof or any Person acting in concert therewith) of this corporation or any Subsidiary with or into a Major Stockholder or of a Major Stockholder into this corporation or a Subsidiary; b. Any sale, lease, exchange, transfer, distribution to stockholders or other disposition, including without limitation, a mortgage, pledge or any other security device, to or with a Major Stockholder by the corporation or any of its Subsidiaries (in a single transaction or a series of related transactions) of all, substantially all or any Substantial Part of the assets of this corporation or a Subsidiary (including, without limitation, any securities of a Subsidiary); c. The purchase, exchange, lease or other acquisition by the corporation or any of its Subsidiaries (in a single transaction or a series of related transactions) of all, substantially all or any Substantial Part of the Assets or business of a Major Stockholder; d. The issuance of any securities, or of any rights, warrants or options to acquire any securities, of this corporation or a Subsidiary to a Major Stockholder or the acquisition by this corporation or a Subsidiary of any securities, or of any rights, warrants or options to acquire any securities, of a Major Stockholder; e. Any reclassification of Voting Stock, recapitalization or other transaction (other than a redemption in accordance with the terms of the security redeemed) which has the effect, directly or indirectly, of increasing the proportionate amount of Voting Stock of the corporation or any Subsidiary thereof which is beneficially owned by a Major Stockholder, or any partial or complete liquidation, spin off, split off or split up of the corporation or any Subsidiary thereof; provided, however, 15 that this Section A(2) (e) shall not relate to any transaction of the types specified herein that has been approved by a majority of the Continuing Directors; and f. Any agreement, contract or other arrangement providing for any of the transactions described herein. Section 3. The term "Continuing Director" shall mean (i) a person who was a member of the Board of Directors of this corporation immediately prior to the time that any then existing Major Stockholder became a Major Stockholder or (ii) a person designated (before initially becoming a director) as a Continuing Director by a majority of the then Continuing Directors. All references to a vote of the Continuing Directors shall mean a vote of the total number of Continuing Directors of the corporation. Section 4. The term "Major Stockholder" shall mean any person which, together with its Affiliates and Associates and any Person acting in concert therewith, is the beneficial owner of 10% or more of the votes held by the holders of the outstanding shares of the Voting Stock of this corporation, and any Affiliate or Associate of a Major Stockholder, including a Person acting in concert therewith. The term "Major Stockholder" shall not include a Subsidiary of this corporation. Section 5. The term "Affiliate" shall mean, with respect to a specified Person, a Person who directly or indirectly controls, or is controlled by, or is under common control with, the Person specified. Section 6. The term "Associate" means, with respect to a specified Person, (1) any organization, other than this corporation and its subsidiaries, of which such Person is an officer, partner, or beneficial owner of 10 per cent or more of any class of equity securities, (2) any trust or estate in which such Person has a substantial beneficial interest or as to which serves in a fiduciary capacity, and (3) any relative or spouse of such Person, or relative of such spouse, who has the same home as such Person or who is a director or officer of this corporation or any of its subsidiaries. Section 7. The term "other consideration to be received" shall include, without limitation, Voting Stock of this corporation retained by its existing stockholders in the event of a Business Combination which is a merger or consolidation in which this corporation is the surviving corporation. Section 8. The term "Person" shall mean any individual, corporation, partnership or other person, group or entity (other than the corporation, any Subsidiary of the corporation or a trustee holding stock for the benefit of employees of the corporation or its Subsidiaries, or any one of them, pursuant to one or more employee benefit plans or arrangements). When two or more Persons act as a partnership, limited partnership, syndicate, association or other group for the purpose of acquiring, holding or disposing of shares of stock, such partnerships, syndicate, association or group will be deemed a "Person". Section 9. The term "Subsidiary" shall mean any business entity 50% or more of which is beneficially owned by the corporation. Section 10. The term "Substantial Part," as used in reference to the assets of the corporation, of any Subsidiary or of any Major Stockholder means assets having a value of more than 5% of the total consolidated assets of the corporation and its Subsidiaries as of the end of the corporation's most recent fiscal year ending prior to the time the determination is made. 16 Section 11. The term "Voting Stock" shall mean stock or other securities entitled to vote upon any action to be taken in connection with any Business Combination or entitled to vote generally in the election of directors, including stock or other securities convertible into Voting Stock. Part B. Notwithstanding any other provisions of this Certificate of Incorporation and except as set forth in Part C of this Article Seventh, neither the corporation nor any Subsidiary shall be party to a Business Combination unless: Section 1. The Business Combination was approved by the Board of Directors of the corporation prior to the Major Stockholder involved in the Business Combination becoming a Major Stockholder and by at least 70% of the outstanding Voting Stock of the corporation; or Section 2. The Major Stockholder involved in the Business Combination sought and obtained the unanimous prior approval of the Board of Directors to become a Major Stockholder and the Business Combination was approved by a majority of the Continuing Directors and by at least 70% of the outstanding Voting Stock of the corporation; or Section 3. The Business Combination was approved by at least 70% of the Continuing Directors of the corporation and by at least 70% of the outstanding Voting Stock of the corporation; or Section 4. The Business Combination was approved by at least 70% of the outstanding Voting Stock of the corporation and by at least 70% of the outstanding Voting Stock beneficially owned by stockholders other than any Major Stockholder. Part C. During the time a Major Stockholder exists, a resolution to voluntarily dissolve the corporation shall be adopted only upon: (1) the vote by at least 70% of the Continuing Directors of the corporation; or (2) the vote by at least 70% of the outstanding Voting Stock of the corporation and by at least 70% of the outstanding Voting Stock beneficially owned by stockholders other than any Major Stockholder. Part D. As to any particular transaction, the Continuing Directors shall have the power and duty to determine, on the basis of information known to them: Section 1. The amount of Voting Stock beneficially held by any Person; Section 2. Whether a Person is an Affiliate or Associate of another; Section 3. Whether a Person is acting in concert with another; Section 4. Whether the assets subject to any Business Combination constitute a "Substantial Part" as herein defined; Section 5. Whether a proposed transaction is subject to the provisions of this Article Seventh; and Section 6. Such other matters with respect to which a determination is required under this Article Seventh. Any such determination shall be conclusive and binding for all purposes of this Article Seventh. Part E. The affirmative vote required by this Article Seventh is in addition to the vote of the holders of any class or series of stock of the corporation otherwise required by law, this Certificate of Incorporation, any resolution which has been adopted by the Board of Directors providing for the issuance of a class or series of stock or any agreement between the corporation and any national securities exchange. Part F. Any amendment, change or repeal of this Article Seventh or any other amendment of this Certificate of Incorporation which would have the effect of modifying or permitting circumvention of the provisions of this Article Seventh shall require approval by at least 70% of the outstanding Voting Stock of the corporation and at least 70% of the outstanding Voting Stock beneficially owned by stockholders other than any Major Stockholder. 17 EIGHTH Shareholder Meetings Section 1. A quorum for any meeting of shareholders to transact business of this corporation except as otherwise specifically provided herein or by law shall be the presence in person or by proxy of the holder of a majority of the shares of common stock of the corporation and of record on the record date set for the meeting. Section 2. A special meeting of the shareholders may be held at any time and for any purpose and may only be called by the President or the Board of Directors of the corporation. NINTH Amendment Subject to the special provisions set forth in the foregoing Articles of this Certificate of Incorporation, the provisions contained herein may be amended solely upon the approval of the Board of Directors and by the affirmative vote of the holders of seventy percent (70%) of the stock entitled to vote thereon; provided, however, that any of the following changes may be authorized by or pursuant to authorization by the Board of Directors: a. To specify or change the location of the corporation's office. b. To specify or change the post office address to which the Secretary of State shall mail a copy of any process against the corporation served upon him. c. To make, revoke or change the designation of a registered agent. d. To make further changes for which the Board of Directors is authorized pursuant to the laws of the State of New York. IN WITNESS WHEREOF, the undersigned has set his hand this 6th day of February, 1984. /s/ J. William Johnson ---------------------- J. William Johnson c/o The First National Bank of Long Island 10 Glen Head Road Glen Head, New York 11545 18 EX-3.(II) 3 BY-LAWS, AS AMENDED EXHIBIT 3 (ii) - BY-LAWS, AS AMENDED 19 BYLAWS OF THE FIRST OF LONG ISLAND CORPORATION ARTICLE I OFFICES; CORPORATE SEAL Section 1. Corporation Office. The office of the corporation in New York shall be that set forth in the Certificate of Incorporation or in the most recent amendment of the Certificate of Incorporation or resolution of the Board of Directors filed with the Secretary of State of New York changing the corporation office. Section 2. Other Offices. The corporation may have such other offices, within or without the State of New York, as the Board of Directors shall, from time to time, determine. Section 3. Corporate Seal. The corporate seal of the corporation shall consist of the name of the corporation and the name of the State of incorporation and shall be in such form and bear such other inscription as the Board of Directors may determine. The failure to use such seal, however, shall not affect the validity of any documents executed on behalf of the corporation. ARTICLE II SHAREHOLDER MEETINGS Section 1. Place and Time of Meetings. Meetings of the shareholders may be held at any place, within or without the State of New York, designated by the Board of Directors and, in the absence of such designation, shall be held at the office of the corporation in the State of New York. The Board of Directors shall designate the time of day for each meeting and, in the absence of such designation, every meeting of shareholders shall be held at three-thirty o'clock p.m. Section 2. Annual Meetings. (a) Unless otherwise designated by the Board of Directors, the annual meeting of the shareholders shall be held on the third Tuesday of April of each year; provided, however, that the interval between two consecutive annual meetings shall not be more than thirteen (13) months nor less than ten (10) months. (b) At the annual meeting the shareholders, voting as provided in the Certificate of Incorporation, shall elect directors, and shall transact such other business as may properly come before them. Section 3. Special Meetings. A special meeting of the shareholders may be held at any time and for any purpose and may only be called by the President or the Board of Directors. 20 Section 4. Quorum; Adjourned Meetings. The presence, in person or by proxy, of the holders of a majority of the shares entitled to vote at any annual or special meeting shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting may be adjourned to a subsequent date, provided notice of such adjournment is mailed to each shareholder entitled to vote at least five (5) days before such adjourned meeting. If a quorum is present, a meeting may be adjourned from time to time without notice other than announcement at such meeting. At adjourned meetings at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. If a quorum is present, the shareholders may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 5. Voting. At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote either in person or by proxy. Each shareholder, unless the Certificate of Incorporation provides otherwise, shall have one vote for each share having voting power registered in his name on the books of the corporation. Upon the demand of any shareholder, the vote upon any question before the meeting shall be by ballot. All questions shall be decided by a majority vote of the number of shares entitled to vote and represented at the meeting at the time of the vote except where otherwise required by applicable law, the Certificate of Incorporation, or these Bylaws. Section 6. Closing of Books. The Board of Directors may fix a time, not more than fifty (50) nor less than ten (10) days preceding the date of any meeting of shareholders, as a record date for the determination of the shareholders entitled to notice of, and to vote at, such meeting, notwithstanding any transfer of shares on the books of the corporation after any record date so fixed. The Board of Directors may close the books of the corporation against the transfer of shares during the whole or any part of such period. If the Board of Directors fails to fix a record date for determination of the shareholders entitled to notice of, and to vote at, any meeting of shareholders, the record date shall be the fiftieth (50th) day preceding the date of such meeting. Section 7. Notice of Meetings. There shall be mailed to each shareholder, shown by the books of the corporation to be a holder of record of voting shares, at his address as shown by the books of the corporation, a notice setting out the time and place of each annual meeting and each special meeting, which notice shall be mailed not less than ten (10) days nor more than fifty (50) days prior thereto; except that notice of a meeting at which there is to be considered either (i) an agreement of merger or consolidation, (ii) a proposal to dispose of all or substantially all of the property and assets of the corporation, (iii) a proposal to dissolve the corporation, or (iv) a proposal to 21 amend the Certificate of Incorporation, shall be mailed to all shareholders, whether entitled to vote or not, at least thirty (30) days prior to the date of such meeting. Every notice of any special meeting shall state the purpose or purposes for which the meeting has been called, pursuant to Section 3 of this Article, and the business transacted at all special meetings shall be confined to the purpose or purposes stated in the notice. Section 8. Waiver of Notice. Any shareholder, or the representative entitled to vote any shares so represented, may waive notice of any shareholder meeting by executing a written waiver of such notice either before, at or after such meeting; provided, however, that the attendance of any stockholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him. Section 9. Written Action. Any action which might be taken at a meeting of the shareholders may be taken without a meeting if done in accordance with Section 615 of the New York Business Corporation Law, as the same may be amended from time to time, or in accordance with such other statutory provision as may be substituted therefor. ARTICLE III DIRECTORS Section 1. General. The property, affairs and business of the corporation shall be managed by the Board of Directors, each of whom shall be at least eighteen years of age. Section 2. Number and Qualifications. The Board of Directors of the corporation shall consist of not less than five nor more than fifteen directors, the exact number within such minimum and maximum limits to be fixed and determined from time to time by resolution of a majority of the full Board of Directors; provided, however, that no decrease in number shall shorten the term of any incumbent director. Directors should own a minimum of two hundred (200) shares. Section 3. Term. The Board of Directors shall be divided into two classes, Class I and Class II, which shall be as nearly equal in number as possible. Each director shall serve a term ending on the date of the second annual meeting following the annual meeting at which such director was elected; provided, however, that each initial director in Class I shall hold office until the annual meeting of shareholders in 1985; and each initial director in Class II shall hold office until the annual meeting of shareholders in 1986. 22 Section 4. Nominations. (a) Nominations for the election of directors may be made by the Board of Directors or by any shareholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the corporation not less than fourteen (14) days nor more than fifty (50) days prior to any meeting of the shareholders called for the election of directors; provided, however, that if less than twenty-one (21) days' notice of the meeting is given to shareholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to shareholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board. (b) Each notice under subsection (a) shall set forth (i) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of each such nominee and (iii) the number of shares of stock of the corporation which are beneficially owned by each such nominee. (c) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 5. Organization Meeting. As soon as practicable after each annual election of directors, the Board of Directors shall meet at the office of the corporation, or at such other place within or without the State of New York as may be designated by the Board of Directors, for the purpose of electing the officers of the corporation and for the transaction of such other business as shall come before the meeting. Section 6. Regular Meeting. The regular meetings of the Board of Directors shall be held, without notice, at the office of the corporation on the third Tuesday of each January, April, July and October. When any regular meeting of the Board falls upon a holiday, the meeting shall be held on the next banking business day unless the Board shall designate some other day. Section 7. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman, the President or at the request of three (3) or more of the directors and shall be held at such time and place as may be designated in the notice of such meeting. 23 Section 8. Notice of Meetings. Notice of special meetings of the Board of Directors shall be given at least twenty-four (24) hours in advance thereof by mail, telephone, telegram or in person. Section 9. Waiver of Notice. Notice of any meeting of the Board of Directors may be waived by a director either before, at, or after such meeting in a writing signed by such director; provided, however, that a director, by his attendance and participation in any action taken at any meeting of the Board of Directors, shall be deemed to have waived notice of such meeting. Section 10. Director and Committee Action by Conference Telephone. Any one or more members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of a conference telephone or similar equipment which allows all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at such a meeting. Section 11. Quorum. A majority of the whole Board of Directors shall constitute a quorum for the transaction of business, except that when a vacancy or vacancies exist, a majority of the remaining directors shall constitute a quorum. Section 12. Vacancies, Increases in Number. Any vacancy occurring in the Board of Directors (by death, resignation, removal for cause, increase in number pursuant to Section 2, or otherwise) may be filled by the affirmative vote of a majority of the remaining directors of the class in which the vacancy occurs. A director elected to fill a vacancy shall be elected to serve until the next annual meeting of shareholders, at which time a new director will be elected for that position. Section 13. Removal. At any meeting of shareholders called expressly for that purpose, any director or the entire Board of Directors may be removed, with cause, pursuant to the provisions of the Certificate of Incorporation. In the event that the entire Board or any one or more directors be so removed, new directors shall be elected at the same meeting. Section 14. Retirement. Each director shall retire at the annual meeting following his attaining the age of seventy-five (75). Section 15. Chairman of the Board. The Board of Directors shall appoint one of its members to be Chairman of the Board to serve at the pleasure of the Board. The Chairman so appointed may also be Chief Executive Officer of the Bank. He shall preside at the Annual Meeting of Shareholders and at all meetings of the Board of Directors. In addition to any specific powers conferred by these Bylaws, he shall also have and may 24 exercise such further powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors. Section 16. Secretary to the Board. The Board of Directors may appoint a Secretary to the Board who shall keep the minutes of its meetings instead of the Secretary of the Corporation. The said person need not be a member of the Board of Directors. Section 17. Committees. The Board of Directors may establish such committees from time to time, making such regulations as it deems advisable with respect to the membership, authority and procedures of such committee of the Board of Directors; provided, however, that in no event shall a committee have power to amend these Bylaws. Section 18. Compensation. Directors who are not salaried officers of this corporation may receive such fixed sum per meeting attended or such fixed annual sum as may be determined, from time to time by resolution of the Board of Directors. All directors may receive their expenses, if any, of attendance at meetings of the Board of Directors or any committee thereof, if approved by resolution of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving this corporation in any other Capacity and receiving proper compensation therefor. ARTICLE IV OFFICERS Section 1. Number. The officers of this corporation shall be a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, and a Treasurer, and such other officers as the Board of Directors, in its discretion, may deem necessary. Any two offices, except those of President and Secretary, may be held by one person. Section 2. Election, Term of office, Qualifications. At each organization meeting of the Board of Directors the Board shall elect all of the officers of the corporation. All officers of the corporation except the President shall hold office until the annual meeting of the Board next succeeding their election to office, or until the election and qualification of their respective successors. The President shall continue to hold office until the election and qualification of his successor. Section 3. Chief Executive Officer. The Board of Directors shall appoint one of its members to be Chief Executive officer of the corporation, who may also serve as Chairman and/or President. The Chief Executive officer shall have general executive powers, and shall have and may exercise any and all other powers and duties 25 pertaining by law, regulation or practice, to the office of Chief Executive Officer, or imposed by these Bylaws. He shall also have and may exercise such further powers and duties as from time to time may be conferred upon, or assigned to, him by the Board of Directors. Section 4. President. The Board of Directors shall appoint one of its members to be President of the corporation. He may also be Chief Executive Officer of the corporation, and, in the absence of the Chairman, he shall preside at meetings of the Board of Directors and at the Annual Meeting of Shareholders. He shall have general executive powers, and, in addition to any specific powers conferred by these Bylaws, he shall also have and may exercise such further powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors or the Chief Executive Officer. In the absence of the Chief Executive Officer, he shall perform all the duties of the Chief Executive Officer. Section 5. Vice President. Each Vice President shall have such powers and shall perform such duties as may be specified in the Bylaws or prescribed by the Board of Directors or by the President. In the event of absence or disability of the President, Vice Presidents shall succeed to his power and duties in the order designated by the Board of Directors. Section 6. Secretary. The Secretary shall keep accurate minutes of all meetings of the shareholders and the Board of Directors, shall give proper notice of meetings of shareholders and directors, and shall perform such other duties and have such other powers as the Board of Directors or the President may from time to time prescribe. However, the Board of Directors may, in its discretion, appoint additionally a Secretary to the Board who shall keep the minutes of its meetings instead of the Secretary of the Corporation. Section 7. Treasurer. The Treasurer, subject to the order of the Board of Directors, shall have the care and custody of the money, funds, valuable papers, and documents of the corporation (other than his own bond, if any, which shall be in the custody of the President), and shall have and exercise, under the supervision of the Board of Directors, all the powers and duties commonly incident to his office, and shall give bond in such form and amount and with such sureties as shall be required by the Board of Directors. The Treasurer shall keep accurate accounts of all monies of the corporation received or disbursed. He shall deposit all monies, drafts and checks in the name of, and to the credit of, the corporation in such banks and depositaries as a majority of the whole Board of Directors shall from time to time designate. He shall have power to endorse for deposit all notes, checks and drafts received by the corporation. He shall disburse the funds of the corporation in the manner prescribed by the Board of Directors, making proper vouchers therefor. He shall render to the President and the directors, whenever 26 required, an account of all his transactions as Treasurer and of the financial condition of the corporation and shall perform such other duties as may be prescribed from time to time by the Board of Directors or by the President. Section 8. Additional Officers and Agents. The Board of Directors, at its discretion, may appoint a general manager, one or more assistant treasurers, one or more assistant secretaries, and such other officers or agents as it may deem advisable, and may prescribe the duties of any such officer or agent. ARTICLE V SHARES Section I. Stock Certificates. Certificates of stock shall bear the seal of the corporation engraved thereon, and the signature of two persons. One shall be the signature of the Chairman of the Board, a Vice Chairman of the Board, the President or a Vice President. The other shall be the signature of the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer. Such signatures may be manual signatures or facsimiles thereof. If the transfer agent or registrar of the corporation is other than the corporation, an affiliate or its employee, a certificate bearing facsimile signatures shall be manually countersigned by the transfer agent or registrar of the corporation, and the requirement for such countersignature by any such independent transfer agent or registrar shall be conspicuously noted on the face of the certificate. Each certificate shall recite on its face that the stock represented thereby is transferable only upon the books of the corporation upon surrender of the certificate properly endorsed. Section 2. Transfers. Shares of stock shall be transferable on the books of the corporation, and a transfer book shall be kept in which all transfers of stock shall be recorded. Every person becoming a shareholder by such transfer shall, in proportion to his shares, succeed to all rights and liabilities of the prior holder of such shares. Section 3. Loss of Certificates. Any shareholder claiming loss or destruction of a share certificate shall make an affidavit of that fact and, unless waived by the Chief Executive Officer or Treasurer, shall give the corporation a bond of indemnity to indemnify the corporation against any claim which may be made against it on account of the reissue of such certificate, whereupon a new certificate may be issued in the same tenor and for the same number of shares as the one alleged to have been destroyed or lost. 27 ARTICLE VI DIVIDENDS Section 1. Dividends. Subject to the provisions of the Certificate of Incorporation, these Bylaws and applicable law, the Board of Directors may declare dividends from paid-in surplus, earned surplus or from net earnings for the current or preceding fiscal year of the corporation at such times and in such amounts as the Board shall deem advisable. Section 2. Record Date. Subject to any provisions of the Certificate of Incorporation, the Board of Directors may fix a date preceding the date fixed for the payment of any dividend or allotment of other rights as the record date for the determination of the shareholders entitled to receive payment of such dividend or allotment of such rights; and in such case only shareholders of record on the date so fixed shall be entitled to receive such payment or allotment notwithstanding any transfer of shares on the books of the corporation after such record date. The Board of Directors may close the books of the corporation against the transfer of shares during the whole or any part of such period. ARTICLE VII BOOKS AND RECORDS; FISCAL YEAR Section 1. Books and Records. The Board of Directors of the corporation shall cause to be kept in the office of the corporation: (a) a share register, giving the names and addresses of the shareholders, the number and classes of shares held by each, and the dates on which the certificates therefor were issued; (b) records of all proceedings of shareholders and directors; (c) such other records and books of account as shall be necessary and appropriate to the conduct of the corporate business; and (d) Bylaws of the corporation and all amendments thereto. Section 2. Fiscal Year. The fiscal year of the corporation shall be the calendar year. ARTICLE VIII INSPECTION OF BOOKS Section 1. Examination by Shareholders. Every shareholder of the corporation and every holder of a voting trust certificate shall have the right to examine, in person or by agent or attorney authorized in writing to represent the shareholder, at any reasonable time or times, for any proper purpose, and at the place or places where 28 usually kept, the share register, books of account and records of the proceedings of the shareholders and directors and to make extracts therefrom. Section 2. Information to Shareholders. Upon written request by a shareholder of the corporation, the Board of Directors shall furnish to him a statement of profit and loss for the last fiscal year and a balance sheet containing a summary of the assets and liabilities as of the close of such fiscal year. ARTICLE IX INDEMNIFICATION, CONTRACT WITH THE CORPORATION AND LIABILITY INSURANCE Section 1. Indemnification. Any person who at any time (i) shall serve or shall have served as a director, officer, or employee of the corporation or (ii) at the request of the corporation, shall serve or shall have served any other corporation, association, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise as a director, trustee, officer, employee, or in any other capacity, and the heirs, executors and administrators of such person, shall be indemnified by the corporation in accordance with and to the fullest extent permitted by New York law, including the Business Corporation Law of the State of New York, as the same exists or may hereafter be amended. The foregoing right of indemnification or reimbursement shall not be exclusive of other rights to which such person may be entitled. Section 2. Contract with the Corporation. The provisions of this Article IX shall be deemed to be a contract between the corporation and each director and officer of the corporation who serves in any such capacity at any time while this Article IX and the relevant provisions of New York law, as the same exists or may hereafter be amended, may be in existence; and any amendment of any such law or of this Article IX shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts. Section 3. Liability Insurance. The corporation shall have the power, to the fullest extent permitted by New York law, as the same exists or may hereafter be amended, to purchase and maintain insurance on behalf of any person who is or was a director or officer against any liability asserted against him and incurred by him in such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him against any such liability under the provisions of this Article IX. 29 ARTICLE X AMENDMENTS Section 1. Subject to Section 2 of this Article, these Bylaws may be amended by a vote of the majority of the whole Board of Directors at any meeting. Section 2. Notwithstanding the provisions of Section 1 of this Article, the shareholders may amend or repeal any Bylaw by affirmative vote of seventy percent (70%) or more of the outstanding shares of capital stock of the corporation entitled to vote generally, cast at any annual meeting or at any special meeting of shareholders called for such purpose. 30 EX-10.5 4 SPECIAL SEVERANCE AGREEMENT EXHIBIT 10.5 - SPECIAL SEVERANCE AGREEMENT BETWEEN REGISTRANT AND ARTHUR J. LUPINACCI 31 THE FIRST OF LONG ISLAND CORPORATION SPECIAL SEVERANCE AGREEMENT AGREEMENT dated as of November 20, 1998 by and between THE FIRST OF LONG ISLAND CORPORATION (hereinafter referred to as "FLIC") and ARTHUR J. LUPINACCI, JR. (hereinafter referred to as the "Officer"). 1. Term. The term of this agreement shall be for a period of one (1) year commencing on the date hereof. The term shall be automatically renewed for additional one (1) year terms, unless the Board of Directors of FLIC chooses not to renew and notifies Officer of such intention not to renew at least thirty (30) days prior to the end of a term. 2. Termination Payment. A. Officer will be entitled to a payment (the "Termination Payment") equal to One Hundred Fifty Per Cent (150%) of his then current annual base salary (the dollar amount so calculated being hereafter referred to as the "Full Severance"), and FLIC shall make such Termination Payment to Officer, in the event of the occurrence of any of the following: (i) The employment of Officer is terminated by The First National Bank Of Long Island ("FNBLI") within twenty-four months after a Change Of Control Event (as hereinafter defined); (ii) Officer resigns his employment with FNBLI for Good Reason (as hereinafter defined) within twenty-four months after a Change of Control Event; or (iii) The employment of Officer is terminated by FNBLI within twenty-four months after any entity, person or group shall have acquired more than twenty per cent (20%) of the voting shares of FLIC and, at the time of such termination, the Chief Executive Officer of FNBLI serving in that capacity as of the first day of the term hereof, or of the then current renewal term, as the case may be, shall have ceased to be employed by FNBLI in such capacity. B. Officer will be entitled to a Termination Payment equal to Sixty Six and Two Thirds Per Cent (66 2/3%) of the Full Severance in the event that Officer shall resign for any reason during the period beginning on the thirty-first day after a Change of Control Event and ending on the sixtieth day after such event. C. FLIC may elect to discharge its obligation to make the Termination Payment by causing FNBLI, its wholly owned subsidiary, to make such payment. 3. Non-Waiver. The failure of Officer to resign upon the occurrence of a particular event constituting Good Reason hereunder shall not bar the Officer from resigning upon the subsequent occurrence of any other or further event constituting Good 32 Reason, and thereby becoming eligible to receive the Termination Payment, provided that such resignation occurs within twenty-four months after a Change of Control Event. 4. Ineligibility For Termination Payment. Regardless of whether a Change of Control Event shall have occurred, Officer shall not be entitled to any Termination Payment in the event that his employment is terminated (i) by reason of his death, normal retirement or disability, or (ii) by FNBLI for Cause (as hereinafter defined). 5. Definitions. A. "Good Reason" for resignation by Officer of his employment shall mean the occurrence (without the Officer's express written consent) of any one of the following acts or omissions to act by FLIC or FNBLI: (i) The assignment to Officer of any duties materially inconsistent with the nature and status of his responsibilities immediately prior to a Change of Control Event, or a substantial adverse alteration in the nature or status of his responsibilities from those in effect immediately prior to the Change of Control Event; provided, however, that a redesignation of his title shall not in and of itself constitute Good Reason if his overall duties and status within FLIC and FNBLI are not substantially adversely affected. (ii) A reduction in his annual base salary as in effect at the time of a Change of Control Event. For purposes hereof, "annual base salary" shall mean regular basic annual compensation prior to any reduction therein under a salary reduction agreement pursuant to Section 401(k) or Section 125 of the Internal Revenue Code and, without limitation, shall exclude fees, bonuses, incentive awards or similar payments. (iii) The failure by FLIC or FNBLI to pay Officer any portion of his current compensation, or to pay him any portion of an installment of a deferred compensation amount under any deferred compensation program, within fourteen (14) days of the date such compensation is due. B. "Cause" shall mean any of the following: (i) The willful and continued failure by Officer to substantially perform his duties, as they may be defined by FLIC or FNBLI from time to time, or to abide by the written policies of FLIC or FNBLI after a written demand for substantial performance is delivered to him by the Board of Directors of FLIC or FNBLI, as the case may be, which specifically identifies the manner in which he has failed substantially to perform his duties or has failed to abide by such written policies, and (ii) The willful engaging by Officer in conduct which is materially injurious to FLIC or FNBLI, monetarily or otherwise. For the purpose of the preceding sentence, no act, or failure to act, on the part 33 of Officer shall be deemed "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his act, or failure to act, was in the best interest of FLIC or FNBLI, as the case may be. C. "Change of Control Event" shall mean the occurrence of any one of the following: (i) Continuing Outside Directors (as hereinafter defined) no longer constitute at least two-thirds (2/3) of Outside Directors (as hereinafter defined) of FLIC; (ii) There shall be consummated a merger or consolidation of FLIC, unless at least two-thirds (2/3) of Continuing Outside Directors are to continue to constitute at least two-thirds (2/3) of Continuing Directors; (iii) At least two-thirds (2/3) of Continuing Outside Directors determine that action taken by stockholders constitutes a Change of Control Event; or (iv) FNBLI is no longer a wholly-owned subsidiary of FLIC. D. "Continuing Outside Director" shall mean any individual who is not an employee of FLIC or FNBLI and who (i) is a director of FLIC as of the date hereof, (ii) prior to election as a director is nominated by at least two-thirds (2/3) of the Continuing Outside Directors, or (iii) following election as a director is designated a Continuing Outside Director by at least two-thirds (2/3) of Continuing Outside Directors. E. "Outside Director" shall mean an individual who is not an employee of FLIC or FNBLI who is a director of FLIC. 6. Withholding Taxes; Other Deductions. FLIC and FNBLI shall have the right (i) to deduct from any payments due under this Agreement amounts sufficient to cover withholding as required by law for any federal, state or local taxes and any amounts due from the Officer to FLIC or FNBLI and (ii) to take such other action as may be necessary to satisfy any such withholding or other obligations, including but not limited to withholding amounts equal to such taxes or obligations from any other amounts due or to become due from FLIC or FNBLI to Officer. 7. Miscellaneous. A. Nothing contained herein shall be construed as an agreement that Officer will continue to be employed by FNBLI for any particular period of time and the employment of Officer may be terminated by FNBLI at any time. B. The determination of the Board of Directors of FLIC not to renew this Agreement shall not deprive Officer of any right that has accrued to Officer during the term hereof by reason of the occurrence during the term of this Agreement of an event described in Section "2" hereof. 34 C. Notices. Any notices required to be given under this Agreement shall be in writing and shall be sent by certified mail, return receipt requested, to FLIC at 10 Glen Head Road, Glen Head, New York 11545, Attention: Board of Directors, and to you at the your residence address as reflected in the records of FLIC; or to such other address as either party may designate by written notice to the other. D. Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. THE FIRST OF LONG ISLAND CORPORATION By: /s/ J. Douglas Maxwell -------------------------------- J. Douglas Maxwell /s/ Arthur J. Lupinacci, Jr. -------------------------------- Arthur J. Lupinacci, Jr. 35 EX-10.6 5 SPECIAL SEVERANCE AGREEMENT EXHIBIT 10.6 - SPECIAL SEVERANCE AGREEMENT BETWEEN REGISTRANT AND DONALD L. MANFREDONIA 36 THE FIRST OF LONG ISLAND CORPORATION SPECIAL SEVERANCE AGREEMENT AGREEMENT dated as of November 20, 1998 by and between THE FIRST OF LONG ISLAND CORPORATION (hereinafter referred to as "FLIC") and DONALD L. MANFREDONIA (hereinafter referred to as the "Officer"). 1. Term. The term of this agreement shall be for a period of one (1) year commencing on the date hereof. The term shall be automatically renewed for additional one (1) year terms, unless the Board of Directors of FLIC chooses not to renew and notifies Officer of such intention not to renew at least thirty (30) days prior to the end of a term. 2. Termination Payment. A. Officer will be entitled to a payment (the "Termination Payment") equal to One Hundred Twenty-Five Per Cent (125%) of his then current annual base salary (the dollar amount so calculated being hereafter referred to as the "Full Severance"), and FLIC shall make such Termination Payment to Officer, in the event of the occurrence of any of the following: (i) The employment of Officer is terminated by The First National Bank Of Long Island ("FNBLI") within twenty-four months after a Change Of Control Event (as hereinafter defined); (ii) Officer resigns his employment with FNBLI for Good Reason (as hereinafter defined) within twenty-four months after a Change of Control Event; or (iii) The employment of Officer is terminated by FNBLI within twenty-four months after any entity, person or group shall have acquired more than twenty per cent (20%) of the voting shares of FLIC and, at the time of such termination, the Chief Executive Officer of FNBLI serving in that capacity as of the first day of the term hereof, or of the then current renewal term, as the case may be, shall have ceased to be employed by FNBLI in such capacity. B. Officer will be entitled to a Termination Payment equal to Sixty Six and Two Thirds Per Cent (66 2/3%) of the Full Severance in the event that Officer shall resign for any reason during the period beginning on the thirty-first day after a Change of Control Event and ending on the sixtieth day after such event. C. FLIC may elect to discharge its obligation to make the Termination Payment by causing FNBLI, its wholly owned subsidiary, to make such payment. 3. Non-Waiver. The failure of Officer to resign upon the occurrence of a particular event constituting Good Reason hereunder shall not bar the Officer from resigning upon the subsequent occurrence of any other or further event constituting Good 37 Reason, and thereby becoming eligible to receive the Termination Payment, provided that such resignation occurs within twenty-four months after a Change of Control Event. 4. Ineligibility For Termination Payment. Regardless of whether a Change of Control Event shall have occurred, Officer shall not be entitled to any Termination Payment in the event that his employment is terminated (i) by reason of his death, normal retirement or disability, or (ii) by FNBLI for Cause (as hereinafter defined). 5. Definitions. A. "Good Reason" for resignation by Officer of his employment shall mean the occurrence (without the Officer's express written consent) of any one of the following acts or omissions to act by FLIC or FNBLI: (i) The assignment to Officer of any duties materially inconsistent with the nature and status of his responsibilities immediately prior to a Change of Control Event, or a substantial adverse alteration in the nature or status of his responsibilities from those in effect immediately prior to the Change of Control Event; provided, however, that a redesignation of his title shall not in and of itself constitute Good Reason if his overall duties and status within FLIC and FNBLI are not substantially adversely affected. (ii) A reduction in his annual base salary as in effect at the time of a Change of Control Event. For purposes hereof, "annual base salary" shall mean regular basic annual compensation prior to any reduction therein under a salary reduction agreement pursuant to Section 401(k) or Section 125 of the Internal Revenue Code and, without limitation, shall exclude fees, bonuses, incentive awards or similar payments. (iii) The failure by FLIC or FNBLI to pay Officer any portion of his current compensation, or to pay him any portion of an installment of a deferred compensation amount under any deferred compensation program, within fourteen (14) days of the date such compensation is due. B. "Cause" shall mean any of the following: (i) The willful and continued failure by Officer to substantially perform his duties, as they may be defined by FLIC or FNBLI from time to time, or to abide by the written policies of FLIC or FNBLI after a written demand for substantial performance is delivered to him by the Board of Directors of FLIC or FNBLI, as the case may be, which specifically identifies the manner in which he has failed substantially to perform his duties or has failed to abide by such written policies, and (ii) The willful engaging by Officer in conduct which is materially injurious to FLIC or FNBLI, monetarily or otherwise. For the purpose of the preceding sentence, no act, or failure to act, on the part 38 of Officer shall be deemed "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his act, or failure to act, was in the best interest of FLIC or FNBLI, as the case may be. C. "Change of Control Event" shall mean the occurrence of any one of the following: (i) Continuing Outside Directors (as hereinafter defined) no longer constitute at least two-thirds (2/3) of Outside Directors (as hereinafter defined) of FLIC; (ii) There shall be consummated a merger or consolidation of FLIC, unless at least two-thirds (2/3) of Continuing Outside Directors are to continue to constitute at least two-thirds (2/3) of Continuing Directors; (iii) At least two-thirds (2/3) of Continuing Outside Directors determine that action taken by stockholders constitutes a Change of Control Event; or (iv) FNBLI is no longer a wholly-owned subsidiary of FLIC. D. "Continuing Outside Director" shall mean any individual who is not an employee of FLIC or FNBLI and who (i) is a director of FLIC as of the date hereof, (ii) prior to election as a director is nominated by at least two-thirds (2/3) of the Continuing Outside Directors, or (iii) following election as a director is designated a Continuing Outside Director by at least two-thirds (2/3) of Continuing Outside Directors. E. "Outside Director" shall mean an individual who is not an employee of FLIC or FNBLI who is a director of FLIC. 6. Withholding Taxes; Other Deductions. FLIC and FNBLI shall have the right (i) to deduct from any payments due under this Agreement amounts sufficient to cover withholding as required by law for any federal, state or local taxes and any amounts due from the Officer to FLIC or FNBLI and (ii) to take such other action as may be necessary to satisfy any such withholding or other obligations, including but not limited to withholding amounts equal to such taxes or obligations from any other amounts due or to become due from FLIC or FNBLI to Officer. 7. Miscellaneous. A. Nothing contained herein shall be construed as an agreement that Officer will continue to be employed by FNBLI for any particular period of time and the employment of Officer may be terminated by FNBLI at any time. B. The determination of the Board of Directors of FLIC not to renew this Agreement shall not deprive Officer of any right that has accrued to Officer during the term hereof by reason of the occurrence during the term of this Agreement of an event described in Section "2" hereof. 39 C. Notices. Any notices required to be given under this Agreement shall be in writing and shall be sent by certified mail, return receipt requested, to FLIC at 10 Glen Head Road, Glen Head, New York 11545, Attention: Board of Directors, and to you at the your residence address as reflected in the records of FLIC; or to such other address as either party may designate by written notice to the other. D. Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. THE FIRST OF LONG ISLAND CORPORATION By: /s/ J. Douglas Maxwell -------------------------------- J. Douglas Maxwell /s/ Donald L. Manfredonia -------------------------------- Donald L. Manfredonia 40 EX-10.7 6 SPECIAL SEVERANCE AGREEMENT EXHIBIT 10.7 - SPECIAL SEVERANCE AGREEMENT BETWEEN REGISTRANT AND JOSEPH G. PERRI 41 THE FIRST OF LONG ISLAND CORPORATION SPECIAL SEVERANCE AGREEMENT AGREEMENT dated as of November 20, 1998 by and between THE FIRST OF LONG ISLAND CORPORATION (hereinafter referred to as "FLIC") and JOSEPH G. PERRI (hereinafter referred to as the "Officer"). 1. Term. The term of this agreement shall be for a period of one (1) year commencing on the date hereof. The term shall be automatically renewed for additional one (1) year terms, unless the Board of Directors of FLIC chooses not to renew and notifies Officer of such intention not to renew at least thirty (30) days prior to the end of a term. 2. Termination Payment. A. Officer will be entitled to a payment (the "Termination Payment") equal to One Hundred Per Cent (100%) of his then current annual base salary (the dollar amount so calculated being hereafter referred to as the "Full Severance"), and FLIC shall make such Termination Payment to Officer, in the event of the occurrence of any of the following: (i) The employment of Officer is terminated by The First National Bank Of Long Island ("FNBLI") within twenty-four months after a Change Of Control Event (as hereinafter defined); (ii) Officer resigns his employment with FNBLI for Good Reason (as hereinafter defined) within twenty-four months after a Change of Control Event; or (iii) The employment of Officer is terminated by FNBLI within twenty-four months after any entity, person or group shall have acquired more than twenty per cent (20%) of the voting shares of FLIC and, at the time of such termination, the Chief Executive Officer of FNBLI serving in that capacity as of the first day of the term hereof, or of the then current renewal term, as the case may be, shall have ceased to be employed by FNBLI in such capacity. B. Officer will be entitled to a Termination Payment equal to Sixty Six and Two Thirds Per Cent (66 2/3%) of the Full Severance in the event that Officer shall resign for any reason during the period beginning on the thirty-first day after a Change of Control Event and ending on the sixtieth day after such event. C. FLIC may elect to discharge its obligation to make the Termination Payment by causing FNBLI, its wholly owned subsidiary, to make such payment. 3. Non-Waiver. The failure of Officer to resign upon the occurrence of a particular event constituting Good Reason hereunder shall not bar the Officer from resigning upon the subsequent occurrence of any other or further event constituting Good 42 Reason, and thereby becoming eligible to receive the Termination Payment, provided that such resignation occurs within twenty-four months after a Change of Control Event. 4. Ineligibility For Termination Payment. Regardless of whether a Change of Control Event shall have occurred, Officer shall not be entitled to any Termination Payment in the event that his employment is terminated (i) by reason of his death, normal retirement or disability, or (ii) by FNBLI for Cause (as hereinafter defined). 5. Definitions. A. "Good Reason" for resignation by Officer of his employment shall mean the occurrence (without the Officer's express written consent) of any one of the following acts or omissions to act by FLIC or FNBLI: (i) The assignment to Officer of any duties materially inconsistent with the nature and status of his responsibilities immediately prior to a Change of Control Event, or a substantial adverse alteration in the nature or status of his responsibilities from those in effect immediately prior to the Change of Control Event; provided, however, that a redesignation of his title shall not in and of itself constitute Good Reason if his overall duties and status within FLIC and FNBLI are not substantially adversely affected. (ii) A reduction in his annual base salary as in effect at the time of a Change of Control Event. For purposes hereof, "annual base salary" shall mean regular basic annual compensation prior to any reduction therein under a salary reduction agreement pursuant to Section 401(k) or Section 125 of the Internal Revenue Code and, without limitation, shall exclude fees, bonuses, incentive awards or similar payments. (iii) The failure by FLIC or FNBLI to pay Officer any portion of his current compensation, or to pay him any portion of an installment of a deferred compensation amount under any deferred compensation program, within fourteen (14) days of the date such compensation is due. B. "Cause" shall mean any of the following: (i) The willful and continued failure by Officer to substantially perform his duties, as they may be defined by FLIC or FNBLI from time to time, or to abide by the written policies of FLIC or FNBLI after a written demand for substantial performance is delivered to him by the Board of Directors of FLIC or FNBLI, as the case may be, which specifically identifies the manner in which he has failed substantially to perform his duties or has failed to abide by such written policies, and (ii) The willful engaging by Officer in conduct which is materially injurious to FLIC or FNBLI, monetarily or otherwise. For the purpose of the preceding sentence, no act, or failure to act, on the part 43 of Officer shall be deemed "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his act, or failure to act, was in the best interest of FLIC or FNBLI, as the case may be. C. "Change of Control Event" shall mean the occurrence of any one of the following: (i) Continuing Outside Directors (as hereinafter defined) no longer constitute at least two-thirds (2/3) of Outside Directors (as hereinafter defined) of FLIC; (ii) There shall be consummated a merger or consolidation of FLIC, unless at least two-thirds (2/3) of Continuing Outside Directors are to continue to constitute at least two-thirds (2/3) of Continuing Directors; (iii) At least two-thirds (2/3) of Continuing Outside Directors determine that action taken by stockholders constitutes a Change of Control Event; or (iv) FNBLI is no longer a wholly-owned subsidiary of FLIC. D. "Continuing Outside Director" shall mean any individual who is not an employee of FLIC or FNBLI and who (i) is a director of FLIC as of the date hereof, (ii) prior to election as a director is nominated by at least two-thirds (2/3) of the Continuing Outside Directors, or (iii) following election as a director is designated a Continuing Outside Director by at least two-thirds (2/3) of Continuing Outside Directors. E. "Outside Director" shall mean an individual who is not an employee of FLIC or FNBLI who is a director of FLIC. 6. Withholding Taxes; Other Deductions. FLIC and FNBLI shall have the right (i) to deduct from any payments due under this Agreement amounts sufficient to cover withholding as required by law for any federal, state or local taxes and any amounts due from the Officer to FLIC or FNBLI and (ii) to take such other action as may be necessary to satisfy any such withholding or other obligations, including but not limited to withholding amounts equal to such taxes or obligations from any other amounts due or to become due from FLIC or FNBLI to Officer. 7. Miscellaneous. A. Nothing contained herein shall be construed as an agreement that Officer will continue to be employed by FNBLI for any particular period of time and the employment of Officer may be terminated by FNBLI at any time. B. The determination of the Board of Directors of FLIC not to renew this Agreement shall not deprive Officer of any right that has accrued to Officer during the term hereof by reason of the occurrence during the term of this Agreement of an event described in Section "2" hereof. 44 C. Notices. Any notices required to be given under this Agreement shall be in writing and shall be sent by certified mail, return receipt requested, to FLIC at 10 Glen Head Road, Glen Head, New York 11545, Attention: Board of Directors, and to you at the your residence address as reflected in the records of FLIC; or to such other address as either party may designate by written notice to the other. D. Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. THE FIRST OF LONG ISLAND CORPORATION By: /s/ J. Douglas Maxwell -------------------------------- J. Douglas Maxwell /s/ Joseph G. Perri -------------------------------- Joseph G. Perri 45 EX-10.8 7 SPECIAL SEVERANCE AGREEMENT EXHIBIT 10.8 - SPECIAL SEVERANCE AGREEMENT BETWEEN REGISTRANT AND JOHN C. SANSONE 46 THE FIRST OF LONG ISLAND CORPORATION SPECIAL SEVERANCE AGREEMENT AGREEMENT dated as of November 20, 1998 by and between THE FIRST OF LONG ISLAND CORPORATION (hereinafter referred to as "FLIC") and JOHN C. SANSONE (hereinafter referred to as the "Officer"). 1. Term. The term of this agreement shall be for a period of one (1) year commencing on the date hereof. The term shall be automatically renewed for additional one (1) year terms, unless the Board of Directors of FLIC chooses not to renew and notifies Officer of such intention not to renew at least thirty (30) days prior to the end of a term. 2. Termination Payment. A. Officer will be entitled to a payment (the "Termination Payment") equal to One Hundred Per Cent (100%) of his then current annual base salary (the dollar amount so calculated being hereafter referred to as the "Full Severance"), and FLIC shall make such Termination Payment to Officer, in the event of the occurrence of any of the following: (i) The employment of Officer is terminated by The First National Bank Of Long Island ("FNBLI") within twenty-four months after a Change Of Control Event (as hereinafter defined); (ii) Officer resigns his employment with FNBLI for Good Reason (as hereinafter defined) within twenty-four months after a Change of Control Event; or (iii) The employment of Officer is terminated by FNBLI within twenty-four months after any entity, person or group shall have acquired more than twenty per cent (20%) of the voting shares of FLIC and, at the time of such termination, the Chief Executive Officer of FNBLI serving in that capacity as of the first day of the term hereof, or of the then current renewal term, as the case may be, shall have ceased to be employed by FNBLI in such capacity. B. Officer will be entitled to a Termination Payment equal to Sixty Six and Two Thirds Per Cent (66 2/3%) of the Full Severance in the event that Officer shall resign for any reason during the period beginning on the thirty-first day after a Change of Control Event and ending on the sixtieth day after such event. C. FLIC may elect to discharge its obligation to make the Termination Payment by causing FNBLI, its wholly owned subsidiary, to make such payment. 3. Non-Waiver. The failure of Officer to resign upon the occurrence of a particular event constituting Good Reason hereunder shall not bar the Officer from resigning upon the subsequent occurrence of any other or further event constituting Good 47 Reason, and thereby becoming eligible to receive the Termination Payment, provided that such resignation occurs within twenty-four months after a Change of Control Event. 4. Ineligibility For Termination Payment. Regardless of whether a Change of Control Event shall have occurred, Officer shall not be entitled to any Termination Payment in the event that his employment is terminated (i) by reason of his death, normal retirement or disability, or (ii) by FNBLI for Cause (as hereinafter defined). 5. Definitions. A. "Good Reason" for resignation by Officer of his employment shall mean the occurrence (without the Officer's express written consent) of any one of the following acts or omissions to act by FLIC or FNBLI: (i) The assignment to Officer of any duties materially inconsistent with the nature and status of his responsibilities immediately prior to a Change of Control Event, or a substantial adverse alteration in the nature or status of his responsibilities from those in effect immediately prior to the Change of Control Event; provided, however, that a redesignation of his title shall not in and of itself constitute Good Reason if his overall duties and status within FLIC and FNBLI are not substantially adversely affected. (ii) A reduction in his annual base salary as in effect at the time of a Change of Control Event. For purposes hereof, "annual base salary" shall mean regular basic annual compensation prior to any reduction therein under a salary reduction agreement pursuant to Section 401(k) or Section 125 of the Internal Revenue Code and, without limitation, shall exclude fees, bonuses, incentive awards or similar payments. (iii) The failure by FLIC or FNBLI to pay Officer any portion of his current compensation, or to pay him any portion of an installment of a deferred compensation amount under any deferred compensation program, within fourteen (14) days of the date such compensation is due. B. "Cause" shall mean any of the following: (i) The willful and continued failure by Officer to substantially perform his duties, as they may be defined by FLIC or FNBLI from time to time, or to abide by the written policies of FLIC or FNBLI after a written demand for substantial performance is delivered to him by the Board of Directors of FLIC or FNBLI, as the case may be, which specifically identifies the manner in which he has failed substantially to perform his duties or has failed to abide by such written policies, and (ii) The willful engaging by Officer in conduct which is materially injurious to FLIC or FNBLI, monetarily or otherwise. For the purpose of the preceding sentence, no act, or failure to act, on the part 48 of Officer shall be deemed "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his act, or failure to act, was in the best interest of FLIC or FNBLI, as the case may be. C. "Change of Control Event" shall mean the occurrence of any one of the following: (i) Continuing Outside Directors (as hereinafter defined) no longer constitute at least two-thirds (2/3) of Outside Directors (as hereinafter defined) of FLIC; (ii) There shall be consummated a merger or consolidation of FLIC, unless at least two-thirds (2/3) of Continuing Outside Directors are to continue to constitute at least two-thirds (2/3) of Continuing Directors; (iii) At least two-thirds (2/3) of Continuing Outside Directors determine that action taken by stockholders constitutes a Change of Control Event; or (iv) FNBLI is no longer a wholly-owned subsidiary of FLIC. D. "Continuing Outside Director" shall mean any individual who is not an employee of FLIC or FNBLI and who (i) is a director of FLIC as of the date hereof, (ii) prior to election as a director is nominated by at least two-thirds (2/3) of the Continuing Outside Directors, or (iii) following election as a director is designated a Continuing Outside Director by at least two-thirds (2/3) of Continuing Outside Directors. E. "Outside Director" shall mean an individual who is not an employee of FLIC or FNBLI who is a director of FLIC. 6. Withholding Taxes; Other Deductions. FLIC and FNBLI shall have the right (i) to deduct from any payments due under this Agreement amounts sufficient to cover withholding as required by law for any federal, state or local taxes and any amounts due from the Officer to FLIC or FNBLI and (ii) to take such other action as may be necessary to satisfy any such withholding or other obligations, including but not limited to withholding amounts equal to such taxes or obligations from any other amounts due or to become due from FLIC or FNBLI to Officer. 7. Miscellaneous. A. Nothing contained herein shall be construed as an agreement that Officer will continue to be employed by FNBLI for any particular period of time and the employment of Officer may be terminated by FNBLI at any time. B. The determination of the Board of Directors of FLIC not to renew this Agreement shall not deprive Officer of any right that has accrued to Officer during the term hereof by reason of the occurrence during the term of this Agreement of an event described in Section "2" hereof. 49 C. Notices. Any notices required to be given under this Agreement shall be in writing and shall be sent by certified mail, return receipt requested, to FLIC at 10 Glen Head Road, Glen Head, New York 11545, Attention: Board of Directors, and to you at the your residence address as reflected in the records of FLIC; or to such other address as either party may designate by written notice to the other. D. Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. THE FIRST OF LONG ISLAND CORPORATION By: /s/ J. Douglas Maxwell -------------------------------- J. Douglas Maxwell /s/ John C. Sansone -------------------------------- John C. Sansone 50 EX-10.9 8 SPECIAL SEVERANCE AGREEMENT EXHIBIT 10.9 - SPECIAL SEVERANCE AGREEMENT BETWEEN REGISTRANT AND RICHARD KICK 51 THE FIRST OF LONG ISLAND CORPORATION SPECIAL SEVERANCE AGREEMENT AGREEMENT dated as of November 20, 1998 by and between THE FIRST OF LONG ISLAND CORPORATION (hereinafter referred to as "FLIC") and RICHARD KICK (hereinafter referred to as the "Officer"). 1. Term. The term of this agreement shall be for a period of one (1) year commencing on the date hereof. The term shall be automatically renewed for additional one (1) year terms, unless the Board of Directors of FLIC chooses not to renew and notifies Officer of such intention not to renew at least thirty (30) days prior to the end of a term. 2. Termination Payment. A. Officer will be entitled to a payment (the "Termination Payment") equal to One Hundred Per Cent (100%) of his then current annual base salary (the dollar amount so calculated being hereafter referred to as the "Full Severance"), and FLIC shall make such Termination Payment to Officer, in the event of the occurrence of any of the following: (i) The employment of Officer is terminated by The First National Bank Of Long Island ("FNBLI") within twenty-four months after a Change Of Control Event (as hereinafter defined); (ii) Officer resigns his employment with FNBLI for Good Reason (as hereinafter defined) within twenty-four months after a Change of Control Event; or (iii) The employment of Officer is terminated by FNBLI within twenty-four months after any entity, person or group shall have acquired more than twenty per cent (20%) of the voting shares of FLIC and, at the time of such termination, the Chief Executive Officer of FNBLI serving in that capacity as of the first day of the term hereof, or of the then current renewal term, as the case may be, shall have ceased to be employed by FNBLI in such capacity. B. Officer will be entitled to a Termination Payment equal to Sixty Six and Two Thirds Per Cent (66 2/3%) of the Full Severance in the event that Officer shall resign for any reason during the period beginning on the thirty-first day after a Change of Control Event and ending on the sixtieth day after such event. C. FLIC may elect to discharge its obligation to make the Termination Payment by causing FNBLI, its wholly owned subsidiary, to make such payment. 3. Non-Waiver. The failure of Officer to resign upon the occurrence of a particular event constituting Good Reason hereunder shall not bar the Officer from resigning upon the subsequent occurrence of any other or further event constituting Good 52 Reason, and thereby becoming eligible to receive the Termination Payment, provided that such resignation occurs within twenty-four months after a Change of Control Event. 4. Ineligibility For Termination Payment. Regardless of whether a Change of Control Event shall have occurred, Officer shall not be entitled to any Termination Payment in the event that his employment is terminated (i) by reason of his death, normal retirement or disability, or (ii) by FNBLI for Cause (as hereinafter defined). 5. Definitions. A. "Good Reason" for resignation by Officer of his employment shall mean the occurrence (without the Officer's express written consent) of any one of the following acts or omissions to act by FLIC or FNBLI: (i) The assignment to Officer of any duties materially inconsistent with the nature and status of his responsibilities immediately prior to a Change of Control Event, or a substantial adverse alteration in the nature or status of his responsibilities from those in effect immediately prior to the Change of Control Event; provided, however, that a redesignation of his title shall not in and of itself constitute Good Reason if his overall duties and status within FLIC and FNBLI are not substantially adversely affected. (ii) A reduction in his annual base salary as in effect at the time of a Change of Control Event. For purposes hereof, "annual base salary" shall mean regular basic annual compensation prior to any reduction therein under a salary reduction agreement pursuant to Section 401(k) or Section 125 of the Internal Revenue Code and, without limitation, shall exclude fees, bonuses, incentive awards or similar payments. (iii) The failure by FLIC or FNBLI to pay Officer any portion of his current compensation, or to pay him any portion of an installment of a deferred compensation amount under any deferred compensation program, within fourteen (14) days of the date such compensation is due. B. "Cause" shall mean any of the following: (i) The willful and continued failure by Officer to substantially perform his duties, as they may be defined by FLIC or FNBLI from time to time, or to abide by the written policies of FLIC or FNBLI after a written demand for substantial performance is delivered to him by the Board of Directors of FLIC or FNBLI, as the case may be, which specifically identifies the manner in which he has failed substantially to perform his duties or has failed to abide by such written policies, and (ii) The willful engaging by Officer in conduct which is materially injurious to FLIC or FNBLI, monetarily or otherwise. For the purpose of the preceding sentence, no act, or failure to act, on the part 53 of Officer shall be deemed "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his act, or failure to act, was in the best interest of FLIC or FNBLI, as the case may be. C. "Change of Control Event" shall mean the occurrence of any one of the following: (i) Continuing Outside Directors (as hereinafter defined) no longer constitute at least two-thirds (2/3) of Outside Directors (as hereinafter defined) of FLIC; (ii) There shall be consummated a merger or consolidation of FLIC, unless at least two-thirds (2/3) of Continuing Outside Directors are to continue to constitute at least two-thirds (2/3) of Continuing Directors; (iii) At least two-thirds (2/3) of Continuing Outside Directors determine that action taken by stockholders constitutes a Change of Control Event; or (iv) FNBLI is no longer a wholly-owned subsidiary of FLIC. D. "Continuing Outside Director" shall mean any individual who is not an employee of FLIC or FNBLI and who (i) is a director of FLIC as of the date hereof, (ii) prior to election as a director is nominated by at least two-thirds (2/3) of the Continuing Outside Directors, or (iii) following election as a director is designated a Continuing Outside Director by at least two-thirds (2/3) of Continuing Outside Directors. E. "Outside Director" shall mean an individual who is not an employee of FLIC or FNBLI who is a director of FLIC. 6. Withholding Taxes; Other Deductions. FLIC and FNBLI shall have the right (i) to deduct from any payments due under this Agreement amounts sufficient to cover withholding as required by law for any federal, state or local taxes and any amounts due from the Officer to FLIC or FNBLI and (ii) to take such other action as may be necessary to satisfy any such withholding or other obligations, including but not limited to withholding amounts equal to such taxes or obligations from any other amounts due or to become due from FLIC or FNBLI to Officer. 7. Miscellaneous. A. Nothing contained herein shall be construed as an agreement that Officer will continue to be employed by FNBLI for any particular period of time and the employment of Officer may be terminated by FNBLI at any time. B. The determination of the Board of Directors of FLIC not to renew this Agreement shall not deprive Officer of any right that has accrued to Officer during the term hereof by reason of the occurrence during the term of this Agreement of an event described in Section "2" hereof. 54 C. Notices. Any notices required to be given under this Agreement shall be in writing and shall be sent by certified mail, return receipt requested, to FLIC at 10 Glen Head Road, Glen Head, New York 11545, Attention: Board of Directors, and to you at the your residence address as reflected in the records of FLIC; or to such other address as either party may designate by written notice to the other. D. Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. THE FIRST OF LONG ISLAND CORPORATION By: /s/ J. Douglas Maxwell -------------------------------- J. Douglas Maxwell /s/ Richard Kick -------------------------------- Richard Kick 55 EX-10.10 9 SPECIAL SEVERANCE AGREEMENT EXHIBIT 10.10 - SPECIAL SEVERANCE AGREEMENT BETWEEN REGISTRANT AND MARK D. CURTIS 56 THE FIRST OF LONG ISLAND CORPORATION SPECIAL SEVERANCE AGREEMENT AGREEMENT dated as of November 20, 1998 by and between THE FIRST OF LONG ISLAND CORPORATION (hereinafter referred to as "FLIC") and MARK D. CURTIS (hereinafter referred to as the "Officer"). 1. Term. The term of this agreement shall be for a period of one (1) year commencing on the date hereof. The term shall be automatically renewed for additional one (1) year terms, unless the Board of Directors of FLIC chooses not to renew and notifies Officer of such intention not to renew at least thirty (30) days prior to the end of a term. 2. Termination Payment. A. Officer will be entitled to a payment (the "Termination Payment") equal to One Hundred Per Cent (100%) of his then current annual base salary (the dollar amount so calculated being hereafter referred to as the "Full Severance"), and FLIC shall make such Termination Payment to Officer, in the event of the occurrence of any of the following: (i) The employment of Officer is terminated by The First National Bank Of Long Island ("FNBLI") within twenty-four months after a Change Of Control Event (as hereinafter defined); (ii) Officer resigns his employment with FNBLI for Good Reason (as hereinafter defined) within twenty-four months after a Change of Control Event; or (iii) The employment of Officer is terminated by FNBLI within twenty-four months after any entity, person or group shall have acquired more than twenty per cent (20%) of the voting shares of FLIC and, at the time of such termination, the Chief Executive Officer of FNBLI serving in that capacity as of the first day of the term hereof, or of the then current renewal term, as the case may be, shall have ceased to be employed by FNBLI in such capacity. B. Officer will be entitled to a Termination Payment equal to Sixty Six and Two Thirds Per Cent (66 2/3%) of the Full Severance in the event that Officer shall resign for any reason during the period beginning on the thirty-first day after a Change of Control Event and ending on the sixtieth day after such event. C. FLIC may elect to discharge its obligation to make the Termination Payment by causing FNBLI, its wholly owned subsidiary, to make such payment. 3. Non-Waiver. The failure of Officer to resign upon the occurrence of a particular event constituting Good Reason hereunder shall not bar the Officer from resigning upon the subsequent occurrence of any other or further event constituting Good 57 Reason, and thereby becoming eligible to receive the Termination Payment, provided that such resignation occurs within twenty-four months after a Change of Control Event. 4. Ineligibility For Termination Payment. Regardless of whether a Change of Control Event shall have occurred, Officer shall not be entitled to any Termination Payment in the event that his employment is terminated (i) by reason of his death, normal retirement or disability, or (ii) by FNBLI for Cause (as hereinafter defined). 5. Definitions. A. "Good Reason" for resignation by Officer of his employment shall mean the occurrence (without the Officer's express written consent) of any one of the following acts or omissions to act by FLIC or FNBLI: (i) The assignment to Officer of any duties materially inconsistent with the nature and status of his responsibilities immediately prior to a Change of Control Event, or a substantial adverse alteration in the nature or status of his responsibilities from those in effect immediately prior to the Change of Control Event; provided, however, that a redesignation of his title shall not in and of itself constitute Good Reason if his overall duties and status within FLIC and FNBLI are not substantially adversely affected. (ii) A reduction in his annual base salary as in effect at the time of a Change of Control Event. For purposes hereof, "annual base salary" shall mean regular basic annual compensation prior to any reduction therein under a salary reduction agreement pursuant to Section 401(k) or Section 125 of the Internal Revenue Code and, without limitation, shall exclude fees, bonuses, incentive awards or similar payments. (iii) The failure by FLIC or FNBLI to pay Officer any portion of his current compensation, or to pay him any portion of an installment of a deferred compensation amount under any deferred compensation program, within fourteen (14) days of the date such compensation is due. B. "Cause" shall mean any of the following: (i) The willful and continued failure by Officer to substantially perform his duties, as they may be defined by FLIC or FNBLI from time to time, or to abide by the written policies of FLIC or FNBLI after a written demand for substantial performance is delivered to him by the Board of Directors of FLIC or FNBLI, as the case may be, which specifically identifies the manner in which he has failed substantially to perform his duties or has failed to abide by such written policies, and (ii) The willful engaging by Officer in conduct which is materially injurious to FLIC or FNBLI, monetarily or otherwise. For the purpose of the preceding sentence, no act, or failure to act, on the part 58 of Officer shall be deemed "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his act, or failure to act, was in the best interest of FLIC or FNBLI, as the case may be. C. "Change of Control Event" shall mean the occurrence of any one of the following: (i) Continuing Outside Directors (as hereinafter defined) no longer constitute at least two-thirds (2/3) of Outside Directors (as hereinafter defined) of FLIC; (ii) There shall be consummated a merger or consolidation of FLIC, unless at least two-thirds (2/3) of Continuing Outside Directors are to continue to constitute at least two-thirds (2/3) of Continuing Directors; (iii) At least two-thirds (2/3) of Continuing Outside Directors determine that action taken by stockholders constitutes a Change of Control Event; or (iv) FNBLI is no longer a wholly-owned subsidiary of FLIC. D. "Continuing Outside Director" shall mean any individual who is not an employee of FLIC or FNBLI and who (i) is a director of FLIC as of the date hereof, (ii) prior to election as a director is nominated by at least two-thirds (2/3) of the Continuing Outside Directors, or (iii) following election as a director is designated a Continuing Outside Director by at least two-thirds (2/3) of Continuing Outside Directors. E. "Outside Director" shall mean an individual who is not an employee of FLIC or FNBLI who is a director of FLIC. 6. Withholding Taxes; Other Deductions. FLIC and FNBLI shall have the right (i) to deduct from any payments due under this Agreement amounts sufficient to cover withholding as required by law for any federal, state or local taxes and any amounts due from the Officer to FLIC or FNBLI and (ii) to take such other action as may be necessary to satisfy any such withholding or other obligations, including but not limited to withholding amounts equal to such taxes or obligations from any other amounts due or to become due from FLIC or FNBLI to Officer. 7. Miscellaneous. A. Nothing contained herein shall be construed as an agreement that Officer will continue to be employed by FNBLI for any particular period of time and the employment of Officer may be terminated by FNBLI at any time. B. The determination of the Board of Directors of FLIC not to renew this Agreement shall not deprive Officer of any right that has accrued to Officer during the term hereof by reason of the occurrence during the term of this Agreement of an event described in Section "2" hereof. 59 C. Notices. Any notices required to be given under this Agreement shall be in writing and shall be sent by certified mail, return receipt requested, to FLIC at 10 Glen Head Road, Glen Head, New York 11545, Attention: Board of Directors, and to you at the your residence address as reflected in the records of FLIC; or to such other address as either party may designate by written notice to the other. D. Controlling Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein. IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the day and year first above written. THE FIRST OF LONG ISLAND CORPORATION By: /s/ J. Douglas Maxwell -------------------------------- J. Douglas Maxwell /s/ Mark D. Curtis -------------------------------- Mark D. Curtis 60 EX-13 10 REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13 - REGISTRANT'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 61 1998 ANNUAL REPORT [PHOTO OMITTED] Eatons Neck [LOGO] The First of Long Island The First of Long Island Corporation 62 SELECTED FINANCIAL DATA The following is selected consolidated financial data for the past five years. This data should be read in conjunction with the information contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the accompanying consolidated financial statements and related notes.
1998 1997 1996 1995 1994 ------------ ------------ ------------ ------------ ------------ INCOME STATEMENT DATA: Total Interest Income ...................... $ 32,682,000 $ 30,401,000 $ 28,585,000 $ 28,017,000 $ 24,861,000 Total Interest Expense ..................... 9,867,000 9,197,000 8,492,000 8,899,000 6,175,000 Net Interest Income ........................ 22,815,000 21,204,000 20,093,000 19,118,000 18,686,000 Provision for Loan Losses (Credit) ......... (100,000) (100,000) -- -- -- Net Income ................................. 8,368,000 7,626,000 6,891,000 6,208,000 6,028,000 PER SHARE DATA: (1) Basic Earnings ............................. $ 2.69 $ 2.45 $ 2.20 $ 1.97 $ 1.92 Diluted Earnings ........................... 2.64 2.40 2.15 1.94 1.89 Cash Dividends Declared .................... .57 .49 .43 .37 .34 Stock Splits/Dividends Declared ............ -- 3-for-2 -- 3-for-2 -- Book Value ................................. $ 21.03 $ 18.94 $ 17.29 $ 15.69 $ 13.52 BALANCE SHEET DATA AT PERIOD END: Total Assets ............................... $547,622,000 $484,674,000 $440,903,000 $425,655,000 $396,055,000 Total Loans ................................ 170,718,000 154,730,000 152,682,000 145,874,000 143,613,000 Allowance for Loan Losses .................. 3,651,000 3,579,000 3,600,000 3,600,000 3,600,000 Total Deposits ............................. 479,231,000 422,759,000 384,361,000 373,955,000 351,526,000 Stockholders' Equity ....................... 65,099,000 58,966,000 54,169,000 49,340,000 42,608,000 AVERAGE BALANCE SHEET DATA: Total Assets ............................... $510,409,000 $460,551,000 $436,659,000 $411,717,000 $390,543,000 Total Loans ................................ 164,063,000 153,733,000 150,090,000 143,677,000 141,399,000 Allowance for Loan Losses .................. 3,643,000 3,597,000 3,606,000 3,607,000 3,602,000 Total Deposits ............................. 445,266,000 402,392,000 383,091,000 363,676,000 347,674,000 Stockholders' Equity ....................... 62,326,000 56,234,000 51,229,000 45,908,000 41,005,000 FINANCIAL RATIOS: Return on Average Total Assets (ROA) ....... 1.64% 1.66% 1.58% 1.51% 1.54% Return on Average Stockholders' Equity (ROE) 13.43 13.56 13.45 13.52 14.70 Average Equity to Average Assets ........... 12.21 12.21 11.73 11.15 10.50
(1) Per share data have been adjusted to reflect the 3-for-2 stock splits declared in 1997 and 1995. STOCK PRICES The Corporation's Common Stock trades on The Nasdaq SmallCap Market tier of The Nasdaq Stock Market under the symbol FLIC. The following table sets forth high and low sales prices for the years ended December 31, 1998 and 1997. 1998 1997 ------------------------ ------------------------ Quarter High Low High Low - ------- --------- --------- --------- --------- First $ 54 $ 40 $ 28 2/3 $ 22 1/3 Second 52 46 3/4 29 27 1/3 Third 48 1/2 41 1/8 32 1/6 28 2/3 Fourth 44 37 41 1/6 32 1/3 At December 31, 1998, there were 791 stockholders of record of the Corporation's Common Stock. The number of stockholders of record includes banks and brokers who act as nominees, each of whom may represent more than one stockholder. Prices have been adjusted to reflect a 3-for-2 stock split declared in December 1997. 63 CONTENTS Selected Financial Data............................................... (i) Letter to Stockholders................................................ 1 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... 4 Management's Responsibility for Financial Reporting................... 14 Consolidated Financial Statements and Notes........................... 15 Report of Independent Public Accountants.............................. 37 Directors--The First of Long Island Corporation, The First National Bank of Long Island........................................ 38 Senior Management--The First National Bank of Long Island............. 39 Officers--The First of Long Island Corporation, The First National Bank of Long Island........................................ 40 Business Development Board--The First National Bank of Long Island.............................................................. 41 BUSINESS OF THE CORPORATION The First of Long Island Corporation ("Corporation") is a one-bank holding company organized under the laws of the State of New York. Its primary business is the operation of its sole subsidiary, The First National Bank of Long Island ("Bank"). The Bank was organized in 1927 under national banking laws and became the sole subsidiary of the Corporation under a plan of reorganization effected April 30, 1984. The Bank is a full service commercial bank which provides a broad range of financial services to individual, professional, corporate, institutional, and government customers through its eighteen branch system on Long Island. The First of Long Island Agency, Inc. was organized in 1994 under the laws of the State of New York, as a subsidiary of the Bank to conduct business as a licensed insurance agency in the sale of insurance, primarily fixed annuity products. The Bank is subject to regulation and supervision of the Federal Reserve Board, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation which also insures its deposits. The Comptroller of the Currency is the primary banking agency responsible for regulating the subsidiary Bank. In addition, the Corporation is subject to the regulations and supervision of the Federal Reserve Board and the Securities and Exchange Commission. ANNUAL MEETING NOTICE The Annual Meeting of Stockholders will be held at the Old Brookville office of The First National Bank of Long Island, 209 Glen Head Road, Glen Head, New York 11545 on Tuesday, April 20, 1999 at 3:30 P.M. --------------------------------------------------------------------------- Executive Office Transfer Agent and Registrar The First of Long Island Corporation Registrar and Transfer Company 10 Glen Head Road 10 Commerce Drive Glen Head, New York 11545 Cranford, New Jersey 07016-3572 (516) 671-4900 (800) 368-5948 www.firstofli.com --------------------------------------------------------------------------- This annual report contains Year 2000 readiness disclosures which are subject to the Year 2000 Information and Readiness Disclosure Act. 64 A Letter To Our Stockholders [PHOTO OMITTED] J. William Johnson Chairman and Chief Executive Officer We look forward to the future with a great deal of confidence in The First of Long Island as a premier financial institution. [LOGO] The First Of Long Island 65 To Our Stockholders, Customers and Friends We are pleased to report on The First of Long Island's results this past year. All major goals for the year were exceeded and despite continued negative pressure on our net interest margin, earnings per share were up 10%. Earnings equaled $2.64 per share in 1998 as compared to $2.40 per share the year earlier. Except for a 6% decline in the 1991 recession (when many banks had net losses) and excluding a nonrecurring credit in 1993, this is the twenty-first year of increased earnings for The First of Long Island and, without exception, the twenty-first year of dividend increases. Dividends declared for 1998 were 57 cents per share, an increase of 16% over the amount declared last year. Once again, the most important factor in the growth in earnings was checking deposits which increased on average by $21,700,000, or just over 16%. Other important contributors that positively impacted earnings were increases in stockholders' equity, service charge income and commercial loans. Service charge income grew by approximately 12%. Overall there was an 8%, or $13,000,000, growth in loans from December 31, 1997 to a year later. Commercial loans had the most significant percentage growth while mortgages also showed good increases. Residential mortgages continued to grow and we were especially gratified by the growth in commercial mortgages. The growth in commercial mortgages is the first increase we have had in this important product in recent years. Consumer loans declined mostly because of the periodic sale of student loans. As previously stated, we have had continued pressure on our net interest margin. The general decline of interest rates in recent years has hurt our margins, as longer-term securities cannot be replaced upon maturity with securities bearing comparable yields. In addition, we have experienced competitive pressure in the past few years on our loan interest margins. During a period of declining interest rates, there can be some short-term benefit to our margins as, for example, money market savings rates would be expected to reprice more quickly than one-year adjustable rate mortgages. However, for longer-term securities and loans we are negatively impacted by lower rates. This is because we consider our longer-term earning assets to be principally funded by checking deposits and stockholders' equity whose cost does not relate to the level of interest rates. The First of Long Island should have its highest and most stable net interest margin in times of sustained high rates. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL] Earnings per share 1979 $ .12 1980 $ .23 1981 $ .25 1982 $ .31 1983 $ .39 1984 $ .57 1985 $ .87 1986 $1.02 1987 $1.09 1988 $1.25 1989 $1.29 1990 $1.37 1991 $1.29 1992 $1.55 1993 $1.72 1994 $1.89 1995 $1.94 1996 $2.15 1997 $2.40 1998 $2.64 On a fully diluted basis Our return on assets continued at a particularly high level in 1998 being at 1.64%. In addition, return on equity remained fairly consistent with recent years. The year 1998 and the beginning of 1999 have been very active for us as we are converting our entire branch computer system to a new and more advanced PC network. Installations at our branches commenced in the last quarter of 1998 and are continuing into the first quarter of 1999. This computer system, as well as certain new communications initiatives, are expensive and involve major undertakings for us. These changes also come at a time when our old systems were fully depreciated. Another major undertaking over the past twelve months has been the opening of four branch offices. In February 1998 we moved our Rockville Centre office and converted it from a commercial banking facility to a full service location. In August we opened a new commercial banking office in Hauppauge, followed by similar offices in Bohemia in September and Garden City in January 1999. We are very excited about these branches. However, they will have a negative impact on earnings, the period of which we hope will be short. We believe we have a valuable window of opportunity occasioned by mergers of the megabanks and our 66 conclusion that their ability to deliver high quality service is made especially difficult in periods where their focus is on consolidation and cost cutting. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL] Cash Dividends Declared Per Share 1979 $.01 1980 $.03 1981 $.03 1982 $.05 1983 $.07 1984 $.08 1985 $.12 1986 $.15 1987 $.17 1988 $.19 1989 $.19 1990 $.23 1991 $.25 1992 $.28 1993 $.31 1994 $.34 1995 $.37 1996 $.43 1997 $.49 1998 $.57 This past year has also seen a significant amount of work and attention focused on the Year 2000 date change problem,"Y2K." The First of Long Island began work on this issue in 1996. We have made excellent progress overall, including remediation of the data processing systems used in our core banking activities. Full remediation and installation of those systems is expected within the next few months, although testing will continue through 1999. In the coming years we expect to continue our emphasis on opening commercial banking offices. Prior to 1998, such offices have been located in commercial areas but none that would be deemed to be mostly industrial. Two of the offices opened this past twelve months are in industrial locations where there also is significant competition. We are anxious to measure our effectiveness in soliciting business in such markets as we determine potential markets for future offices. We will also evaluate the relative success of our new Rockville Centre office as we assess the market for full service branches in the future. [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL] Return on Average Assets 1994 1.54% 1995 1.51% 1996 1.58% 1997 1.66% 1998 1.64% As we have in the past, we will maintain our emphasis on servicing privately owned businesses, professionals and the service conscious consumer. We face many challenges among which are low interest margins if the level of interest rates remains low, the challenge of rapidly changing technologies, the possibility of interest being paid on corporate checking balances, and the economy, as this extraordinarily long expansion must sometime come to an end. However, The First of Long Island is a unique company. We were once again recognized for superior performance by US Banker. In its June issue, among the top 200 mid-sized publicly traded banks in the nation, the Company received the distinction of "3rd in Nation" in terms of overall financial performance and 1st in the Nation in terms of capital, being denoted as "Best Capitalized." We are highly focused on our markets and providing an extremely high quality of service to our customers. We always look forward to the future with a bit of concern but also with a great deal of confidence in The First of Long Island as a premier financial institution not only on Long Island, but in the United States as a whole. /s/ J. William Johnson J. William Johnson Chairman and Chief Executive Officer 67 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors that have affected the Corporation's financial condition and operating results during the periods included in the accompanying consolidated financial statements, and should be read in conjunction with such financial statements. The Corporation's financial condition and operating results principally reflect those of its wholly-owned subsidiary, The First National Bank of Long Island (the "Bank"). The Corporation's primary service area is Nassau and Suffolk Counties, Long Island. Overview 1998 Versus 1997 Summary. The Corporation earned $2.64 per share in 1998 as compared to $2.40 in 1997, an increase of 10%. Based on 1998 net income of $8,368,000, the Corporation returned 1.64% on average total assets and 13.43% on average total equity, representing returns just slightly below those realized in 1997. Total assets and deposits were $547,622,000 and $479,231,000, respectively, at December 31, 1998, representing increases over prior year-end balances of approximately 13%. Capital grew by $6,133,000, or 10.4%, during 1998, and the Corporation's capital ratios continue to substantially exceed the current regulatory criteria for a well-capitalized bank. In addition, the Corporation's liquidity continues to be strong. The most significant reason for the positive results in 1998 is an increase in average checking balances of $21,699,000, or a bit more than 16%. As in prior years, the Bank was again able to use the growth of checking balances as a key strategy in increasing earnings per share. Other factors that positively impacted 1998 results were the growth of capital, an 11.7% increase in service charge income, and commercial loan growth. When comparing year-end balances, total loans grew by 10.3% in 1998. This is very favorable by contrast to growth of 1.3% for the prior year. With improved economic conditions on Long Island, the Bank was able to grow its commercial mortgage portfolio by approximately 6.7%. Commercial mortgages continue to be the Bank's most important loan product. Residential mortgages, excluding equity loans and lines, also grew nicely in 1998, with year-end 1998 balances up by almost 14.5% when compared to 1997. Other commercial loans grew by approximately 12% and consumer loans declined. The decline in consumer loans is primarily attributable to the Bank's program of selling student loans as they enter repayment status. The Bank's portfolios of tax-exempt securities and collateralized mortgage obligations ("CMOs") grew substantially during 1998, while the U.S. Treasury portfolio declined. This occurred as a result of management's efforts to take advantage of the better returns afforded by municipal securities and CMOs relative to the Treasury sector. Savings and money market deposits were up 9.5% when comparing year-end 1998 to 1997 primarily because of growth in "Select Savings" and "Advantage" balances. The Select Savings product is a statement savings account that earns a higher money market rate and the Advantage product is an interest-bearing checking account. Advantage balances grew largely because of increased solicitation of IOLA (interest on lawyer) accounts. 1997 Versus 1996 Summary. The Corporation earned $2.40 per share in 1997 as compared to $2.15 in 1996, an increase of over 11%. Based on 1997 net income of $7,626,000, the Corporation returned 1.66% on average total assets and 13.56% on average total equity, as compared to returns of 1.58% and 13.45%, respectively, in 1996. Total assets and deposits were $484,674,000 and $422,759,000, respectively, at December 31, 1997, representing increases over prior year-end balances of approximately 10%. During 1997 capital grew by $4,797,000, or nearly 9%. The most significant reason for the positive results in 1997 was an increase in average checking balances of $9,250,000. Another factor that positively impacted 1997 results was that total operating expenses, exclusive of personnel costs, remained virtually level. Other contributing factors were an 11% increase in service charge income and the growth of capital. There was little overall loan growth in 1997. Commercial mortgages declined slightly in 1997 as new production lagged payoffs in what is a mature portfolio. By contrast, other commercial loans grew in 1997 with the year-end 1997 balance up by more than 10% when compared to 1996. Residential mortgages and equity lines of credit also grew in 1997, while consumer loans declined. The decline in consumer loans was primarily attributable to the bulk sale of student loans that were in repayment status. 68 The Bank's portfolio of tax-exempt securities grew by approximately 34% in 1997 as a result of management's efforts to take advantage of the favorable returns afforded by longer-term, municipal securities. Savings and money market deposits were up almost 9% when comparing year-end 1997 to 1996 primarily because of the Bank's introduction of its "Select Savings" product. Net Interest Income Average Balance Sheet; Interest Rates and Interest Differential. The following table sets forth the average daily balances for each major category of assets, liabilities and stockholders' equity as well as the amounts and average rates earned or paid on each major category of interest-earning assets and interest-bearing liabilities.
1998 1997 1996 ----------------------------- ---------------------------- ----------------------------- Average Average Average Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate -------- -------- ------- ------- -------- ------- -------- -------- ------- Assets: (dollars in thousands) Federal funds sold and commercial paper .............. $ 56,355 $ 2,953 5.24% $ 47,664 $ 2,580 5.41% $ 36,460 $ 1,923 5.27% Investment securities: Taxable ........................... 194,380 12,039 6.19 188,456 11,828 6.28 180,574 11,383 6.30 Nontaxable (1) .................... 69,334 4,706 6.79 46,897 3,264 6.96 41,763 2,917 6.98 Loans (1) (2) ....................... 164,063 14,661 8.94 153,733 13,862 9.02 150,090 13,407 8.93 --------- --------- ---- --------- --------- ---- --------- --------- ---- Total interest-earning assets (1) ... 484,132 34,359 7.10 436,750 31,534 7.22 408,887 29,630 7.24 --------- ---- --------- ---- --------- ---- Allowance for loan losses ........... (3,643) (3,597) (3,606) --------- --------- -------- Net interest-earning assets ......... 480,489 433,153 405,281 Cash and due from banks ............. 17,429 16,214 19,853 Premises and equipment, net ......... 5,424 4,948 5,050 Other assets ........................ 7,067 6,236 6,475 --------- --------- --------- $ 510,409 $ 460,551 $ 436,659 ========= ========= ========= Liabilities and Stockholders' Equity: Savings and money market deposits ................... $ 250,236 7,998 3.20 $ 229,639 7,309 3.18 $ 222,319 6,788 3.05 Time deposits ....................... 40,249 1,869 4.64 39,671 1,888 4.76 36,940 1,704 4.61 --------- --------- ---- --------- --------- ---- --------- --------- ---- Total interest-bearing deposits ..... 290,485 9,867 3.40 269,310 9,197 3.42 259,259 8,492 3.28 --------- --------- ---- --------- --------- ---- --------- --------- ---- Checking deposits (3) ............... 154,781 133,082 123,832 Other liabilities ................... 2,817 1,925 2,339 --------- --------- --------- 448,083 404,317 385,430 Stockholders' equity ................ 62,326 56,234 51,229 --------- --------- --------- $ 510,409 $ 460,551 $ 436,659 ========= ========= ========= Net interest income (1) ............. $ 24,492 $ 22,337 $ 21,138 ========= ========= ========= Net interest spread (1) ............. 3.70% 3.80% 3.96% ==== ==== ==== Net interest yield (1) .............. 5.06% 5.11% 5.17% ==== ==== ====
(1) Tax-equivalent basis. Interest income on a tax-equivalent basis includes the additional amount of interest income that would have been earned if the Bank's investment in tax-exempt loans and investment securities had been made in loans and investment securities subject to Federal income taxes yielding the same after-tax income. The tax-equivalent amount of $1.00 of nontaxable income was $1.52 in each year presented, based on a Federal income tax rate of 34%. (2) For the purpose of these computations, nonaccruing loans are included in the daily average loan amounts outstanding. (3) Includes official check and treasury tax and loan balances. 69 Rate/Volume Analysis. The following table sets forth the effect of changes in volumes, rates, and rate/volume on tax-equivalent interest income, interest expense and net interest income.
Year Ended December 31, ----------------------------------------------------------------------------------------- 1998 versus 1997 1997 versus 1996 Increase (decrease) due to changes in: Increase (decrease) due to changes in: ------------------------------------------ ------------------------------------------ Rate/ Net Rate/ Net Volume Rate Volume(2) Change Volume Rate Volume(2) Change ------- ------- --------- ------- ------- ------- --------- ------- (in thousands) Interest Income: Federal funds sold .................... $ 470 $ (82) $ (15) $ 373 $ 591 $ 51 $ 15 $ 657 Investment securities: Taxable ............................. 372 (156) (5) 211 497 (50) (2) 445 Nontaxable (1) ...................... 1,562 (81) (39) 1,442 359 (10) (2) 347 Loans (1) ............................. 931 (124) (8) 799 325 127 3 455 ------- ------- ------- ------- ------- ------- ------- ------- Total interest income ................. 3,335 (443) (67) 2,825 1,772 118 14 1,904 ------- ------- ------- ------- ------- ------- ------- ------- Interest Expense: Savings and money market deposits ..................... 656 31 2 689 223 288 10 521 Time deposits ......................... 28 (46) (1) (19) 126 54 4 184 ------- ------- ------- ------- ------- ------- ------- ------- Total interest expense ................ 684 (15) 1 670 349 342 14 705 ------- ------- ------- ------- ------- ------- ------- ------- Increase (decrease) in net interest income ..................... $ 2,651 $ (428) $ (68) $ 2,155 $ 1,423 $ (224) $ -- $ 1,199 ======= ======= ======= ======= ======= ======= ======= =======
(1) Tax-equivalent basis. (2) Represents the change not solely attributable to change in rate or change in volume but a combination of these two factors. Net Interest Income - 1998 Versus 1997 Net interest income on a tax-equivalent basis increased by $2,155,000, or 9.6%, from $22,337,000 in 1997 to $24,492,000 in 1998. As can be seen from the above rate/volume analysis, the increase is comprised of a positive volume variance of $2,651,000 and negative rate and rate/volume variances of $428,000 and $68,000, respectively. The positive volume variance was largely caused by growth in average checking deposits and stockholders' equity and the use of such funds to purchase investment securities and originate loans. When comparing 1998 to 1997, average checking deposits increased by $21,699,000, or 16.3%, and average stockholders' equity increased by $6,092,000, or 10.8%. Also contributing to the positive volume variance was growth in money market deposits. The resulting funds were used to increase the Bank's overnight position in federal funds sold and to purchase securities and originate loans. When comparing 1998 to 1997, average money market deposits increased by $25,091,000, or 13.8%. Funding interest-earning asset growth with growth in checking deposits and capital has a greater impact on net interest income than funding such growth with interest-bearing deposits because checking deposits and capital, unlike interest-bearing deposits, have no associated interest cost. The growth of checking balances has historically been one of the Corporation's key strategies for increasing earnings per share. The Bank's calling program is a significant factor that favorably impacted the growth in average checking balances noted when comparing 1998 to 1997, and competitive pricing is a significant contributing factor with respect to the growth in average interest-bearing deposits noted during the same period. In addition, the growth in both checking and interest-bearing deposits is also attributable to the Bank's attention to customer service and improved conditions in the local economy. 70 Net interest spread and yield were 3.70% and 5.06%, respectively, for 1998 as compared to 3.80% and 5.11%, respectively, for 1997. It would appear that the principal causes for the decreases in spread and yield are pressure on loan rates brought about by competitive pricing and reduced yield on the Bank's investment securities portfolio. In 1998, nontaxable investment securities represented 14.3% of total average interest-earning assets, up from 10.7% in 1997. This change resulted from management's efforts to grow the longer-term, municipal securities portfolio in light of the favorable returns offered by municipals relative to U.S. Treasury securities. Average total loans increased by 6.7% when comparing 1998 to 1997 and 2.4% when comparing 1997 to 1996. The increased growth rate for 1998 is believed to be largely attributable to improved economic conditions on Long Island. Net Interest Income - 1997 Versus 1996 Net interest income on a tax-equivalent basis increased by $1,199,000, or 5.7%, from $21,138,000 in 1996 to $22,337,000 in 1997. As can be seen from the Rate/Volume Analysis, the increase was comprised of a positive volume variance of $1,423,000 and a negative rate variance of $224,000. The positive volume variance was largely caused by growth in average checking deposits and stockholders' equity and the use of such funds to purchase investment securities and originate loans. When comparing 1997 to 1996, average checking deposits increased by $9,250,000, or 7.5%, and average stockholders' equity increased by $5,005,000, or 9.8%. Also contributing to the positive volume variance was growth in money market deposits. The resulting funds were used to increase the Bank's overnight position in federal funds sold. When comparing 1997 to 1996, average money market deposits increased by $12,148,000, or 7.2%. The Bank's calling program was a significant factor that favorably impacted the growth in average checking balances noted when comparing 1997 to 1996, and competitive pricing was a significant contributing factor with respect to the growth in average interest-bearing deposits noted during the same period. In addition, the growth in both checking and interest-bearing deposits was also attributable to the Bank's attention to customer service and local economic conditions. Net interest spread and yield were 3.80% and 5.11%, respectively, for 1997 as compared to 3.96% and 5.17%, respectively, for 1996. It would appear that the principal cause for the decreases in spread and yield was pressure on loan rates brought about by competitive pricing. Noninterest Income, Noninterest Expense, and Income Taxes Noninterest income consists primarily of service charges on deposit accounts and Trust Department income. Noninterest income was $4,820,000 and $4,318,000 in 1998 and 1997, respectively, representing increases over prior year amounts of $502,000, or 11.6%, and $412,000, or 10.6%. The increase for 1998 is largely comprised of increases in Trust Department income, account maintenance/activity charges, and insufficient funds charges. The increase for 1997 was largely attributable to an increase in insufficient funds charges, a portion of which resulted from a revision of the Bank's service charge schedule, and the absence of securities losses in 1997 versus losses of $148,000 in 1996. Noninterest expense is comprised of salaries, employee benefits, occupancy and equipment expense and other operating expenses incurred in supporting the various business activities of the Corporation. Noninterest expense was $15,469,000 and $14,285,000 in 1998 and 1997, respectively, representing increases over prior year amounts of $1,184,000, or 8.3%, and $786,000, or 5.8%. The increase for 1998 is primarily attributable to increases in salaries and other operating expenses of $633,000 and $323,000, respectively. The increase in salaries is primarily attributable to normal annual salary increases and the opening of a full-service branch in Rockville Centre, Nassau County, Long Island in February of 1998 (the Bank simultaneously closed its Rockville Centre commercial banking office) and two new commercial banking offices in Suffolk County, Long Island in the third quarter of 1998. The increase in other operating expenses is largely attributable to the new branch openings. In addition to the new full-service branch and commercial banking offices discussed above, the Bank opened a new commercial banking office in Garden City, Long Island in January 1999. Although the new locations are expected to positively impact results of operations on a longer-term basis, the near-term impact is expected to be negative as a result of start-up expenses, increased marketing efforts, and operating expenses incurred while a customer base is being built. Based on available information, management expects that the negative impact on 1999 net income before income taxes should not exceed $350,000. The increase in noninterest expense for 1997 was primarily attributable to increases in salaries and employee benefits expense of $355,000 and $450,000, respectively. The increase in salaries was primarily attributable to normal annual 71 salary increases. The largest component of the increase in employee benefits expense was an increase in employee retirement plan expense of $196,000. In 1998 the Bank began upgrading various equipment, particularly in its branch system, to better serve its customers and improve the efficiency of its operations. Such upgrades are expected to be completed in 1999. The upgrades have and will continue to negatively impact results of operations as the new items replace ones that are fully-depreciated. Based on available information, management expects the negative impact on 1999 net income before income taxes to be approximately $450,000. Income tax expense as a percentage of book income was 31.8%, 32.7%, and 34.4% in 1998, 1997 and 1996, respectively. The decrease in the percentage for 1998 is primarily attributable to an increase in the size of the Bank's tax-exempt securities portfolio. The decrease for 1997 was primarily attributable to refunds of federal and state income taxes resulting from amending prior year tax returns. Allowance and Provision For Loan Losses The allowance for loan losses was $3,651,000 at December 31, 1998 as compared to $3,579,000 at December 31, 1997, representing 2.1% and 2.3% of total loans, respectively. The change in the allowance during 1998 is due to recoveries of $271,000, chargeoffs of $99,000, and a $100,000 credit in the provision for loan losses. The allowance for loan losses is an amount that management currently believes will be adequate to absorb possible future losses on existing loans. The provision charged to operations, if any, and the related balance in the allowance for loan losses is based upon periodic evaluations of the loan portfolio by management. These evaluations consider a variety of factors including, but not limited to, historical losses; a borrower's ability to repay; the value of any related collateral; levels of and trends in delinquencies and nonaccruing loans; trends in volume and terms of loans; changes in lending policies and procedures; experience, ability and depth of lending staff; national and local economic conditions; concentrations of credit; and environmental risks. In both 1998 and 1997, the Bank recovered amounts previously charged off through the sale of a nonaccruing loan. The recovery in each year increased the level of the allowance for loan losses beyond what management deemed necessary to absorb possible future losses on existing loans and, as a result, management reduced the allowance with an offsetting credit to the provision for loan losses. The provision credit in each year was $100,000. The amount of future chargeoffs and provisions for loan losses will be affected by, among other things, economic conditions on Long Island. Such conditions affect the financial strength of the Bank's borrowers and the value of real estate collateral securing the Bank's mortgage loans. In addition, future provisions and chargeoffs could be affected by environmental impairment of properties securing the Bank's mortgage loans. Loans secured by real estate represent approximately 77% of total loans outstanding at December 31, 1998. Since 1987, environmental audits have been instituted on commercial properties and the incidence and scope of these audits has been increased over the succeeding years. Under the Bank's current policy, an environmental audit is required on practically all commercial-type properties that are considered for a mortgage loan. At the present time, the Bank is not aware of any existing loans in the portfolio where there is environmental pollution originating on the mortgaged properties that would materially affect the value of the portfolio. 72 Asset Quality The Corporation has identified certain assets as risk elements. These assets present more than the normal risk that the Company will be unable to eventually collect or realize their full carrying value. As shown in the table that follows, the total level of risk elements decreased from $437,000 at year-end 1997 to $22,000 at year-end 1998. The reduction is primarily due to the resolution of several nonaccruing loans. 1998 1997 ---- ---- (dollars in thousands) Nonaccruing loans .......................................... $ 22 $382 Foreclosed real estate ..................................... -- -- ---- ---- Total nonperforming assets ............................... 22 382 Troubled debt restructurings ............................... -- 6 Loans past due 90 days or more as to principal or interest payments and still accruing ........ -- 49 ---- ---- Total risk elements ...................................... $ 22 $437 ==== ==== Nonaccruing loans as a percentage of total loans ........... .01% .25% ==== ==== Nonperforming assets as a percentage of total loans and foreclosed real estate ............................... .01% .25% ==== ==== Risk elements as a percentage of total loans and foreclosed real estate ................................... .01% .28% ==== ==== Capital The Corporation's capital management policy is designed to build and maintain capital levels that exceed regulatory standards. Under current regulatory capital standards, banks are classified as well capitalized, adequately capitalized or undercapitalized. Under such standards, a well capitalized bank is one that has a total risk-based capital ratio equal to or greater than 10%, a Tier 1 risk-based capital ratio equal to or greater than 6%, and a Tier 1 leverage capital ratio equal to or greater than 5%. The Corporation's total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage capital ratios of 31.76%, 30.51% and 11.88%, respectively, at December 31, 1998 substantially exceed the requirements for a well-capitalized bank. Total stockholders' equity increased by $6,133,000, or 10.4%, from $58,966,000 at December 31, 1997 to $65,099,000 at December 31, 1998. The increase in stockholders' equity is primarily attributable to the combined effect of net income of $8,368,000, unrealized gains on available-for-sale securities of $799,000, repurchases of common stock amounting to $1,566,000, and cash dividends declared of $1,767,000. Cash Flows and Liquidity Cash Flows. During 1998, total deposits increased by $56,472,000. This increase, along with $8,591,000 in cash provided by operations and $218,000 in proceeds from the exercise of stock options, were used to fund increases in investment securities and loans of $25,836,000 and $15,816,000, respectively, an increase in cash and cash equivalents of $18,493,000, repurchases of common stock amounting to $1,566,000, cash dividends paid of $1,682,000, and capital expenditures of $1,888,000. As reflected in the accompanying consolidated balance sheet, the $56,472,000 growth in deposits from year-end 1997 to year-end 1998 is comprised of an increase in checking deposits of $32,198,000, or 22.5%, and an increase in total interest-bearing deposits of $24,274,000, or 8.7%. The increase in interest-bearing deposits is primarily attributable to growth in money market balances. During 1998, commercial and industrial loans increased by $3,062,000, or 11.9%, loans secured by residential real estate increased by $6,390,000, or 11.2%, and commercial mortgages increased by $4,347,000, or 6.7%. These increases are the primary reason for the growth in the loan portfolio during 1998. Liquidity. The Corporation's primary sources of liquidity are its overnight position in federal funds sold; its short-term investment securities portfolio which generally consists of securities purchased to mature within one year and securities with average lives of one year or less; maturities and monthly payments on the balance of the investment securities portfolio and the loan portfolio; and investment securities designated as available-for-sale. At December 31, 1998, the Corporation had $76,000,000 in federal funds sales, a short-term securities portfolio of $12,665,000, and available-for-sale securities of $87,021,000. The Corporation's liquidity is enhanced by its stable deposit base which 73 primarily consists of checking, savings and money market accounts. Such accounts comprised 92.0% of total deposits at December 31, 1998, while time deposits of $100,000 and over and other time deposits comprised only 2.7% and 5.3%, respectively. The Bank attracts all of its deposits through its banking offices primarily from the communities in which those banking offices are located and does not rely on brokered deposits. In addition, the Bank has not historically relied on purchased or borrowed funds as sources of liquidity. Market Risk The Bank originates and invests in interest-earning assets and solicits interest-bearing deposit accounts. The operations of the Bank are subject to risk resulting from interest rate fluctuations to the extent that there is a difference between the amount of the Bank's interest-earning assets and the amount of interest-bearing liabilities that mature, reprice, or are prepaid/withdrawn in specified time periods. Because approximately 40% of the Bank's interest-earning assets are funded by noninterest-bearing checking deposits and capital, a sustained decrease in interest rates should have a negative impact on net interest income as such assets reprice at lower rates without an offsetting reduction in interest expense. The Bank defines interest rate risk as the risk that the Bank's earnings and/or net portfolio value (defined below) will change when interest rates change. The principal objective of the Bank's asset/liability management activities is to provide maximum levels of net interest income while maintaining acceptable levels of interest rate and liquidity risk and facilitating the funding needs of the Bank. The Bank monitors and controls interest rate risk through a variety of techniques including use of interest rate sensitivity models and traditional interest rate sensitivity gap analysis. Through use of the models, the Bank projects future net interest income and then estimates the effect on projected net interest income of various changes in interest rates and balance sheet growth rates. The Bank also uses the models to calculate the change in net portfolio value ("NPV") over a range of interest rate change scenarios. Net portfolio value is the present value of expected future cash flows from assets less the present value of expected cash flows from liabilities. Traditional gap analysis involves arranging the Bank's interest-earning assets and interest-bearing liabilities by repricing periods and then computing the difference, or interest-rate sensitivity gap, between the assets and liabilities which are estimated to reprice during each time period and cumulatively through the end of each time period. Both interest rate sensitivity modeling and gap analysis involve a variety of significant estimates and assumptions and are done at a specific point in time. Interest rate sensitivity modeling requires, among other things, estimates of: (1) how much and when yields and costs on individual categories of interest-earning assets and interest-bearing liabilities will respond to general changes in market interest rates; (2) future cash flows; and (3) discount rates. Gap analysis requires estimates as to when individual categories of interest sensitive assets and liabilities will reprice and assumes that assets and liabilities assigned to the same repricing period will reprice at the same time and in the same amount. Like sensitivity modeling, gap analysis does not take into account the fact that the repricing of some assets and liabilities is discretionary and subject to competitive and other pressures. Changes in the estimates and assumptions made for interest rate sensitivity modeling and gap analysis could have a significant impact on projected results and conclusions. Therefore, these techniques may not accurately reflect the actual impact of general interest rate movements on the Bank's net interest income or net portfolio value. The following table is provided pursuant to the market risk disclosure rules set forth in Item 305 of Regulation S-K of the Securities and Exchange Commission. The information provided in the table is based on significant estimates and assumptions and constitutes a "forward looking statement" within the meaning of that term as set forth in Rule 175 of the Securities Act of 1933 and Rule 3b-6 of the Securities Act of 1934. The base case information in the table shows (1) an estimate of the Corporation's NPV at December 31, 1998 arrived at by discounting estimated future cash flows at current market rates and (2) an estimate of net interest income for 1999 assuming that maturing assets or liabilities are replaced with new balances of the same type, in the same amount, and at the same rate level. The rate change information in the table shows estimates of NPV at December 31, 1998 and net interest income for 1999 assuming rate changes of plus 100 and 200 basis points and minus 100 and 200 basis points. Rate changes are assumed to occur uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. In addition, for purposes of calculating NPV, the indicated rate changes are assumed to be shock or immediate changes, while for purposes of projecting future net interest income the indicated rate changes are assumed to be ramped or occur evenly over a twelve month time period. In projecting future net interest income under the indicated rate change scenarios, activity is simulated by replacing maturing balances with new balances of the same type, in the same amount, but at the current rate level and adjusting repricing balances to the current rate level. 74 Based on the foregoing assumptions and as depicted in the table below, a ramped decrease in interest rates over a twelve-month time period has a positive effect on net interest income for the time period. This is principally because the Bank's interest-bearing deposit accounts reprice faster than its loans and investment securities. However, over a longer period of time, and assuming that interest rates remain stable after the first year, the impact should be negative. This occurs primarily because with the passage of time more loans and investment securities will reprice at the lower rates and, as previously stated, there will be no offsetting reduction in interest expense for those loans and investment securities funded by noninterest-bearing checking deposits and capital. The opposite should be true of a ramped increase in interest rates over a twelve-month time period with rate stabilization after the twelve months.
Net Portfolio Value (NPV) Net Interest Income at December 31, 1998 for 1999 ------------------------- ------------------------- Percent Percent Change Change From From Rate Change Scenario Amount Base Case Amount Base Case - ---------------------------------------- ------ --------- ------ --------- (dollars in thousands) + 200 basis point rate change ......... $41,645 (40.1)% $25,596 (3.8)% + 100 basis point rate change ......... 55,561 (20.0) 26,105 (1.9) Base case (no rate change) ......... 69,480 -- 26,614 -- - - 100 basis point rate change ......... 83,399 20.0 27,123 1.9 - - 200 basis point rate change ......... 97,315 40.1 27,632 3.8
The following table summarizes the Corporation's cumulative interest rate sensitivity gap at December 31, 1998 based upon significant estimates and assumptions that the Corporation believes to be reasonable.
Repricing Date --------------------------------------------------------------------------------------------- Over Over Over Three Six One Year Three Months Months Total Through Over Non- Months Through Through Within Five Five interest- or Less Six Months One Year One Year Years Years Sensitive Total --------- ---------- --------- --------- --------- --------- ---------- --------- (in thousands) Assets: Federal funds sold .............. $ 76,000 $ -- $ -- $ 76,000 $ -- $ -- $ -- $ 76,000 Investment securities ........... 18,594 20,761 24,359 63,714 157,409 51,261 2,270 274,654 Loans ........................... 63,455 16,093 32,186 111,734 41,582 13,260 491 167,067 Other assets .................... -- -- -- -- -- -- 29,901 29,901 --------- --------- --------- --------- --------- --------- --------- --------- 158,049 36,854 56,545 251,448 198,991 64,521 32,662 547,622 --------- --------- --------- --------- --------- --------- --------- --------- Liabilities and Stockholders' Equity: Checking deposits ............... -- -- -- -- -- -- 175,046 175,046 Savings and money market deposits 195,212 5,880 9,462 210,554 21,846 33,284 -- 265,684 Time deposits ................... 20,281 9,835 5,564 35,680 2,795 26 -- 38,501 Other liabilities ............... -- -- -- -- -- -- 3,292 3,292 Stockholders' equity ............ -- -- -- -- -- -- 65,099 65,099 --------- --------- --------- --------- --------- --------- --------- --------- 215,493 15,715 15,026 246,234 24,641 33,310 243,437 547,622 --------- --------- --------- --------- --------- --------- --------- --------- Interest-rate sensitivity gap ...... $ (57,444) $ 21,139 $ 41,519 $ 5,214 $ 174,350 $ 31,211 $(210,775) $ -- ========= ========= ========= ========= ========= ========= ========= ========= Cumulative interest-rate sensitivity gap ................... $ (57,444) $ (36,305) $ 5,214 $ 5,214 $ 179,564 $ 210,775 $ -- $ -- ========= ========= ========= ========= ========= ========= ========= =========
75 New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting For Derivative Instruments and Hedging Activities" ("SFAS No. 133"). This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. SFAS No. 133, which is effective for all fiscal quarters of fiscal years beginning after June 15, 1999, will not impact the Corporation's accounting or disclosures. Year 2000 The Bank began its Year 2000 compliance efforts in 1996 and has established formal processes for identifying, assessing, and managing the Year 2000 risks posed by internal bank activities, vendors, and customers. On an overall basis, the Bank made excellent progress in 1998, including remediation of the data processing systems used in its core banking activities. Full remediation and installation of those systems is expected in the next several months, although testing will continue through 1999. The Bank utilizes Fiserv, Inc. ("Fiserv"), one of the largest data processing providers for banks, savings institutions, and credit unions, to process the transactions originating from its core banking activities, which principally include deposits, loans, and the Bank's investment portfolio. Fiserv has informed the Bank that most of the application software utilized by the Bank has been upgraded to be Year 2000 compliant, tested (including client proxy testing), and made available for use as of December 31, 1998. The balance of the software utilized by the Bank should be tested and made available for use in the first quarter of 1999. The proxy testing conducted by Fiserv, which the Bank has reviewed and will rely on, was performed in accordance with guidelines issued by various bank regulatory agencies. For most of its applications, the Bank has already converted to the Year 2000-compliant versions of Fiserv's software. The remaining applications should be converted in the next several months. The Bank will continue to closely monitor Fiserv's efforts to address the Year 2000 issue and fully expects that Fiserv will be Year 2000 compliant in time for the new millennium. If Fiserv fails in its Year 2000 compliance efforts and the Bank is not given sufficient advance warning, such failure could have a significant adverse impact on the operations of the Bank. Testing of internal information and embedded technology systems, none of which are deemed to be mission critical, is ongoing but was substantially completed in 1998. In the third quarter of 1998, the Bank completed an initial assessment of the risks posed by its significant customers and counterparties and is continuing to assess these risks on an ongoing basis. During the next year the Bank will continue to monitor its own internal activities and the plans of its vendors and customers to address the Year 2000 issue. For a substantial portion of its internal information and embedded technology systems, none of which are deemed to be mission critical, the Bank has contingency/disaster recovery plans in place and is in the process of developing others where it is reasonably feasible. With respect to significant outside vendors, the Bank is developing procedures to process information offline in the event of a Year 2000 failure. The Bank has upgraded its communication systems and is in the process of upgrading equipment in its branch system to better serve its customers and improve the efficiency of its operations. The timing of the upgrades was accelerated as a result of the Year 2000 issue. The total cost of the upgrades is expected to be approximately $1,500,000. Approximately half of the upgrades were purchased and placed in service in the latter part of 1998, and the balance should be purchased and placed in service in the first quarter of 1999. Other than the cost of the equipment upgrades, the Bank expects to meet its Year 2000 commitment using internal resources and without incurring significant incremental expenses. Total incremental expenses are currently expected to be less than $200,000. Based on current information, management does not expect the total cost of Year 2000 compliance to materially impact the Corporation's future results of operations, financial condition, or liquidity. Regulatory Matters Financial Reform Legislation. Commercial checking deposits currently account for approximately 26% of the Bank's total deposits. During 1998, Congress considered but did not enact financial reform legislation that would allow customers to cover checks by sweeping funds from interest-bearing accounts each business day and repeal the prohibition of the payment of interest on corporate checking deposits in the future. It is expected that similar legislation will be considered in 1999. Although management currently believes that the Bank's earnings could be more severely impacted 76 by the payment of interest on corporate checking deposits than the daily sweeping of funds from interest-bearing accounts to cover checks, either could have a material adverse impact on the Bank's future results of operations. FDICIA. An FDIC-insured depository institution with assets of $500 million or more as of the end of its most recent fiscal year must meet the annual audit and management reporting requirements of section 112 of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and related implementing regulations. Among other things, the institution's annual report must include a report from management that contains the following information: (1) a statement of management's responsibilities for preparing financial statements, establishing and maintaining an adequate internal control structure for financial reporting, and complying with designated safety and soundness laws in the areas of insider loans and dividend restrictions; (2) assessments by management regarding the effectiveness of the institution's internal control structure and fiscal year-end reporting procedures and the institution's compliance with the designated laws and regulations during the fiscal year; and, (3) an attestation report by the institution's independent public accountants on management's assertions regarding the effectiveness of the internal control structure and procedures for financial reporting. Total assets of the Bank grew to more than $500 million in 1998. As a result, the Bank's 1999 annual report must comply with the requirements of Section 112 of FDICIA. Management believes that the cost of compliance will not have a material adverse impact on the Corporation's future results of operations, financial condition, or liquidity. Examinations. The subsidiary Bank was examined by the Office of the Comptroller of the Currency in the third quarter of 1998. The examination was a regularly scheduled safety and soundness examination and also included data processing activities and upcoming technology plans. In addition, a regularly scheduled examination of the Bank's Trust Department was conducted in April 1998. Management is not aware, nor has it been apprised, of any recommendations by regulatory authorities that if they were implemented would have a material effect on the Corporation's liquidity, capital resources, or operations. Forward Looking Statements "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains various forward-looking statements with respect to financial performance and business matters. Such statements are contained in sentences including the words "expect" or "could" or "should". The Corporation cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, and therefore actual results could differ materially from those contemplated by the forward-looking statements. In addition, the Corporation assumes no duty to update forward-looking statements. 77 MANAGMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The management of The First of Long Island Corporation is responsible for the preparation of the financial statements, related financial data and other information in this annual report. The financial statements are prepared in accordance with generally accepted accounting principles and include amounts based on management's estimates and judgment where appropriate. Financial information appearing throughout this annual report is consistent with the financial statements. In meeting its responsibility both for the reliability and integrity of these statements and information, management depends on its accounting systems and related internal control structures. These systems and controls have been designed to provide reasonable assurances that assets are safeguarded and that transactions are authorized and recorded in accordance with established procedures and that reliable records are maintained. As an integral part of the internal control structure, the Corporation maintains a staff of internal auditors who monitor compliance with and assess the effectiveness of the internal control structure and coordinate audit coverage with the independent auditors. The Corporation's Examining Committee of the Board of Directors, composed solely of outside directors, meets regularly with the Corporation's internal auditors, independent auditors and regulatory examiners to review matters relating to financial reporting, internal control structure and the nature, extent and results of the audit effort. The independent auditors, internal auditors and banking regulators have direct access to the Examining Committee with or without management present. The financial statements for each of the three years in the period ended December 31, 1998 have been audited by Arthur Andersen LLP, independent public accountants, who render an independent professional opinion on management's financial statements. Their appointment was approved by the Board of Directors. The examinations provide an objective assessment of the degree to which the Corporation's management meets its responsibility for financial reporting. Their opinions on the financial statements are based on auditing procedures which include reviewing internal control structures and performing selected tests of transactions and records as deemed appropriate. These auditing procedures are designed to provide a reasonable level of assurance that the financial statements are fairly presented in all material respects. 78 Consolidated Financial Statements and Notes [PHOTO OMITTED] Superior service and a commitment to excellence has made the First of Long Island a top-performing bank. [LOGO] The First of Long Island 79 CONSOLIDATED BALANCE SHEETS
December 31, ------------------------------ 1998 1997 ------------- ------------- Assets: Cash and due from banks .................................... $ 16,336,000 $ 13,343,000 Federal funds sold ......................................... 76,000,000 60,500,000 ------------- ------------- Cash and cash equivalents ................................ 92,336,000 73,843,000 ------------- ------------- Investment securities: Held-to-maturity, at amortized cost (approximate fair value of $191,252,000 and $192,357,000) .......... 187,633,000 190,577,000 Available-for-sale, at fair value (amortized cost of $84,878,000 and $56,052,000) .................. 87,021,000 56,844,000 ------------- ------------- 274,654,000 247,421,000 ------------- ------------- Loans: Commercial and industrial ........................... 28,748,000 25,686,000 Secured by real estate .............................. 132,357,000 121,620,000 Consumer ............................................ 6,366,000 7,152,000 Other ............................................... 4,119,000 1,101,000 ------------- ------------- 171,590,000 155,559,000 Unearned income ..................................... (872,000) (829,000) ------------- ------------- 170,718,000 154,730,000 Allowance for loan losses ........................... (3,651,000) (3,579,000) ------------- ------------- 167,067,000 151,151,000 ------------- ------------- Bank premises and equipment ................................ 6,312,000 5,037,000 Deferred income tax benefits ............................... 116,000 785,000 Other assets ............................................... 7,137,000 6,437,000 ------------- ------------- $ 547,622,000 $ 484,674,000 ============= ============= Liabilities: Deposits: Checking ............................................ $ 175,046,000 $ 142,848,000 Savings and money market ............................ 265,684,000 242,579,000 Time, other ......................................... 25,446,000 26,726,000 Time, $100,000 and over ............................. 13,055,000 10,606,000 ------------- ------------- 479,231,000 422,759,000 Accrued expenses and other liabilities ..................... 3,102,000 2,764,000 Income taxes payable ....................................... 190,000 185,000 ------------- ------------- 482,523,000 425,708,000 ------------- ------------- Commitments and Contingent Liabilities Stockholders' Equity: Common stock, par value $.10 per share: Authorized, 20,000,000 shares; Issued and outstanding, 3,095,971 and 3,113,061 shares . 310,000 311,000 Surplus .................................................... 4,219,000 5,471,000 Retained earnings .......................................... 59,304,000 52,717,000 ------------- ------------- 63,833,000 58,499,000 Accumulated other comprehensive income, net of tax ......... 1,266,000 467,000 ------------- ------------- 65,099,000 58,966,000 ------------- ------------- $ 547,622,000 $ 484,674,000 ============= =============
See notes to consolidated financial statements 80 CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, -------------------------------------------------- 1998 1997 1996 ------------ ------------ ------------ Interest income: Loans .......................................................... $ 14,584,000 $ 13,839,000 $ 13,354,000 Investment securities: Taxable .................................................... 12,039,000 11,828,000 11,383,000 Nontaxable ................................................. 3,106,000 2,154,000 1,925,000 Federal funds sold ............................................. 2,953,000 2,580,000 1,923,000 ------------ ------------ ------------ 32,682,000 30,401,000 28,585,000 ------------ ------------ ------------ Interest expense: Savings and money market deposits .............................. 7,998,000 7,309,000 6,788,000 Time deposits .................................................. 1,869,000 1,888,000 1,704,000 ------------ ------------ ------------ 9,867,000 9,197,000 8,492,000 ------------ ------------ ------------ Net interest income ........................................ 22,815,000 21,204,000 20,093,000 Provision for loan losses (credit) ................................. (100,000) (100,000) -- ------------ ------------ ------------ Net interest income after provision for loan losses (credit) ....... 22,915,000 21,304,000 20,093,000 ------------ ------------ ------------ Noninterest income: Trust Department income ........................................ 1,340,000 1,198,000 1,213,000 Service charges on deposit accounts ............................ 2,986,000 2,674,000 2,407,000 Realized losses on sales of available-for-sale securities ...... -- -- (148,000) Other .......................................................... 494,000 446,000 434,000 ------------ ------------ ------------ 4,820,000 4,318,000 3,906,000 ------------ ------------ ------------ Noninterest expense: Salaries ....................................................... 7,282,000 6,649,000 6,294,000 Employee benefits .............................................. 2,785,000 2,732,000 2,282,000 Occupancy and equipment expense ................................ 1,955,000 1,780,000 1,863,000 Other operating expenses ....................................... 3,447,000 3,124,000 3,060,000 ------------ ------------ ------------ 15,469,000 14,285,000 13,499,000 ------------ ------------ ------------ Income before income taxes ................................. 12,266,000 11,337,000 10,500,000 Income tax expense ................................................. 3,898,000 3,711,000 3,609,000 ------------ ------------ ------------ Net income ................................................. $ 8,368,000 $ 7,626,000 $ 6,891,000 ============ ============ ============ Weighted average: Common shares .................................................. 3,105,496 3,117,530 3,139,293 Dilutive stock options ......................................... 66,336 64,044 60,372 ------------ ------------ ------------ 3,171,832 3,181,574 3,199,665 ============ ============ ============ Earnings per share: Basic .......................................................... $ 2.69 $ 2.45 $ 2.20 ============ ============ ============ Diluted ........................................................ $ 2.64 $ 2.40 $ 2.15 ============ ============ ============
See notes to consolidated financial statements 81 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated Other Common Stock Compre- Compre- ------------------------- hensive Retained hensive Shares Amount Surplus Income Earnings Income Total ----------- ----------- ----------- ----------- ----------- ----------- ----------- Balance, January 1 1996 ......... 2,096,467 $ 210,000 $ 7,366,000 $41,179,000 $ 585,000 $49,340,000 Net Income ...................... $ 6,891,000 6,891,000 6,891,000 Repurchase and retirement of common stock ................. (22,327) (2,000) (728,000) (730,000) Exercise of stock options ....... 14,644 1,000 286,000 287,000 Unrealized losses on available- for-sale-securities, net of tax of $139,000 ................. (282,000) (282,000) (282,000) ----------- Comprehensive income ............ $ 6,609,000 =========== Cash dividends declared - $.43 per share .................. (1,337,000) (1,337,000) ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1996 ...... 2,088,784 209,000 6,924,000 46,733,000 303,000 54,169,000 Net Income ...................... $ 7,626,000 7,626,000 7,626,000 Repurchase and retirement of common stock ................. (53,059) (5,000) (2,439,000) (2,444,000) Exercise of stock options ....... 39,649 4,000 733,000 737,000 Unrealized gains on available- for-sale-securities, net of tax of $175,000 ................. 164,000 164,000 164,000 ----------- Comprehensive income ............ $ 7,790,000 =========== 3-for-2 stock split ............. 1,037,687 103,000 (103,000) Cash dividends declared - $.49 per share .................. (1,539,000) (1,539,000) Tax benefit of stock options .... 253,000 253,000 ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1997 ...... 3,113,061 311,000 5,471,000 52,717,000 467,000 58,966,000 Net Income ...................... $ 8,368,000 8,368,000 8,368,000 Repurchase and retirement of common stock ................. (33,637) (3,000) (1,563,000) (1,566,000) Exercise of stock options ....... 16,547 2,000 216,000 218,000 Unrealized gains on available- for-sale-securities, net of tax of $553,000 ................. 799,000 799,000 799,000 ----------- Comprehensive income ............ $ 9,167,000 =========== Cash in lieu of fractional shares on 3-for-2 stock split .......... (14,000) (14,000) Cash dividends declared - $.57 per share .................. (1,767,000) (1,767,000) Tax benefit of stock options .... 95,000 95,000 ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1998 ...... 3,095,971 $ 310,000 $ 4,219,000 $59,304,000 $ 1,266,000 $65,099,000 =========== =========== =========== =========== =========== ===========
See notes to consolidated financial statements 82 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ------------------------------------------------ Increase (Decrease) in Cash and Cash Equivalents 1998 1997 1996 ------------ ------------ ------------ Cash Flows From Operating Activities: Net income ................................................................. $ 8,368,000 $ 7,626,000 $ 6,891,000 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses (credit) ....................................... (100,000) (100,000) -- Deferred income tax provision (credit) ................................... 114,000 (63,000) 135,000 Depreciation and amortization ............................................ 613,000 528,000 547,000 Discount accretion on investment securities, net ......................... (46,000) (814,000) (1,314,000) Gain on sale of equipment ................................................ -- -- (1,000) Net realized losses on sales of available-for-sale securities ............ -- -- 148,000 Decrease (increase) in prepaid income taxes .............................. -- 1,000 (1,000) Decrease (increase) in other assets ...................................... (700,000) (676,000) 115,000 Increase in accrued expenses and other liabilities ....................... 239,000 271,000 108,000 Increase (decrease) in income taxes payable .............................. 103,000 438,000 (189,000) ------------ ------------ ------------ Net cash provided by operating activities .............................. 8,591,000 7,211,000 6,439,000 ------------ ------------ ------------ Cash Flows From Investing Activities: Proceeds from sales of available-for-sale securities ....................... -- -- 8,589,000 Proceeds from maturities and redemptions of investment securities: Held-to-maturity ......................................................... 64,533,000 51,565,000 60,713,000 Available-for-sale ....................................................... 4,669,000 6,443,000 7,965,000 Purchase of investment securities: Held-to-maturity ......................................................... (61,320,000) (70,360,000) (41,267,000) Available-for-sale ....................................................... (33,718,000) (11,649,000) (40,288,000) Net increase in loans to customers ......................................... (15,816,000) (1,969,000) (6,807,000) Purchases of bank premises and equipment ................................... (1,888,000) (521,000) (506,000) Proceeds from sale of equipment ............................................ -- -- 9,000 ------------ ------------ ------------ Net cash used in investing activities .................................. (43,540,000) (26,491,000) (11,592,000) ------------ ------------ ------------ Cash Flows From Financing Activities: Net increase in total deposits ............................................. 56,472,000 38,398,000 10,406,000 Proceeds from exercise of stock options .................................... 218,000 737,000 287,000 Repurchase and retirement of common stock .................................. (1,566,000) (2,444,000) (730,000) Cash dividends paid ........................................................ (1,668,000) (1,419,000) (1,243,000) Cash in lieu of fractional shares on 3-for-2 stock split ................... (14,000) -- -- ------------ ------------ ------------ Net cash provided by financing activities ............................... 53,442,000 35,272,000 8,720,000 ------------ ------------ ------------ Net increase in cash and cash equivalents .................................... 18,493,000 15,992,000 3,567,000 Cash and cash equivalents, beginning of year ................................. 73,843,000 57,851,000 54,284,000 ------------ ------------ ------------ Cash and cash equivalents, end of year ....................................... $ 92,336,000 $ 73,843,000 $ 57,851,000 ============ ============ ============ Supplemental Schedule of Noncash: Investing Activities Unrealized gains (losses) on available-for-sale securities ................. $ 1,351,000 $ 339,000 $ (421,000) Transfer of available-for-sale securities to held-to-maturity category ..... -- 28,886,000 -- Financing Activities Tax benefit from exercise of employee stock options ........................ 95,000 253,000 -- Cash dividends payable ..................................................... 929,000 830,000 710,000
The Corporation made interest payments of $9,858,000, $9,158,000, and $8,476,000 and income tax payments of $3,683,000, $3,335,000, and $3,664,000 in 1998, 1997 and 1996, respectively. See notes to consolidated financial statements 83 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include the accounts of The First of Long Island Corporation (the "Corporation") and its wholly-owned subsidiary, The First National Bank of Long Island (the "Bank"). The Corporation's financial condition and operating results principally reflect those of the Bank. All intercompany balances and amounts have been eliminated. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported asset and liability balances and revenue and expense amounts. Actual results could differ significantly from those estimates. The accounting and reporting policies of the Corporation reflect banking industry practice and conform to generally accepted accounting principles. The following is a summary of the significant accounting policies. Investment Securities Current accounting standards require that investment securities be classified as held-to-maturity, trading, or available-for-sale. The trading category is not applicable to any securities in the Bank's portfolio because the Bank does not buy or hold debt or equity securities principally for the purpose of selling in the near term. Held-to-maturity securities are those debt securities which the Bank has the intent and ability to hold to maturity, and are reported at amortized cost. Available-for-sale securities are those debt and equity securities which are neither held-to-maturity securities nor trading securities and are reported at fair value, with unrealized gains and losses, net of the related income tax effect, included in accumulated other comprehensive income. Realized gains and losses on the sale of available-for-sale securities are determined using the specific identification method. Loans and Allowance For Loan Losses Loans are reported at their outstanding principal balance less any chargeoffs, the allowance for loan losses, and any unearned income. Interest on loans is credited to income based on the principal amount outstanding. Unearned discounts are recognized as income over the terms of the loans by the interest method. Nonrefundable loan origination fees are deferred and amortized as yield adjustments over the lives of the related loans. The incremental direct costs of originating such loans are charged to expense as incurred, as the effect of deferral and amortization would be immaterial. The accrual of interest income is generally discontinued when a loan becomes 90 days past due as to principal or interest payments. In addition, any accrued but unpaid interest credited to income in the current year is reversed, and any accrued but unpaid interest credited to income in the prior year is charged against the allowance for loan losses. All of the Bank's nonaccruing loans are considered impaired under Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"). In accordance with SFAS No. 114, a valuation allowance is established on impaired loans to reflect the difference, if any, between the face amount of the loan and the present value of expected future cash flows discounted at the loan's effective interest rate, or as a practical expedient, at the loan's observable market price or the fair value of the collateral. The valuation allowance is reported within the overall allowance for loan losses. The allowance for loan losses is established through provisions for loan losses charged against income. Amounts deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses represents the amount which management believes is adequate to provide for possible future losses on existing loans. While management uses available information to estimate possible loan losses, the allowance may have to be increased in future years because of changed conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies can require the Bank to recognize additions to the allowance based on their judgments of information available to them at the time of their examination. Bank Premises and Equipment Bank premises and equipment are carried at cost, less accumulated depreciation and amortization. Buildings are depreciated using the straight-line method over their estimated useful lives which range between thirty-one and forty years. Building improvements are depreciated using the straight-line method over the remaining lives of the buildings. 84 Leasehold improvements are amortized using the straight-line method over the remaining lives of the leases or their estimated useful lives, whichever is shorter. The lives of the respective leases range between five and fifteen years. Furniture, fixtures, and equipment are depreciated over their estimated useful lives which range between five and seven years. The straight-line method of depreciation is used for furniture, fixture, and equipment acquired prior to 1987 and after 1997, and the 150% declining balance method is used for assets acquired 1988 through 1997. Checking Deposits Each of the Bank's commercial checking accounts has a related noninterest-bearing sweep account. The sole purpose of the sweep accounts is to reduce the noninterest-bearing reserve balances that the Bank is required to maintain with the Federal Reserve Bank, and thereby increase funds available for investment. Although the sweep accounts are classified as savings accounts for regulatory purposes, they are included in checking deposits in the accompanying consolidated balance sheets. Income Taxes A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current year. A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. The measurement of current and deferred tax liabilities and assets is based on provisions of the enacted tax law. The effects of future changes in tax laws or rates are not anticipated. Fair Values of Financial Instruments The following methods and assumptions are used by the Corporation in estimating fair values of financial instruments as disclosed herein. Cash and cash equivalents. The carrying amount of cash and cash equivalents is their fair value. Investment securities. For investment securities, fair values are based on quoted market prices. Loans. The fair value of the Bank's loan portfolio is determined by first estimating the average life of the portfolio's future cash flows and then using this estimate as a proxy for duration. Duration, which is expressed in years, equates the portfolio's future cash flows to a single lump sum payment received at a future point in time. The difference between the portfolio's yield and the yield that could be obtained by currently making similar loans is multiplied by the portfolio's duration to determine a discount rate. Fair value is arrived at by applying the discount rate to the portfolio's carrying value and then subtracting the Bank's allowance for loan losses. Deposit liabilities. The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, money market accounts, and savings accounts, is equal to their carrying amount at December 31 of each year. For time deposits, over 70% of which mature within six months, carrying amount is a reasonable estimate of fair value. Accrued interest receivable and payable. For these short-term instruments, the carrying amount is a reasonable estimate of fair value. Off-balance-sheet assets and liabilities. The fair value of off-balance-sheet commitments to extend credit and letters of credit is estimated using fees currently charged to enter into similar agreements. Stockholders' Equity Earnings Per Share. The Corporation adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS No. 128") in the fourth quarter of 1997. All comparative earnings per share data provided for earlier periods have been restated to conform to the provisions of this Statement. Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share, which reflects the potential dilution that could occur if outstanding and exercisable stock options were exercised and resulted in the issuance of common stock that then shared in the earnings of the Corporation, is computed by dividing net income by the weighted average number of common shares and dilutive stock options. Other than stock options and the Rights described in Note H, the Corporation has no securities that could be converted into common stock nor does the Corporation have any contracts that could result in the issuance of common stock. 85 Stock Split. On December 17, 1997, the Corporation declared a 3-for-2 stock split which was paid on February 2, 1998 by means of a 50% stock dividend. The effect of the split on the equity accounts of the Corporation was estimated and recorded in the consolidated financial statements as of and for the year ended December 31, 1997. In addition, all comparative share and per share amounts included in the consolidated financial statements and notes thereto for earlier periods have been adjusted to reflect the effect of the split. Stock Repurchase Programs. Since 1988, the Corporation has had stock repurchase programs under which it can purchase shares of its own common stock in market or private transactions. As of December 31, 1998, and in accordance with prior approval by its Board of Directors, the Corporation could purchase 20,778 shares of stock under the latest programs. In 1997, under the normal terms and conditions of the Corporation's stock repurchase programs, and after approval by the Corporation's full Board of Directors, the Corporation purchased 15,627 shares of common stock from its Chairman and Chief Executive Officer for $656,334. Comprehensive Income The Corporation adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS No. 130") in 1997. All comparative financial statements provided for earlier periods have been reclassified to reflect application of the provisions of this Statement. Comprehensive income includes net income and all other changes in equity during a period except those resulting from investments by owners and distributions to owners. Other comprehensive income includes revenues, expenses, gains, and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income. Comprehensive income and accumulated other comprehensive income are reported net of related income taxes. Accumulated other comprehensive income for the Corporation consists solely of unrealized holding gains or losses on available-for-sale securities. Such gains and losses are net of reclassification adjustments for realized losses on sales of available-for-sale securities of $148,000 in 1996. Stock-Based Compensation Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Corporation has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB No. 25") and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Corporation's stock at the date of grant over the amount an employee must pay to acquire the stock. Compensation costs for stock appreciation rights are recorded annually based on the quoted market price of the Corporation's stock at the end of the period. Trust and Investment Services Division Assets held in a fiduciary capacity are not assets of the Corporation and, accordingly, are not included in the accompanying financial statements. Trust fees are recorded on the accrual basis. Report of Independent Public Accountants The notes to consolidated financial statements include selected information as of December 31, 1996, 1995 and 1994 and for the years ended December 31, 1995 and 1994 that is not covered by the Report of Independent Public Accountants. This information has been presented in order to comply with the Form 10-K reporting requirements. 86 NOTE B - INVESTMENT SECURITIES The following table sets forth the amortized cost and estimated fair values of the Bank's investment securities at December 31, 1998, 1997 and 1996.
1998 ----------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- Held-to-Maturity Securities: (in thousands) U.S. Treasury .................... $ 61,339 $ 1,665 $ -- $ 63,004 U.S. government agencies .......... 27,316 417 (210) 27,523 State and municipals .............. 43,751 1,355 (26) 45,080 Collateralized mortgage obligations 55,227 594 (176) 55,645 --------- --------- --------- --------- $ 187,633 $ 4,031 $ (412) $ 191,252 ========= ========= ========= ========= Available-for-Sale Securities: U.S. Treasury ..................... $ 47,287 $ 1,328 $ -- $ 48,615 State and municipals .............. 37,464 856 (41) 38,279 Equity ............................ 127 -- -- 127 --------- --------- --------- --------- $ 84,878 $ 2,184 $ (41) $ 87,021 ========= ========= ========= ========= 1997 ----------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- Held-to-Maturity Securities: (in thousands) U.S. Treasury ..................... $ 79,679 $ 596 $ (67) $ 80,208 U.S. government agencies .......... 23,010 268 (271) 23,007 State and municipals .............. 46,055 967 (27) 46,995 Collateralized mortgage obligations 41,833 385 (71) 42,147 --------- --------- --------- --------- $ 190,577 $ 2,216 $ (436) $ 192,357 ========= ========= ========= ========= Available-for-Sale Securities: U.S. Treasury ..................... $ 44,859 $ 609 $ (26) $ 45,442 State and municipals .............. 11,066 211 (2) 11,275 Equity ............................ 127 -- -- 127 --------- --------- --------- --------- $ 56,052 $ 820 $ (28) $ 56,844 ========= ========= ========= ========= 1996 ----------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- Held-to-Maturity Securities: (in thousands) U.S. Treasury .................... $ 72,512 $ 396 $ (220) $ 72,688 U.S. government agencies ......... 29,811 296 (579) 29,528 State and municipals .............. 32,527 465 (86) 32,906 Collateralized mortgage obligations 7,000 28 (55) 6,973 --------- --------- --------- --------- $ 141,850 $ 1,185 $ (940) $ 142,095 ========= ========= ========= ========= Available-for-Sale Securities: U.S. Treasury ..................... $ 51,115 $ 445 $ (133) $ 51,427 State and municipals .............. 10,297 117 (12) 10,402 Collateralized mortgage obligations 18,425 120 (84) 18,461 Equity ............................ 127 -- -- 127 --------- --------- --------- --------- $ 79,964 $ 682 $ (229) $ 80,417 ========= ========= ========= =========
At December 31, 1998 and 1997, investment securities with a carrying value of $51,312,000 and $51,155,000, respectively, were pledged as collateral to secure public deposits and for other purposes. 87 Maturities and Average Yields. The following table sets forth the maturities and weighted average yields of the Bank's investment securities at December 31, 1998.
Principal Maturing (1) ------------------------------------------------------------------------------- Within After One But After Five But After One Year Within Five Years Within Ten Years Ten Years ---------------- ---------------- ---------------- ---------------- Amount Yield Amount Yield Amount Yield Amount Yield ------- ------- ------- ------- ------- ------- ------- ------- (dollars in thousands) Held-to-Maturity Securities: U.S. Treasury ................................ $16,985 6.14% $44,354 6.00% $ -- --% $ -- --% U.S. government agencies ..................... 151 7.54 8,378 6.77 9,291 6.48 9,496 6.56 State and municipals (2) ..................... 8,544 5.68 21,548 7.08 13,396 6.91 263 6.77 Collateralized mortgage obligations .......... -- -- -- -- 771 6.75 54,456 7.13 ------- ------- ------- ------- ------- ------- ------- ------- $25,680 6.00% $74,280 6.40% $23,458 6.73% $64,215 7.04% ======= ======= ======= ======= ======= ======= ======= ======= Principal Maturing (1) ------------------------------------------------------------------------------- Within After One But After Five But After One Year Within Five Years Within Ten Years Ten Years ---------------- ---------------- ---------------- ---------------- Amount Yield Amount Yield Amount Yield Amount Yield ------- ------- ------- ------- ------- ------- ------- ------- (dollars in thousands) Available-for-Sale Securities: U.S. Treasury ................................ $10,079 6.56% $38,536 6.13% $ -- --% $ -- --% State and municipals (2) ..................... 1,419 6.21 2,311 7.32 21,995 6.27 12,554 6.52 ------- ------- ------- ------- ------- ------- ------- ------- Total debt securities .......................... 11,498 6.52 40,847 6.20 21,995 6.27 12,554 6.52 Equity ....................................... -- -- -- -- -- -- 127 6.40 ------- ------- ------- ------- ------- ------- ------- ------- $11,498 6.52% $40,847 6.20% $21,995 6.27% $12,681 6.52% ======= ======= ======= ======= ======= ======= ======= =======
(1) Maturities shown are stated maturities, except in the case of municipal securities which are shown at the earlier of their stated maturity or pre-refunded dates. Securities backed by mortgages, which include the U.S. government agencies and collateralized mortgage obligations shown above, are expected to have substantial periodic repayments resulting in weighted average lives considerably shorter than would be surmised from the above table. (2) Yields on tax-exempt obligations have been computed on a tax-equivalent basis. NOTE C - LOANS The following table sets forth major classifications of loans.
December 31, --------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- (in thousands) Commercial and industrial ................ $ 28,748 $ 25,686 $ 23,345 $ 21,708 $ 19,482 Secured by real estate ................... 132,357 121,620 120,782 115,098 115,855 Consumer ................................. 6,366 7,152 8,999 9,671 8,961 Other .................................... 4,119 1,101 396 193 174 --------- --------- --------- --------- --------- 171,590 155,559 153,522 146,670 144,472 Unearned income .......................... (872) (829) (840) (796) (859) --------- --------- --------- --------- --------- 170,718 154,730 152,682 145,874 143,613 Allowance for loan losses ................ (3,651) (3,579) (3,600) (3,600) (3,600) --------- --------- --------- --------- --------- $ 167,067 $ 151,151 $ 149,082 $ 142,274 $ 140,013 ========= ========= ========= ========= =========
88 Allowance For Loan Losses. The following table sets forth changes in the Bank's allowance for loan losses.
Year ended December 31, --------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- (dollars in thousands) Balance, beginning of year ........................... $ 3,579 $ 3,600 $ 3,600 $ 3,600 $ 3,590 ------- ------- ------- ------- ------- Loans charged off: Commercial and industrial .......................... (50) -- (2) (3) (13) Secured by real estate ............................. -- -- -- -- -- Consumer and other ................................. (49) (59) (33) (21) (35) ------- ------- ------- ------- ------- (99) (59) (35) (24) (48) ------- ------- ------- ------- ------- Recoveries of loans charged off: Commercial and industrial .......................... -- -- -- -- 6 Secured by real estate ............................. 257 120 21 16 36 Consumer and other ................................. 14 18 14 8 16 ------- ------- ------- ------- ------- 271 138 35 24 58 ------- ------- ------- ------- ------- Net (charge-offs) recoveries ......................... 172 79 -- -- 10 Provision for loan losses (credit) ................... (100) (100) -- -- -- ------- ------- ------- ------- ------- Balance, end of year ................................. $ 3,651 $ 3,579 $ 3,600 $ 3,600 $ 3,600 ======= ======= ======= ======= ======= Ratio of net (charge-offs) recoveries to average loans outstanding .......................... .10% .05% -% -% .01% ======= ======= ======= ======= =======
Allocation of Allowance For Loan Losses. The following table sets forth the allocation of the Bank's total allowance for loan losses by loan type.
December 31, -------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------------------------------------------------------------------------------------------- % of % of % of % of % of Loans Loans Loans Loans Loans To Total To Total To Total To Total To Total Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- (dollars in thousands) Commercial ................... $ 730 16.9% $ 564 16.6% $ 530 15.3% $ 563 14.9% $ 574 13.6% Real-estate secured .......... 2,325 77.5 2,099 78.6 2,185 79.1 2,241 78.9 2,326 80.7 Consumer and other ........... 249 5.6 211 4.8 174 5.6 196 6.2 148 5.7 ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- Total allocated .............. 3,304 100.0 2,874 100.0 2,889 100.0 3,000 100.0 3,048 100.0 Unallocated .................. 347 -- 705 -- 711 -- 600 -- 552 -- ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- $3,651 100.0% $3,579 100.0% $3,600 100.0% $3,600 100.0% $3,600 100.0% ====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Selected Loan Maturity Information. The following table sets forth maturity and rate information for the Bank's commercial and industrial loans.
Maturity ------------------------------------------------------------------------- After One Within But Within After One Year Five Years Five Years Total -------- ---------- ---------- ----- (in thousands) Commercial and industrial loans: Fixed rate ................................. $ 8,478 $ 2,846 $ -- $11,324 Variable rate .............................. 6,530 9,517 1,377 17,424 ------- ------- ------- ------- $15,008 $12,363 $ 1,377 $28,748 ======= ======= ======= =======
89 Past Due, Nonaccrual, and Restructured Loans. The following table sets forth selected information about the Bank's nonaccrual, past due, and restructured loans.
1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- At December 31: (in thousands) Loans past due 90 days or more as to principal or interest payments and still accruing .................................................... $ -- $ 49 $ 31 $ 4 $ 3 Nonaccrual loans ........................................................................... 22 382 659 843 516 Restructured loans ......................................................................... -- 6 19 48 124 Year Ended December 31: Gross interest income that would have been recorded during the year under original terms: Nonaccrual loans ........................................................................ 2 55 60 97 36 Restructured loans ...................................................................... -- 1 3 7 8 Gross interest income recorded during the year: Nonaccrual loans ........................................................................ 2 32 11 36 1 Restructured loans ...................................................................... -- 1 2 6 6 Commitments for additional funds ........................................................... None None None None None
As of December 31, 1998, the Corporation did not have any impaired loans as defined in SFAS No. 114 except for the nonaccrual loans noted above. Certain directors, including their immediate families and companies in which they are principal owners, and executive officers were loan customers of the Bank during 1998 and 1997. Such loans are made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and do not involve more than the normal risk of collectibility or present other unfavorable features. The aggregate amount of these loans was approximately $1,203,000 and $1,575,000 at December 31, 1998 and 1997, respectively. During 1998, $402,000 of new loans to such persons were made and repayments totaled $774,000. There were no loans to directors or executive officers which were nonaccruing at December 31, 1998 or 1997. NOTE D - PREMISES AND EQUIPMENT Bank premises and equipment consist of the following: December 31, ----------------------- 1998 1997 -------- -------- (in thousands) Land ............................................. $ 1,274 $ 1,274 Buildings ........................................ 4,507 4,502 Leasehold improvements ........................... 1,134 846 Furniture and equipment .......................... 8,635 7,040 -------- -------- 15,550 13,662 Accumulated depreciation and amortization ........ (9,238) (8,625) -------- -------- $ 6,312 $ 5,037 ======== ======== A building occupied by one of the Bank's branch offices is leased from a director of the Corporation and the Bank. The lease, which is dated 1992 and has a term of approximately ten years, currently provides for annual base rentals of $25,813, plus certain charges for real estate taxes and common area maintenance. The Bank may cancel this lease at any time by giving the director ninety days written notice. The Bank believes that the terms of this lease are comparable to those that could have been obtained from other persons. During 1998, the Bank changed its depreciation method for furniture, fixtures, and equipment from 150% declining balance to straight-line. The impact of the change on results of operations for 1998 was immaterial. 90 NOTE E - DEPOSITS The following table sets forth major classifications of average deposits.
Year ended December 31, -------------------------------------------------------------------------------- 1998 1997 1996 ---------------------- ---------------------- ---------------------- Average Average Average Average Average Average Balance Rate Paid Balance Rate Paid Balance Rate Paid ------- --------- ------- --------- ------- --------- (dollars in thousands) Checking ................................. $154,781 --% $133,082 --% $123,832 --% Savings and money market ................. 250,236 3.20 229,639 3.18 222,319 3.05 Time deposits ............................ 40,249 4.64 39,671 4.76 36,940 4.61 -------- ---- -------- ---- -------- ---- $445,266 2.22% $402,392 2.28% $383,091 2.21% ======== ==== ======== ==== ======== ====
Time Deposits of $100,000 and Over. The following table sets forth the remaining maturities of the Bank's time deposits in amounts of $100,000 or more. Remaining Maturity Amount -------------------------------------------- ------- (in thousands) 3 months or less ........................... $ 9,348 Over 3 through 6 months .................... 2,446 Over 6 through 12 months ................... 985 Over 12 months ............................. 276 ------- $13,055 ======= NOTE F - INCOME TAXES The Corporation and its subsidiary file a consolidated federal income tax return. Income taxes charged to earnings in 1998, 1997, and 1996 had effective tax rates of 31.8%, 32.7%, and 34.4%, respectively. The following table sets forth a reconciliation of the statutory Federal income tax rate to the Corporation's effective tax rate.
Year Ended December 31, ------------------------------------ 1998 1997 1996 ------ ------ ------ Statutory federal income tax rate ................................. 34.0% 34.0% 34.0% State income taxes, net of federal income tax benefit ............. 5.8 5.6 5.9 Tax-exempt interest on securities and loans, net of disallowed cost of funding ..................................... (8.3) (6.4) (6.2) Other ............................................................. .3 (.5) .7 ------ ------ ------ 31.8% 32.7% 34.4% ====== ====== ======
Provision For Income Taxes. The following table sets forth the components of the provision for income taxes. Year Ended December 31, --------------------------------------- 1998 1997 1996 ------- ------- ------- (in thousands) Currently payable: Federal ...................... $2,731 $2,841 $2,540 State ........................ 1,053 933 934 ------- ------- ------- 3,784 3,774 3,474 ------- ------- ------- Deferred: Federal ....................... 85 (96) 135 State ......................... 29 33 -- ------- ------- ------- 114 (63) 135 ------- ------- ------- $3,898 $3,711 $3,609 ======= ======= ======= 91 Net Deferred Tax Asset. The following table sets forth the components of the Bank's net deferred tax asset. December 31, ----------------- 1998 1997 ------ ------ Deferred tax assets: (in thousands) Allowance for loan losses ............................. $1,038 $1,079 Supplemental executive retirement expense ............. 55 118 Interest on nonperforming loans ....................... 38 100 Postretirement benefits expense ....................... 32 29 Accrued professional fees ............................. 12 12 ------ ------ 1,175 1,338 Valuation allowance ...................................... -- -- ------ ------ 1,175 1,338 ------ ------ Deferred tax liabilities: Pension expense ....................................... 157 197 Accretion on bonds .................................... 18 20 Depreciation .......................................... 6 12 Unrealized gains on available-for-sale securities ..... 878 324 ------ ------ 1,059 553 ------ ------ Net deferred tax asset ................................... $116 $785 ====== ====== NOTE G - COMMITMENTS AND CONTINGENT LIABILITIES Financial Instruments With Off-Balance-Sheet Risk. The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and commercial letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The Bank's exposure to credit loss in the event of nonperformance by the other party to financial instruments for commitments to extend credit, standby letters of credit, and commercial letters of credit is represented by the contractual notional amount of these instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. At December 31, financial instruments whose contract amounts represent credit risk are as follows: 1998 1997 ------- ------- (in thousands) Commitments to extend credit ....... $33,319 $28,907 Standby letters of credit .......... 1,566 1,436 Commercial letters of credit ....... 464 467 Standby letters of credit are conditional commitments issued by the Bank to assure the performance or financial obligations of a customer to a third party. The Bank's standby letters of credit extend through December 1999. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loans to customers. The Bank generally holds collateral and/or obtains personal guarantees supporting these commitments. The extent of collateral held for these commitments at December 31, 1998 varied from 0% to 100%, and averaged 55%. Commercial letters of credit are conditional commitments issued by the Bank to assure the payment by a customer to a supplier. All of the Bank's commercial letters of credit extend for less than one year. The credit risk involved in issuing commercial letters of credit is the same as that discussed in the preceding paragraph for standby letters of credit. The Bank generally obtains personal guarantees supporting these commitments. Commitments to extend credit are legally binding agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if any, by the Bank upon extension of credit 92 is based on management's credit evaluation of the borrower. Collateral held varies but may include mortgages on commercial and residential real estate, deposit accounts with the Bank or other financial institutions, and securities. Concentrations of Credit Risk. Virtually all of the Bank's loans, personal and commercial, are to borrowers who are domiciled on Long Island. As a result, the income of many of the Bank's borrowers is dependent on the Long Island economy. In addition, virtually all of the Bank's real estate loans involve mortgages on Long Island properties. Thus, the Bank's loan portfolio is susceptible to the economy of Long Island. Lease Commitments. At December 31, 1998, minimum annual rental commitments under noncancelable operating leases are as follows: Year Amount ----------------------------------------------- ----------- (in thousands) 1999 .......................................... $ 302 2000 .......................................... 283 2001 .......................................... 247 2002 .......................................... 239 2003 .......................................... 202 Thereafter .................................... 481 ----------- $ 1,754 =========== In addition, the Bank has various renewal options on the above leases. Rent expense was $286,000, $261,000, and $247,000 in 1998, 1997, and 1996, respectively. NOTE H - SHAREHOLDER PROTECTION RIGHTS PLAN On July 16, 1996, the Board of Directors of the Corporation (the "Board") adopted a Shareholder Protection Rights Plan and declared a dividend of one right ("Right") on each outstanding share of the Corporation's common stock (the "Common Stock"). The dividend was paid on July 31, 1996 to shareholders of record as of the same date. In the absence of an event of the type described below, the Rights will be evidenced by and trade with the Common Stock and will not be exercisable. However, the Rights will separate from the Common Stock and become exercisable following the earlier of (1) the tenth business day, or such later date as the Board may decide, after any person or persons (collectively referred to as "person") commences a tender offer that would result in such person holding a total of 20% or more of the outstanding Common Stock, or (2) ten business days after, or such earlier or later date as the Board may decide, the announcement by the Corporation that any person has acquired 20% or more of the outstanding Common Stock. When separated from the Common Stock, each Right will entitle the holder to purchase one share of Common Stock for $83 (the "Exercise Price"). However, in the event that the Corporation has announced that any person has acquired 20% or more of the outstanding Common Stock, the Rights owned by that person will be automatically void and each other Right will automatically become a right to buy, for the Exercise Price, that number of shares of Common Stock having a market value of twice the Exercise Price. Also, if any person acquires 20% or more of the outstanding Common Stock, the Board can require that, in lieu of exercise, each outstanding Right be exchanged for one share of Common Stock. The Rights may be redeemed by action of the Board at a price of $.01 per Right at any time prior to announcement by the Corporation that any person has acquired 20% or more of the outstanding Common Stock. The Exercise Price and the number of Rights outstanding are subject to adjustment to prevent dilution. The Rights expire ten years from the date of their issuance. NOTE I - STOCK-BASED COMPENSATION The Corporation has two stock option and appreciation rights plans (the "Plans"). The 1996 Plan was approved by the Corporation's Board of Directors on January 16, 1996 and subsequently approved by its stockholders. Under the 1996 Plan, options to purchase up to 360,000 shares of common stock are available to be granted to key employees of the Corporation and its subsidiaries through January 15, 2006. Each option, which may be granted with or without a stock appreciation right attached, is granted at a price equal to the fair market value of one share of the Corporation's stock on the date of grant and is exercisable in whole or in part at certain times commencing six months from the date of grant and ending ten years after the date of grant. The 1996 Plan also provides for the granting of stand-alone stock appreciation 93 rights. At December 31, 1998, options to purchase 30,587 shares of Common Stock were outstanding with respect to the 1996 Plan, of which 30,387 were exercisable. No stock appreciation rights have been granted under the 1996 Plan, either attached to options or on a stand-alone basis. The 1986 Plan was approved by the Corporation's Board of Directors on January 21, 1986 and subsequently approved by its stockholders. Under the 1986 Plan, as later amended, options to purchase up to 387,675 shares of common stock were available to be granted to key employees of the Corporation and its subsidiaries through January 21, 1996. The terms of the 1986 Plan are substantially the same as those of the 1996 Plan. At December 31, 1998, options to purchase 83,012 shares of Common Stock were outstanding and exercisable under the 1986 Plan and there were no outstanding stock appreciation rights. Compensation costs recognized for stock appreciation rights granted under the 1986 Plan amounted to $143,000 and $72,000 for the years ended December 31, 1997 and 1996, respectively. No compensation costs were recognized in 1998. The Corporation has chosen to account for stock-based compensation using the intrinsic value method prescribed in APB No. 25. Since each option is granted at a price equal to the fair market value of one share of the Corporation's stock on the date of grant, no compensation cost has been recognized. The following table compares reported net income and earnings per share to net income and earnings per share on a pro forma basis assuming that the Corporation accounted for stock-based compensation under SFAS No. 123. 1998 1997 1996 ---------- ---------- ---------- (in thousands except per share data) Net Income: As Reported .................. $8,368 $7,626 $6,891 Pro Forma .................... 8,230 7,523 6,776 Earnings Per Share: As Reported: Basic ........................ $2.69 $2.45 $2.20 Diluted ...................... 2.64 2.40 2.15 Pro Forma: Basic ........................ $2.65 $2.41 $2.16 Diluted ...................... 2.59 2.36 2.12 The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. SFAS No. 123 does not apply to awards prior to 1995. Future awards are anticipated under the 1996 Plan. Stock Option Activity. The following table sets forth stock option activity and the weighted average fair value of options granted.
Year Ended December 31, ------------------------------------------------------------------------------- 1998 1997 1996 ----------------------- ----------------------- ----------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price -------- --------- -------- --------- -------- --------- Outstanding, beginning of year ................... 115,796 $ 16.76 155,677 $ 14.14 151,435 $ 12.99 Granted .......................................... 14,650 42.03 20,057 24.34 26,325 19.89 Exercised ........................................ (16,497) 13.17 (59,488) 12.40 (21,966) 13.07 Forfeited ........................................ (350) 38.99 (450) 24.33 (117) 17.39 -------- --------- -------- --------- -------- --------- Outstanding, end of year ......................... 113,599 $ 20.48 115,796 $ 16.76 155,677 $ 14.14 ======== ========= ======== ========= ======== ========= Exercisable, end of year ......................... 113,399 $ 20.44 115,796 $ 16.76 155,677 $ 14.14 ======== ========= ======== ========= ======== ========= Weighted average fair value of options granted ... $ 9.42 $ 5.14 $ 4.36 ======== ======== ========
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions: risk-free interest rates of 4.77%, 5.56%, and 5.93% for 1996 Plan 94 options granted in 1998, 1997, and 1996, respectively, and 5.61% for 1986 Plan options granted in 1996; volatility of 13.40% for 1996 Plan options granted in 1998, 11.30% for 1996 Plan options granted in 1997 and 1996, and 11.22% for 1986 Plan options granted in 1996; expected dividend yield of 1.5% for options granted in 1998 and 2% for options granted in 1997 and 1996; and expected lives of 7 years for options granted in 1998, 1997 and 1996. Stock Options Outstanding. The following table sets forth information about outstanding and exercisable stock options at December 31, 1998.
Outstanding Stock Options Exercisable Stock Options --------------------------------------------------- ------------------------------ Weighted Average ------------------------------- Weighted Remaining Average Contractual Exercise Exercise Range of Exercise Prices Number Life (yrs.) Price Number Price - ------------------------------ ----------- ----------- ----------- ----------- ----------- $ 9.01 to $15.00 ............. 26,563 3.06 $ 11.49 26,563 $ 11.49 $15.01 to $25.00 ............. 72,686 6.61 19.52 72,686 19.52 $25.01 to $45.00 ............. 14,350 9.07 42.03 14,150 42.00 ----------- ----------- ----------- ----------- ----------- 113,599 6.09 $ 20.48 113,399 $ 20.44 =========== =========== =========== =========== ===========
NOTE J - RETIREMENT PLANS The Bank has a defined benefit pension plan (the "Pension Plan") covering eligible employees. The provisions of the Pension Plan are governed by the rules and regulations contained in the Prototype Plan of the New York State Bankers Retirement System (the "Retirement System") and the Retirement System Adoption Agreement executed by the Bank. For investment purposes, the Pension Plan's contributions are pooled with the contributions of the other participants in the Retirement System. Assets of the Pension Plan are invested in various debt and equity securities. Employees are eligible to participate in the Pension Plan after attaining 21 years of age and completing 12 full months of service. Pension benefits are generally based on varying percentages of average annual compensation during defined periods of creditable service. The Bank makes annual contributions to the Pension Plan in an amount sufficient to fund these benefits and participants contribute 2% of their compensation. The Bank's funding policy, the entry age normal cost-frozen initial liability method, is consistent with the funding requirements of federal law and regulations. Employees become fully vested after four years of participation in the Pension Plan (no vesting occurs during the four-year period). In 1998, the Corporation adopted Statement of Financial Accounting Standards No. 132 ("SFAS No. 132") "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 supersedes the disclosure requirements for pension and other postretirement plans as set forth in SFAS No. 87 "Employers' Accounting For Pensions", SFAS No. 88 "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and For Termination Benefits", and SFAS No. 106 "Employers' Accounting For Postretirement Benefits Other Than Pensions." SFAS No. 132 does not address measurement or recognition for pension and other postretirement benefit plans. The following disclosures are in accordance with the provisions of SFAS No. 132. Net Pension Cost. The following table sets forth the components of net periodic pension cost. 1998 1997 1996 ----- ----- ----- (in thousands) Service cost ............................... $ 319 $ 247 $ 255 Interest cost .............................. 345 311 276 Expected return on plan assets ............. (522) (423) (405) Net amortization and deferral .............. (44) (44) (44) ----- ----- ----- Net pension cost ........................... $ 98 $ 91 $ 82 ===== ===== ===== Significant Actuarial Assumptions. The following table sets forth the significant actuarial assumptions as of the end of each plan year. 1998 1997 1996 ---- ---- ---- Discount rate ....................................... 6.00% 7.00% 7.75% Rate of increase in compensation levels ............. 4.50% 5.00% 5.00% Expected long-term rate of return on plan assets .... 7.50% 8.00% 8.00% 95 Funded Status of The Plan. The following table sets forth the change in the benefit obligation and plan assets for each Plan year and, as of the end of each Plan year, the funded status of the Plan and prepaid benefit cost.
Year Ended September 30, ----------------------------------------------- 1998 1997 1996 ------- ------- ------- (in thousands) Change in projected benefit obligation Projected benefit obligation at beginning of year ...................... $ 5,021 $ 4,094 $ 3,624 Service cost ........................................................... 415 330 358 Plan participants' contributions ....................................... (112) (81) (121) Expenses ............................................................... (76) (61) (63) Interest cost .......................................................... 345 311 276 Benefits paid .......................................................... (189) (220) (156) Assumption changes and other ........................................... 776 648 176 ------- ------- ------- Projected benefit obligation at end of year ............................ 6,180 5,021 4,094 ------- ------- ------- Change in plan assets Fair value of plan assets at beginning of year ......................... 6,567 5,308 4,675 Actual return on plan assets ........................................... 282 1,202 645 Employer contribution .................................................. 188 257 86 Plan participants' contributions ....................................... 112 81 121 Benefits paid .......................................................... (189) (220) (156) Expenses ............................................................... (76) (61) (63) ------- ------- ------- Fair value of plan assets at end of year ............................... 6,884 6,567 5,308 ------- ------- ------- Funded status .......................................................... 704 1,546 1,214 Unrecognized net actuarial loss (gain) ................................. 315 (574) (364) Unrecognized prior service cost ........................................ (39) (42) (46) Unrecognized transition asset .......................................... (208) (248) (289) ------- ------- ------- Prepaid benefit cost ................................................... $ 772 $ 682 $ 515 ======= ======= =======
The Bank has a combined profit sharing/401(k) plan (the "Profit Sharing Plan"). Employees are eligible to participate provided they are at least 21 years of age and have completed one year of service in which they worked 1000 hours if full-time and 700 hours if part-time. Participants may elect to contribute, on a tax-deferred basis, up to 10% of gross compensation, as defined, subject to the limitations of Section 401(k) of the Internal Revenue Code. The Bank may, at its sole discretion, make "Additional" contributions to each participant's account based on the amount of the participant's tax deferred contributions and make profit sharing contributions to each participant's account equal to a percentage of the participant's compensation, as defined. Participants are fully vested in their elective contributions and, after five years of participation in the Profit Sharing Plan, are fully vested (20% vesting per year) in the Additional and profit sharing contributions made by the Bank. Additional contributions were $106,000, $93,000, and $92,000 for 1998, 1997, and 1996, respectively, and profit sharing contributions were $416,000, $403,000, and $387,000, respectively. On August 3, 1995, the Bank adopted The First National Bank of Long Island Supplemental Executive Retirement Program ("SERP"). The SERP provides benefits to certain employees, designated by the Compensation Committee of the Board of Directors, whose benefits under the Pension Plan and Profit Sharing Plan are limited by the applicable provisions of the Internal Revenue Code. The benefit under the SERP is equal to the additional amount the employee would be entitled to under the Pension and Profit Sharing Plans in the absence of such Internal Revenue Code limitations. The effective date of the SERP, which superseded the Bank's previous supplemental retirement benefit plan, was January 1, 1994. SERP expense was $413,000, $337,000 and $150,000 in 1998, 1997 and 1996, respectively. 96 NOTE K - OTHER OPERATING EXPENSES Expenses included in other operating expenses which exceed one percent of the aggregate of total interest income and noninterest income in 1998, 1997, and 1996 are as follows: 1998 1997 1996 ---- ---- ---- (in thousands) Computer services .................... $509 $420 $418 Insurance ............................ 395 420 424 Marketing ............................ 441 386 303 NOTE L - REGULATORY MATTERS Capital. The Corporation is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation's assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. The Corporation's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Under current regulations, banks are classified as well capitalized, adequately capitalized or undercapitalized. The following table sets forth the Corporation's capital ratios at December 31, 1998 and 1997 and the minimum ratios necessary to be classified as well capitalized and adequately capitalized. The Corporation's capital ratios at December 31, 1998 and 1997 substantially exceed the requirements for a well-capitalized bank.
Corporation's Capital Ratios at December 31: ---------------------------- Well Adequately 1998 1997 Capitalized Capitalized ---------- ---------- ----------- ----------- Total Risk-Based Capital Ratio ......... 31.76% 33.54% 10.00% 8.00% Tier 1 Risk-Based Capital Ratio ......... 30.51 32.28 6.00 4.00 Tier 1 Leverage Capital Ratio ........... 11.88 12.24 5.00 4.00
Other Matters. The amount of dividends paid by the Bank to the Corporation is subject to restrictions under Federal Reserve Board Regulation H. Under Regulation H, the Bank is required to obtain regulatory approval for the payment of dividends during any one calendar year that exceed the Bank's net income for the calendar year plus the retained net income for the two preceding calendar years. At December 31, 1998, the Bank had retained net income for the current and two preceding calendar years of $15,360,000. Regulation D of the Board of Governors of The Federal Reserve System requires banks to maintain reserves against certain deposit balances. The Bank's average reserve requirement for 1998 was approximately $3,123,000. Under national banking laws and related statutes, the Bank is limited as to the amount it may loan to the Corporation, unless such loans are collateralized by specified obligations. At December 31, 1998, the maximum amount available for transfer from the Bank to the Corporation in the form of loans approximated $9,535,000. NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value estimates are made at a specific point in time and are based on existing on and off-balance-sheet financial instruments. Such estimates are generally subjective in nature and dependent upon a number of significant assumptions associated with each financial instrument or group of similar financial instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows, and relevant available market information. Changes in assumptions could significantly affect the estimates. In addition, fair value estimates do not reflect the value of anticipated future business, premiums or discounts that could result from offering for sale at one time the Corporation's entire holdings of a particular financial instrument, or the tax consequences of realizing gains or losses on the sale of financial instruments. 97 The following table sets forth the carrying/contract amounts and estimated fair values of the Corporation's financial instruments at December 31, 1998 and 1997.
1998 1997 --------------------------- --------------------------- Carrying/ Carrying/ Contract Contract Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- (in thousands) Financial Assets: Cash and due from banks .................................... $ 16,336 $ 16,336 $ 13,343 $ 13,343 Federal funds sold ......................................... 76,000 76,000 60,500 60,500 Held-to-maturity securities ................................ 187,633 191,252 190,577 192,357 Available-for-sale securities .............................. 87,021 87,021 56,844 56,844 Loans ...................................................... 167,067 167,829 151,151 152,024 Accrued interest receivable ................................ 4,164 4,164 3,807 3,807 Financial Liabilities: Checking deposits .......................................... 175,046 175,046 142,848 142,848 Savings and money market deposits .......................... 265,684 265,684 242,579 242,579 Time deposits .............................................. 38,501 38,501 37,332 37,332 Accrued interest payable ................................... 197 197 186 186 Off-Balance-Sheet Liabilities: Commitments to extend credit ............................... 33,319 -- 28,907 -- Standby and commercial letters of credit ................... 2,030 17 1,903 8
NOTE N - PARENT COMPANY FINANCIAL INFORMATION Condensed financial information for The First of Long Island Corporation (parent company only) is as follows: CONDENSED BALANCE SHEETS December 31, ------------------- 1998 1997 ------- ------- Assets: (in thousands) Checking and money market accounts with subsidiary ..... $ 2,375 $ 2,121 Investment in subsidiary bank, at equity ............... 63,566 57,422 Other assets ........................................... 87 253 ------- ------- $66,028 $59,796 ======= ======= Liabilities: Cash dividends payable ................................. $ 929 $ 830 ------- ------- Stockholders' equity: Common stock ........................................... 310 311 Surplus ................................................ 4,219 5,471 Retained earnings ...................................... 59,304 52,717 ------- ------- 63,833 58,499 Accumulated other comprehensive income, net of tax ..... 1,266 467 ------- ------- 65,099 58,966 ------- ------- $66,028 $59,796 ======= ======= 98
CONDENSED STATEMENTS OF INCOME Year ended December 31, ----------------------------- 1998 1997 1996 ------- ------- ------- Income: (in thousands) Dividends from subsidiary bank ......................... $ 3,000 $ 2,400 $ 2,200 Interest on deposits with subsidiary bank .............. 52 72 86 ------- ------- ------- 3,052 2,472 2,286 ------- ------- ------- Expenses: Employee benefits ...................................... -- 143 72 Other operating expenses ............................... 29 29 28 ------- ------- ------- 29 172 100 ------- ------- ------- Income before undistributed earnings of subsidiary bank ........................................ 3,023 2,300 2,186 Equity in undistributed earnings ....................... 5,345 5,326 4,705 ------- ------- ------- Net income ............................................. $ 8,368 $ 7,626 $ 6,891 ======= ======= ======= CONDENSED STATEMENTS OF CASH FLOWS Year ended December 31, Increase (Decrease) in Cash and Cash Equivalents* ----------------------------- 1998 1997 1996 ------- ------- ------- Income: (in thousands) Cash Flows From Operating Activities: Net income ............................................... $ 8,368 $ 7,626 $ 6,891 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of subsidiary bank .............. (5,345) (5,326) (4,705) Decrease in other assets ............................... 261 -- -- Decrease in accrued expenses and other liabilities ..... -- (173) (38) ------- ------- ------- Net cash provided by operating activities ................ 3,284 2,127 2,148 ------- ------- ------- Cash Flows From Financing Activities: Repurchase and retirement of common stock .............. (1,566) (2,444) (730) Proceeds from exercise of stock options ................ 218 737 287 Cash dividends paid .................................... (1,668) (1,419) (1,243) Cash in lieu of fractional shares on 3-for-2 stock split (14) -- -- ------- ------- ------- Net cash used in financing activities ................. (3,030) (3,126) (1,686) ------- ------- ------- Net increase (decrease) in cash and cash equivalents ..... 254 (999) 462 Cash and cash equivalents, beginning of year ............. 2,121 3,120 2,658 ------- ------- ------- Cash and cash equivalents, end of year ................... $ 2,375 $ 2,121 $ 3,120 ======= ======= ======= Supplemental Schedule of Noncash Financing Activities: Tax benefit from exercise of employee stock options .... $ 95 $ 253 $ -- Cash dividends payable ................................. 929 830 710
* Cash and cash equivalents include the checking and money market accounts with the Corporation's wholly-owned bank subsidiary. 99 NOTE O - QUARTERLY FINANCIAL DATA (Unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter Total -------- -------- -------- -------- -------- (in thousands, except per share data) 1998 Interest income .................................. $ 7,789 $ 8,095 $ 8,410 $ 8,388 $ 32,682 Interest expense ................................. 2,374 2,437 2,591 2,465 9,867 Net interest income .............................. 5,415 5,658 5,819 5,923 22,815 Provision for loan losses (credit) ............... -- (100) -- -- (100) Noninterest income ............................... 1,135 1,238 1,202 1,245 4,820 Noninterest expense .............................. 3,715 3,840 3,966 3,948 15,469 Income before income taxes ....................... 2,835 3,156 3,055 3,220 12,266 Income taxes ..................................... 908 1,021 961 1,008 3,898 Net income ....................................... 1,927 2,135 2,094 2,212 8,368 Earnings per share: Basic .......................................... .62 .69 .67 .71 2.69 Diluted ........................................ .61 .67 .66 .70 2.64 Comprehensive income ............................. 1,879 2,194 3,070 2,024 9,167 1997 Interest income .................................. $ 7,208 $ 7,416 $ 7,822 $ 7,955 $ 30,401 Interest expense ................................. 2,146 2,249 2,376 2,426 9,197 Net interest income .............................. 5,062 5,167 5,446 5,529 21,204 Provision for loan losses (credit) ............... -- (100) -- -- (100) Noninterest income ............................... 1,040 993 1,103 1,182 4,318 Noninterest expense .............................. 3,569 3,504 3,520 3,692 14,285 Income before income taxes ....................... 2,533 2,756 3,029 3,019 11,337 Income taxes ..................................... 854 887 997 973 3,711 Net income ....................................... 1,679 1,869 2,032 2,046 7,626 Earnings per share: Basic .......................................... .54 .60 .65 .66 2.45 Diluted ........................................ .53 .59 .64 .64 2.40 Comprehensive income ............................. 771 2,561 2,256 2,202 7,790
100 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Stockholders and Board of Directors of The First of Long Island Corporation: We have audited the accompanying consolidated balance sheets of The First of Long Island Corporation and subsidiary as of December 31, 1998 and 1997 and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The First of Long Island Corporation and subsidiary as of December 31, 1998 and 1997 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. /s/Arthur Andersen LLP New York, New York January 22, 1999 101 Directors THE FIRST OF LONG ISLAND CORPORATION THE FIRST NATIONAL BANK OF LONG ISLAND [PHOTO OMITTED] J. William Johnson, Chairman and Chief Executive Officer [PHOTO OMITTED] John R. Miller III, President and Publisher, Equal Opportunity Publications, Inc. (publishing) [PHOTO OMITTED] Howard Thomas Hogan, Jr., Hogan & Hogan (lawyer, private practice) [PHOTO OMITTED] Beverly Ann Gehlmeyer, Tax Manager and Principal, Gehlmeyer & Gehlmeyer, P.C. (certified public accounting firm) [PHOTO OMITTED] Paul T. Canarick, President and Principal, Paul Todd, Inc. (construction company) [PHOTO OMITTED] J. Douglas Maxwell, Jr., Chairman and Chief Executive Officer, NIRx Medical Technologies Corp. (medical technology) [PHOTO OMITTED] Walter C. Teagle III, President and Chief Executive Officer, Metro Design Systems, Inc. (engineering design services) 102 Senior Management We are highly focused on our markets and providing an extremely high quality of service to our customers. [LOGO] The First of Long Island [PHOTO OMITTED] Left to Right Mark D. Curtis; Joseph G. Perri; Arthur J. Lupinacci, Jr.; Richard Kick; John C. Sansone; Donald L. Manfredonia 103 OFFICERS The First of Long Island Corporation J. William Johnson Chairman and Chief Executive Officer Arthur J. Lupinacci, Jr. Executive Vice President and Secretary Mark D. Curtis Senior Vice President and Treasurer Richard Kick Senior Vice President Donald L. Manfredonia Senior Vice President Joseph G. Perri Senior Vice President John C. Sansone, Senior Vice President Wayne B. Drake Assistant Treasurer EXECUTIVE OFFICERS The First National Bank of Long Island Chairman and Chief Executive Officer J. William Johnson Executive Vice Presidents Arthur J. Lupinacci, Jr. Senior Operating Officer Donald L. Manfredonia Senior Lending Officer Senior Vice Presidents Mark D. Curtis Chief Financial Officer and Cashier Richard Kick Senior Operations and Senior Retail Loan Officer Joseph G. Perri Senior Commercial Marketing Officer John C. Sansone Senior Trust Officer 104 BUSINESS DEVELOPMENT BOARD [PHOTO OMITTED] Kenneth R. Latham, Chairman of the Board, Latham Bros. Lumber Company, Inc. [PHOTO OMITTED] Herbert Haber, CPA, Certified Public Accountant [PHOTO OMITTED] Thomas N. Dufek, CPA, Partner, Kilgannon, Furey, Dufek & Company [PHOTO OMITTED] Kevin J. Harding, Esq., Partner, Harding and Harding [PHOTO OMITTED] Herbert Kotler, Esq., Attorney [PHOTO OMITTED] Susan Hirschfeld Mohr, President, J. W. Hirschfeld Agency, Inc. [PHOTO OMITTED] Richard Nussbaum, CPA, Managing Partner, Nussbaum, Yates, Wolpow, P.C. [PHOTO OMITTED] Arthur C. Schupbach, Esq., Partner, Schupbach, Williams & Pavone LLP [PHOTO OMITTED] H. Craig Treiber, President/CEO, The Treiber Group LLC [PHOTO OMITTED] Emil V. Cianciulli, Esq., Partner, Cianciulli & Meng, P.C. [PHOTO OMITTED] David Black, CPA, David Black & Associates, Inc. [PHOTO OMITTED] Lawrence F. Steiner, President, Universal Unlimited, Inc. [PHOTO OMITTED] Kenneth R. Going, President, GOING SIGN CO. Inc. [PHOTO OMITTED] Alan B. Katcher, Chief Executive Officer, Terry Alan Adv. Co., Inc. [PHOTO OMITTED] Zachary Levy, Esq., Attorney [PHOTO OMITTED] Bernard Esquenet, Chief Executive Officer, The Ruhof Corp. [PHOTO OMITTED] Quentin Sammis, President, Coldwell Banker Sammis [PHOTO OMITTED] William L. Edwards, Real Estate Investor [PHOTO OMITTED] Howard S. Cohen, President, Mount Carmel Cemetery Assoc. [PHOTO OMITTED] Arthur Ventura, President, Badge Agency [PHOTO OMITTED] Mark Wurzel, President, Calico Cottage, Inc. [PHOTO OMITTED] John A. Burns, Jr., Esq., Counsel, Forchelli, Schwartz, Mineo, Carlino & Cohn, LLP 105 Official Staff Vice Presidents - --------------- Albert Arena Commercial Banking Archie J. Arrington Manager, Roslyn Heights Lester J. Bach Manager, Great Neck James Clavell Branch Administration Robert F. Covino Manager, Rockville Centre Kitty W. Craig Auditing Paul J. Daley Commercial Banking Wayne B. Drake Controller, Finance Stephen Durso Commercial Banking John G. Fitzpatrick Loan Center Compliance - CRA Officer Betsy Gustafson Deposit Operations Charles E. Haberkorn, Jr. Commercial Banking Peter J. Hoey Data Center James P. Johnis Commercial Banking George P. Knott Manager, Woodbury Henry A. Kramer Commercial Banking Concepcion L. Larrea Manager, Greenvale Teresa P. Maloney Trust and Investment Services Roslyn Marett Human Resources Edward V. Mirabella Commercial Banking John J. Mulder, Jr. Manager, Glen Head Patrick J. Mulligan Trust and Investment Services John T. Noonan Manager, Locust Valley William Pyszczymuka Manager, Huntington Debbie J. Sorace Marketing Henry C. Suhr Manager, Northport 106 Assistant Vice Presidents - ------------------------- Peter J. Arebalo Manager, Valley Stream Philip B. Brady Manager, Bohemia Aldo G. Columbano Finance Linda A. Cutter Manager, New Hyde Park Margaret M. DeBonis Auditing Barbara D. Hefner Loan Center Susan J. Hempton Human Resources David Lippa Glen Head Dorothy Miller Manager, Hicksville Gretchen B. Nesky Commercial Banking Lee Nunez Manager, Lake Success Ronald Pimental Branch Administration Frank Plesche Manager, Old Brookville Mark A. Ryan Manager, Hauppauge Frederick G. Ruff General Services Carole Ann Snayd Roslyn Heights Michael J. Spolarich Commercial Banking Ann Marie Tarantino Compliance and Procedures Philip R. Thompson Manager, Garden City Elissa A. Toussaint Northport Herta Tscherne Manager, Mineola Trust Officers Susan P. Contino Trust and Investment Services Andrew G. Drenick Trust and Investment Services Sharon E. Pazienza Trust and Investment Services Senior Mortgage Advisor John F. Darcy Loan Center 107 Mortgage Originator Frederick T. Hughes Loan Center Assistant Cashiers - ------------------ Monica T. Baker Branch Administration Pari Glazer Lake Success Arlyne H. Kramer Hicksville Jenny Malandruccolo Huntington Mary Lou Martin Locust Valley Caroline V. McIntyre Old Brookville Donna P. Minervini Rockville Centre June E. Pipito Woodbury Assistant Trust Officer Joanne Buckley Trust and Investment Services Assistant Managers - ------------------ Ann J. Cristodero Loan Center Alison A. Hazell Deposit Operations Catherine Irvin Finance Robert B. Jacobs Loan Center Rosemary Kerrane Mineola Eveline Ratte Loan Center Colleen M. Robbins Human Resources Cathy A. Vanatta Marketing Administrative and Executive Assistants - --------------------------------------- Elaine Ballinger Glen Head Allison C. Brown Northport Andrea L. DePol Roslyn Heights Anna S. Fleming Loan Center Lorraine Fogarty Branch Administration Marguerite F. Hirschman Trust and Investment Services 108 Patricia Lacorazza Loan Center Carmela Lalonde Deposit Operations Conrad A. Lissade Data Center Donna M. Long Deposit Operations Francine McDonald Trust and Investment Services Constance Miller Administration Patricia Ovalle-Wood Greenvale Cheryl A. Romanski Finance Lori A. Ruggiero Data Center Anne J. Virgadamo Huntington Maureen P. Zebrowski Commercial Banking Counsel SCHUPBACH, WILLIAMS & PAVONE LLP Independent Auditors ARTHUR ANDERSEN LLP FORM 10-K REPORT A copy of the Corporation's annual report on Form 10-K for 1998, filed with the Securities and Exchange Commission, may be obtained without charge upon written request to Mark D. Curtis, Senior Vice President and Treasurer, The First of Long Island Corporation, 10 Glen Head Road, PO Box 67, Glen Head, New York 11545-0067. 109 FULL SERVICE OFFICES 10 Glen Head Road Glen Head, NY 11545 (516) 671-4900 7 Glen Cove Road Greenvale, NY 11548 (516) 621-8811 253 New York Avenue Huntington, NY 11743 (516) 427-4143 108 Forest Avenue Locust Valley, NY 11560 (516) 671-2299 711 Fort Salonga Road Northport, NY 11768 (516) 261-4000 209 Glen Head Road Old Brookville, NY 11545 (516) 759-9002 310 Merrick Road Rockville Centre, NY 11570 (516) 763-5533 130 Mineola Avenue Roslyn Heights, NY 11577 (516) 621-1900 800 Woodbury Road Woodbury, NY 11797 (516) 364-3434 COMMERCIAL BANKING OFFICES 30 Orville Drive Bohemia, NY 11716 (516) 218-2500 1050 Franklin Avenue Garden City, NY 11530 (516) 742-6262 536 Northern Boulevard Great Neck, NY 11021 (516) 482-6666 330 Motor Parkway Hauppauge, NY 11788 (516) 952-2900 110 106 Old Country Road Hicksville, NY 11801 (516) 932-7150 3000 Marcus Avenue Lake Success, NY 11042 (516) 775-3133 194 First Street Mineola, NY 11501 (516) 742-1144 200 Jericho Turnpike New Hyde Park, NY 11040 (516) 328-3100 133 E. Merrick Road Valley Stream, NY 11580 (516) 825-0202 TRUST AND INVESTMENT SERVICES 800 Woodbury Road Woodbury, NY 11797 (516) 364-3436 111 EX-21 11 SUBSIDIARY OF REGISTRANT SUBSIDIARY OF REGISTRANT THE FIRST NATIONAL BANK OF LONG ISLAND 10 GLEN HEAD ROAD GLEN HEAD, NY 11545 112 EX-23 12 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23 - CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 113 [ARTHUR ANDERSEN LETTERHEAD] CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated January 22, 1999, incorporated by reference in this Form 10-K, into the Company's previously filed Registration Statement No. 33-44393. /s/ ARTHUR ANDERSEN LLP March 15, 1999 114 EX-27 13 FDS
9 This schedule contains summary financial information extracted from the consolidated financial information incorporated by reference from the 1998 Annual Report which is filed herewith as Exhibit 13 and is qualified in its entirety by reference to such financial information. 12-MOS Dec-31-1998 Jan-01-1998 Dec-31-1998 16,336,000 0 76,000,000 0 87,021,000 187,633,000 191,252,000 170,718,000 3,651,000 547,622,000 479,231,000 0 3,292,000 0 0 0 310,000 64,789,000 547,622,000 14,584,000 15,145,000 2,953,000 32,682,000 9,867,000 0 22,815,000 (100,000) 0 15,469,000 12,266,000 12,266,000 0 0 8,368,000 2.69 2.64 5.06 22,000 0 0 0 3,579,000 99,000 271,000 3,651,000 3,651,000 0 0
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