Branch Locations
Commercial
Banking Offices
Bohemia
Deer Park
Hicksville
Lake Success
Farmingdale
Mineola
-ALLEN BOULEVARD
-NEW HIGHWAY
Garden City
Great Neck
Hauppauge
New Hyde Park
Valley Stream
Manhattan
-232 MADISON AVENUE
-225 BROADWAY, SUITE 703
-1501 BROADWAY, SUITE 301
Full Service
Offices
Glen Head
Greenvale
Huntington
Northport
Old Brookville
Rockville Centre
Locust Valley
Roslyn Heights
Merrick (NEW/2005)
Woodbury
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Banking Offices
■ Full Service
Offices
Business of the Corporation
The First of Long Island Corporation (“Corporation”) is a one-bank holding company organized under the laws of the State
of New York. Its primary business is the operation of its sole subsidiary, The First National Bank of Long Island (“Bank”).
The Bank was organized in 1927 under national banking laws and became the sole subsidiary of the Corporation under
a plan of reorganization effected April 30, 1984.
The Bank is a full service commercial bank which provides a broad range of financial services to individual, professional,
corporate, institutional and government customers through its twenty-five branch system on Long Island and in Manhattan.
The First of Long Island Agency, Inc. was organized in 1994 under the laws of the State of New York, as a subsidiary of
the Bank to conduct business as a licensed insurance agency engaged in the sale of mutual funds and 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.
Selected Financial Data
Stock Prices
1
Dear Shareholder,
It is my pleasure to write to you about the financial
performance of our Bank over the past year. It was certainly
a very active and exciting year that presented quite a number
of challenges; however, challenges create opportunities and
2005 proved to be a very successful year.
One of the most significant issues this year was the
continued flattening of the yield curve resulting from
increases in short-term interest rates accompanied by steady
to lower intermediate and longer-term rates. This market
trend affected our ability to generate income and correspondingly
compressed our net interest margin. In addition, rising short-term interest rates along with several
new competitors entering our marketplace and the proliferation of branching within the industry
created greater competition for deposits.
Amid the challenges, the Bank was able to grow its earnings per share by 20 cents, or
approximately 7%, from $2.90 in 2004 to $3.10 in 2005. When our 2% dividend yield is
combined with the 7% earnings increase, our return to the shareholders was 9%. We feel good
about this accomplishment.
There are a number of factors that contributed to this year’s positive performance. The success
of our stock repurchase program was one considerable contributing factor. Other factors included
the management of benefit costs, tax-planning strategies, the ability to maintain deposit liability
costs and the growth of several key product categories.
The Bank enjoyed continued deposit growth during 2005. Checking deposits grew by
3.3% or $9,793,000. This is our most important product category and has consistently been
instrumental to our overall financial success. Correspondingly, overall deposits grew by
$16,761,000 or 2.2%.
Turning to assets, during 2005 our commercial mortgage portfolio rose from $87,744,000
to $104,336,000, an increase of $16,592,000 or approximately 19%. This is significant
because commercial mortgages are one of our better yielding asset categories. Our progress was
2
accomplished through well-designed calling programs, an investment in additional commercial
lending staff, a direct mail campaign, some conservative, but well timed changes to our credit
policy and a change in corporate lending philosophy.
During 2005, our home equity portfolio grew from $41,115,000 to $53,653,000, an increase
of $12,538,000 or 30.5%. This was accomplished by some minor changes
to our incentive compensation program, allocating greater marketing dollars
Cash Dividends Declared
Per Share
to promote this product and by re-emphasizing and repositioning the
marketing associated with our fixed rate amortizing home equity loans.
Additionally, some of our success can also be attributed to the still relatively
low interest rate environment and what has been to date a resilient Long
Island housing market.
To support our re-emphasis of lending, the Bank has introduced a
number of risk management initiatives. These have included the introduction
of FICO scores into our credit underwriting process, a more detailed loan review process, stress
testing the cash flows associated with underwriting variable rate home equity lines of credit
and a newly introduced model for commercial credit analysis. In 2006, the Bank will be looking
to build its first formal credit department. All of these changes will continue to give us a
better foundation for growing our loans in a measured and disciplined way. It is the belief of
management that more lending will work to improve franchise value, drive deposits, maintain
margins and correspondingly enhance our prospects for greater EPS growth.
Earnings Per Share
During the year, we continued to analyze and evaluate segments of our
customer base. Like most things in life, change is constant. We must
remain vigilant of these changes so that we can continue to meet the future
needs of our growing family of customers. In 2006, we will install a state
of the art wire transfer system to enable us to better meet the needs of our
commercial customers. This new system complements our recent addition
of other products such as lock box and account reconciliation services.
Excluding special credits.
Our intention is to continue to explore and invest in products that provide “relationship”
solutions. We pride ourselves on our one-on-one relationship philosophy and the service
approach to our customers.
In December we opened a full service branch in Merrick, New York, which brings our full
3
service branch count to ten and the overall number of branches to twenty-five. As is
true of all of our new branch openings, we are focused on creating an environment
where individuals will be comfortable. This style integrates well into our concept of
relationship banking where we have the ultimate goal of knowing each and every
customer on a first name basis. After all, we are the Bank “Where Everyone Knows
Your Name” – a Bank that wants to excel in customer service.
In 2006, we are continuing to search for new branch locations in Nassau and
Suffolk counties, as well as Manhattan. We are also exploring our infrastructure and
how we should invest and improve. We continue to actively analyze our customer base
in an attempt to identify what new or improved products are needed to maintain
exceptional customer service.
Our focus on lower middle market and small businesses as well as professionals
and service conscious consumers remains consistent. Our deposit growth is more than
sufficient to meet the growth needs of our loan portfolio. Our basic business model is
sound. We’ll supplement our approach by hiring new talent. We’ll continue to look to
expand, simultaneously responding to changing times, while being vigilant to take
advantage of changing opportunities. We have been able to prosper in a tough
environment and I am confident we will continue to do so. We take a long-term view
of the business and remain committed to building long-term shareholder value.
In ending this letter, I would like to take this opportunity to thank our employees
for their dedication and hard work. Without their efforts and perseverance we could
not have achieved the level of success that we experienced in 2005. Our employees
remain the best asset we have in our efforts to build the Bank. These individuals know
our customers and personalize our banking approach. This is what I believe makes us
different from our competition, allowing us to say we are the Bank “Where Everyone
Knows Your Name.”
Michael N. Vittorio
President & Chief Executive Officer
4
ew buildings, business
expansions, homes and new
equipment are meaningful
and significant investments
to owners of businesses and
professional practices.
At The First National Bank of
Long Island, we take the time to
understand the needs and goals of our
customers. Satisfying those needs to
ensure our customers’ success puts the
meaning in banking for us.
As you read our customers’ testimonials
on the next page, you will discover
the underlying integrity that each
of our employees brings to the
client relationship.
5
“As a long-time customer of the Bank, I know first hand the
personal and professional service provided by the Bank for
all of our banking needs. The staff is always knowledgeable
and helpful, as well as courteous and cheerful. It is a pleasure
to be a customer.”
– Jeffrey D. Forchelli, Esq.
Forchelli, Curto, Schwartz, Mineo, Carlino &
Cohn, LLP, Mineola
“The First National Bank of Long Island is an institution
with a personality. My company and personal accounts
are with The First National Bank of Long Island and I’ve
been with them for many years. I feel that the personal
attention I get from the officers and employees is unfounded
throughout the banking industry. If I, or one of my clients,
need financing for expansion, new equipment or working
capital, the Senior Commercial Banking Officer is my first
call. If it’s a transactional issue, I call my Branch Manager.
Banking transactions can be stressful at times. The team
at The First National Bank of Long Island takes the stress
out of banking for me and my clients.”
– Roger T. Ciacco, CPA
Satty, Levine and Ciacco CPAs, P.C., Jericho
6
“Since I opened our business account in 1973,
I have never been disappointed with the service
or responses I received from the Bank for our
credit lines, commercial mortgages, or from the
Branch personnel. Over the years, we have
refinanced our house with the Bank, and our
children have also had great experience with
residential mortgages and home equity lines.”
– John Walsh, President
VelveTop™Products, Huntington Station
“Time and time again, The First National Bank of Long
Island’s uncanny ability to make things happen has provided
us with the right financial environment to support the ever growing needs of our
practice. From the purchase of Imaging equipment to renovations to the recent
acquisition of our clinical space in Babylon, our banking partners have addressed
our financial concerns with responsive and creative assistance at every turn.”
“With The First National Bank of Long Island’s unwavering financial support and
commitment to our goals, we find ourselves spending less time worrying about the
numbers and more time focusing on delivering state of the art care to our patients.”
– Dr. Guillermo A. San Roman, Partner
Long Island Cardiovascular Medical Associates, PC, Babylon
7
Board of Directors
The First of Long Island Corporation
Back row from left to right – Stephen V. Murphy, Alexander L. Cover, Michael N. Vittorio, Allen E. Busching, Paul T. Canarick,
Howard Thomas Hogan Jr., Esq., John R. Miller III, Front row from left to right - Beverly Ann Gehlmeyer, J. Douglas Maxwell, Jr., Walter C. Teagle III
Michael N. Vittorio
President & Chief Executive Officer
Allen E. Busching
Principal
B&B Capital
(consulting and private investment)
Paul T. Canarick
President & Principal
Paul Todd, Inc.
(construction company)
Alexander L. Cover
(business consultant)
Beverly Ann Gehlmeyer
Tax Manager
Gehlmeyer & Company, CPAs, P.C.
(certified public accounting firm)
John R. Miller, III
Chairman & CEO
Equal Opportunity Publications, Inc.
(publishing)
Howard Thomas Hogan Jr., Esq.
Hogan & Hogan
(attorney, private practice)
J. Douglas Maxwell, Jr.
Chief Financial Officer
NIRx Medical Technologies LLC
(medical technology)
Stephen V. Murphy
President
S.V. Murphy & Co., Inc.
(privately owned investment banking firm)
Walter C. Teagle, III
Non-executive Chairman
President
Teagle Management, Inc.
(private investment consulting firm)
Managing Director
Groton Partners L.L.C.
(merchant banking firm)
8
Executive Officers
The First National Bank of Long Island
Michael N. Vittorio
President & Chief Executive Officer
Arthur J. Lupinacci, Jr.
Executive Vice President
& Chief Administrative Officer
Mark D. Curtis
Executive Vice President
Chief Financial Officer & Cashier
Brian J. Keeney
Executive Vice President
Executive Trust Officer
Richard Kick
Executive Vice President
Senior Operations & Senior Retail Loan Officer
Donald L. Manfredonia
Executive Vice President
Senior Lending Officer
Joseph G. Perri
Executive Vice President
Senior Commercial Banking Officer
Officers
The First of Long Island Corporation
Michael N. Vittorio
President & Chief Executive Officer
Arthur J. Lupinacci, Jr.
Executive Vice President
& Chief Administrative Officer
Mark D. Curtis
Senior Vice President
& Treasurer
Brian J. Keeney
Senior Vice President
Richard Kick
Senior Vice President
Donald L. Manfredonia
Senior Vice President
Joseph G. Perri
Senior Vice President
& Secretary
Wayne B. Drake
Assistant Treasurer
From left to right – Brian J. Keeney, Donald L. Manfredonia, Joseph G. Perri, Michael N. Vittorio,
Arthur J. Lupinacci, Jr., Mark D. Curtis, Richard Kick
Senior Vice Presidents
The First National Bank of Long Island
James Clavell
Senior Vice President
Branch Administration
Paul J. Daley
Senior Vice President
Commercial Lending
Wayne B. Drake
Senior Vice President
Senior Investment Officer
Betsy Gustafson
Senior Vice President
Operations Administration
James P. Johnis
Senior Vice President
Commercial Banking
From left to right – James P. Johnis, James Clavell, Betsy Gustafson,
Paul J. Daley, Wayne B. Drake
9
M A N A G E M E N T ' S D I S C U S S I O N A N D A N A L Y S I S O F
F IN A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
The following is management's discussion and analysis of certain significant factors that have affected the
Corporation’s financial condition and operating results during the periods included in the accompanying consolidated
financial statements, and should be read in conjunction with such financial statements. The Corporation’s financial
condition and operating results principally reflect those of its wholly-owned subsidiary, The First National Bank of Long
Island, and the Bank’s wholly-owned subsidiaries, The First of Long Island Agency, Inc. and FNY Service Corp., and
FNY Service Corp.’s wholly-owned subsidiary, The First of Long Island REIT, Inc. The consolidated entity is referred to
as the “Corporation” and the Bank and its subsidiaries are collectively referred to as the “Bank.” The Bank’s primary
service area has historically been Nassau and Suffolk Counties, Long Island. However, the Bank opened three
commercial banking branches in Manhattan in 2003 and may open additional Manhattan branches in the future.
Overview
Overview – 2005 Versus 2004. In 2005 the Corporation earned $3.10 per share, an increase of approximately 7%
over the $2.90 earned last year. Returns on average total average assets (“ROA”) and equity (“ROE”) were 1.25% and
13.58%, respectively, in 2005 as compared to 1.29% and 13.10% in 2004. The increase in return on equity in 2005 is
partially attributable to the Corporation’s share repurchase program. This year’s earnings include a charge of eleven cents
per share resulting from a securities loss program while 2004 earnings include a charge of seven cents. While securities
loss programs adversely impact current earnings, they improve the Corporation’s future prospects because they entail
selling lower yielding securities at a loss and using the resulting proceeds to buy securities with better yields.
As in recent prior years, 2005 was a successful year from the standpoint of the share repurchase program in that the
Corporation was able to purchase 166,273 shares, representing approximately 4.2% of the total shares outstanding at the
beginning of the year. This compares to 151,320 shares purchased in 2004, or 3.7% of total shares outstanding at the start
of the year. The success of the program in the last two years is believed to be partially attributable to the Corporation’s
periodic open market purchases of stock, when available and within the safe harbor afforded by Exchange Act Rule 10b-
18. The stock repurchase program has historically enhanced earnings per share and return on average stockholders’
equity, and this year it is estimated to have contributed approximately half of the earnings per share growth. The
estimated contribution to earnings per share includes the full-year impact of the shares purchased in 2004 plus the pro rata
impact of the shares purchased throughout 2005.
Earnings for 2005 were positively impacted by loan growth, particularly in commercial mortgages and home equity
loans, continued growth in checking balances, tax planning strategies and a reduction of income taxes accrued with
respect to the Bank’s investment and REIT subsidiaries. Also positively impacting 2005 earnings was a large real estate
tax settlement in the first quarter which added five cents to per share earnings and the second quarter termination of a
post-retirement medical program that added three cents. On the other hand, adversely impacting earnings this year was
severance paid to the Corporation’s former Chairman in the second quarter which had a net cost of five cents per share.
In 2005 commercial mortgage balances grew by $16.6 million, or 18.9%, home equity product balances grew by
$12.5 million, or 30.5%, and residential mortgage balances grew by $10.1 million, or 6.7%. The growth in residential
mortgages during 2005 was constrained by a slowing of mortgage refinance activity and the fact that the Bank has a large
concentration of shorter-term (ten to fifteen year terms) fixed rate mortgages in its portfolio that have greater scheduled
amortization than traditional thirty-year mortgage product. Almost all the growth in home equity products was in fixed
rate amortizing home equity loans with terms generally between five and twelve years and underwritten with conservative
loan to value and debt to income ratios. The Bank attributes its loan growth to the persistence of a relatively low interest
rate environment, carefully designed calling programs, more assertive direct advertising, and a change in lending
philosophy. In a measured and disciplined manner, management is working to increase the Bank’s relatively low loan to
deposit ratio and thereby enhance its earnings prospects. The overall credit quality of the Bank’s portfolio remains
excellent.
10 The First of Long Island Corporation
Checking deposit growth, albeit more modest than that experienced in recent prior years, is once again attributed to
well designed calling efforts and our personalized business banking approach. In an attempt to continue to grow loans
and checking deposits, the Bank has definitive plans to add a number of seasoned bankers with significant account
relationships to its commercial lending and marketing staffs. However, the significant increase in short-term interest rates
that began in June 2004 as well as increased competition in the Bank’s marketplace could cause depositors to keep smaller
checking balances or move such deposit accounts elsewhere. Future loan growth may be challenged by an increase in
intermediate and longer-term interest rates from their relatively low current levels which could result in reduced demand
for credit.
Despite the growth in loans and checking deposits, the Corporation’s earnings continue to be challenged by the
interest rate environment. The yield curve has flattened significantly in that a 350 basis point increase in short-term
interest rates since June 2004 was accompanied by a much smaller increase in intermediate-term interest rates and a
decline in longer-term interest rates. The increase in short-term interest rates has put upward pressure on the Bank’s cost
of funds, while at the same time the Bank has had only limited opportunity to reinvest cash flows from intermediate and
longer-term loans and securities at similar or higher rates. As a result, net interest margin has declined. The thirteen basis
point decline in net interest margin experienced in 2005 may have been more severe had management not adopted
effective deposit pricing strategies designed to minimize the impact of increases in interest rates on the Bank’s cost of
deposits while at the same time allowing the Bank to remain competitive. The degree to which the Bank will be able to
continue to successfully employ these strategies and thereby contain its cost of deposits cannot now be determined.
Despite the amount spent for share repurchases and the continued growth of cash dividends, total capital before
unrealized gains or losses on available-for-sale securities grew by $2,585,000 in 2005 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 very good.
The Corporation opened a full service branch in Merrick, New York in the fourth quarter and continues to explore
potential new branch locations and product offerings. Management currently intends to expand its market presence in
Nassau and Suffolk counties and Manhattan in the future.
Overview – 2004 Versus 2003. The Bank earned $2.90 per share in 2004, an increase of 7%, or 18 cents, over the
$2.72 earned in 2003. ROA and ROE were 1.29% and 13.10%, respectively, in 2004 as compared to 1.33% and 13.20%,
respectively, in 2003. Earnings for 2004 included a charge of 7 cents per share from net securities losses while 2003
earnings included credits of 5 cents per share from net securities gains and 8 cents from an unusually large commercial
mortgage prepayment fee of $564,000. Before securities gains and losses and the large prepayment fee, earnings per
share for 2004 were up 15%, or 38 cents, over 2003 earnings.
When compared to 2003, earnings for 2004 were up primarily because of growth in several key deposit and loan
products and the continued impact of strategy changes made during the latter half of 2003. The most significant growth
occurred in checking deposits, the average yearly balance of which increased by $27.0 million, or 10%, and residential
mortgage loans, including home equity lines, the average yearly balance of which increased by $42.6 million, or 30%.
The growth in checking balances was believed to be attributable to a variety of factors including a continuation of
targeted solicitation efforts by the Bank’s business development officers, the full-year impact of the three Manhattan
branches opened in the middle of 2003, the full-year impact of the free checking campaigns conducted in 2003 and the
continuation of such campaigns in 2004, the high level of customer service offered by the Bank, and a lack of significant
incentive for the Bank’s customers to invest excess balances as a result of the low interest rate environment. The growth
2005 Annual Report 11
in residential mortgages and home equity lines resulted from the full-year impact of an aggressive residential mortgage
promotion conducted in the latter half of 2003, the continued promotion of residential mortgage products in 2004, a strong
housing market on Long Island and a high level of mortgage refinance activity caused by the low interest rate
environment. The strategy changes implemented in the latter half of 2003 included borrowing to pre-invest future loan
and security cash flows and a shift away from overnight federal funds and other shorter-term investment instruments in
favor of intermediate-term instruments. This shift enabled the Bank to take advantage of the relatively steep slope of the
yield curve.
The positive impact on 2004 earnings of the growth and strategy changes was partially offset by a reduction in net
interest margin and net losses incurred on sales of securities in 2004 versus net gains in 2003. Although net interest
margin was relatively stable throughout 2004, it declined by 20 basis points when compared to 2003. This occurred
principally because of the reinvestment of cash flows from loans and securities in a low rate environment and a shifting
back during the latter half of 2004 from intermediate to shorter-term investment instruments in an effort to better position
the Bank for rising rates. When compared to last year, net interest margin for 2004 was helped by a reduction in
prepayments on mortgage securities but hurt by the fact that 2003 included the large commercial mortgage prepayment
fee. The net securities losses in 2004 occurred as lower yielding securities were replaced with higher yielding securities
of similar duration in an effort to improve the Bank’s future revenues. The net securities gains in 2003 resulted from the
sale of an equity security that the Bank was once required to hold as part of a government sponsored loan program.
The significant growth experienced by the Bank in 2004 in the yearly average balances of checking deposits and
residential mortgage loans tended to obscure the fact that the rate of growth for these products had slowed. An analysis of
the yearly average balances for these products shows that the increase resulted principally from growth that occurred in
the latter half of 2003 and, for residential mortgage loans, continued growth in the first half of 2004.
2004 was a successful year from the standpoint of the Corporation’s stock repurchase program. During 2004, the
Corporation was able to purchase 151,320 shares of common stock for an aggregate consideration of $7,310,000. This
compares to purchases of 124,678 and 49,894 in 2003 and 2002, respectively, with the 2002 shares having been adjusted,
where applicable, for the 3-for-2 stock split paid July 2002. In 2004 the program contributed approximately 6 cents to per
share earnings. The estimated contribution includes the full-year impact of the shares purchased in 2003 plus the pro rata
impact of the shares purchased throughout 2004.
The significant increase in other assets from year-end 2003 to year-end 2004 resulted principally from the Bank’s
purchase in December of 2004 of $7.5 million of bank-owned life insurance. The tax-exempt return on this product could
be used to offset future employee benefit costs.
Despite the amount spent for share repurchases and the continued growth of cash dividends, total capital before
unrealized gains on available-for-sale securities grew by $2,265,000 in 2004 and the Corporation’s capital ratios
continued to substantially exceed the regulatory criteria for a well-capitalized bank. In addition, the Corporation’s
liquidity continued to be very good.
The Bank expanded its franchise by opening three new commercial banking offices in Manhattan in the middle of
2003. The Bank used 2004 to absorb the Manhattan growth and plan for further expansion.
12 The First of Long Island Corporation
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.
2005
2004
2003
Assets:
Federal funds sold............................
Investment securities:
Taxable ..........................................
Nontaxable (1) ...............................
Loans (1) (2) ....................................
Total interest-earning assets (1) ......
Allowance for loan losses ................
Net interest-earning assets …..........
Cash and due from banks …............
Premises and equipment, net ..........
Other assets .....................................
Liabilities and
Stockholders' Equity:
Savings and money
market deposits ..............................
Time deposits ...................................
Securities sold under
repurchase agreements..................
Total interest-bearing liabilities ........
Checking deposits (3) ......................
Other liabilities .................................
Stockholders' equity .........................
Net interest income (1) .....................
Net interest spread (1) .....................
Net interest margin (1) …..................
Average
Balance
Interest
Average
Rate
$
19,056
$
606
3.18%
Average
Balance
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
(dollars in thousands)
$
262
21,735
$
1.21%
$
43,185
$
473
1.10%
397,218
153,244
359,288
928,806
(3,072)
925,734
31,254
6,766
15,115
978,869
$
$
426,546
78,748
65,714
571,008
313,548
3,910
888,466
90,403
978,869
$
13,860
9,773
21,779
46,018
3.49
6.38
6.06
4.95
3,485
1,964
1,977
7,426
.82
2.49
3.01
1.30
374,219
156,045
336,587
888,586
(2,655)
885,931
35,743
6,560
7,044
935,278
$
$
450,631
44,720
38,682
534,033
304,107
4,890
843,030
92,248
935,278
$
12,655
9,848
18,997
41,762
3.38
6.31
5.64
4.70
2,736
503
426
3,665
.61
1.12
1.10
.69
330,336
152,997
281,556
808,074
(2,246)
805,828
33,006
6,608
5,965
851,407
$
$
431,978
33,917
17,100
482,995
277,096
5,217
765,308
86,099
851,407
$
12,426
9,421
17,861
40,181
3.76
6.16
6.34
4.97
3,294
436
148
3,878
.76
1.29
.86
.80
$
38,592
$
38,097
$
36,303
3.65%
4.16%
4.01%
4.29%
4.17%
4.49%
(1) Tax-equivalent basis. Interest income on a tax-equivalent basis includes the additional amount of interest income that would have
been earned if the Corporation's investment in tax-exempt loans and investment securities had been made in loans and investment
securities subject to Federal income taxes yielding the same after-tax income. The tax-equivalent amount of $1.00 of nontaxable
income was $1.52 in each period presented, based on a Federal income tax rate of 34%.
(2) For the purpose of these computations, nonaccruing loans are included in the daily average loan amounts outstanding.
(3) Includes official check and treasury tax and loan balances.
2005 Annual Report 13
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,
2005 versus 2004
Increase (decrease) due to changes in:
Net
Rate/
2004 versus 2003
Increase (decrease) due to changes in:
Net
Rate/
Volume
Rate
Volume (2) Change
Volume
Rate
Volume (2) Change
(in thousands)
Interest Income:
Federal funds sold ….............................................
Investment securities:
Taxable …............................................................
Nontaxable (1) ….................................................
Loans (1) ...............................................................
Total interest income (1)........................................
Interest Expense:
Savings and money
market deposits ...................................................
Time deposits ........................................................
Securities sold under repurchase agreements......
Total interest expense ...........................................
Increase (decrease) in net
interest income (1)...............................................
$
(32)
$
429
$
(53)
$
344
$
(235)
$
48
$
(24)
$
(211)
778
(177)
1,281
1,850
(146)
383
298
535
403
104
1,406
2,342
946
612
738
2,296
24
(2)
95
64
(51)
466
515
930
1,205
(75)
2,782
4,256
749
1,461
1,551
3,761
1,651
188
3,491
5,095
(1,255)
235
(1,970)
(2,942)
142
139
186
467
(671)
(55)
41
(685)
(167)
4
(385)
(572)
(29)
(17)
51
5
229
427
1,136
1,581
(558)
67
278
(213)
$
1,315
$
46
$
(866)
$
495
$
4,628
$
(2,257)
$
(577)
$
1,794
(1) Tax-equivalent basis.
(2) Represents the change not solely attributable to change in rate or change in volume but a combination of these two factors. The
rate/volume variance could be allocated between the volume and rate variances shown in the table based on the absolute value of
each to the total for both.
Net Interest Income – 2005 Versus 2004
Net interest income on a tax-equivalent basis increased by $495,000 from $38,097,000 in 2004 to $38,592,000 this
year. As can be seen from the above rate/volume analysis, the increase is primarily comprised of a positive volume
variance of $1,315,000 as offset by a negative rate/volume variance of $866,000.
Volume Variance. When comparing 2005 to last year, the Bank experienced an increase of $9.4 million, or 3.1%, in
the average balance of checking deposits, an increase of $34.0 million, or 76.1%, in the average balance of time deposits,
and an increase of $27.0 million, or 69.9%, in the average balance of securities sold under repurchase agreements.
Approximately one-third of the increase in checking deposits is attributable to two of the three Manhattan branches
opened in the middle of 2003 and another third is attributable to an increase in the Bank’s free checking product that was
launched in 2003. Checking growth, along with a portion of the growth in time deposit accounts, was used to fund loan
growth. Funding interest-earning asset growth with growth in checking deposits has a greater positive impact on net
interest income than funding such growth with interest-bearing deposits because checking deposits, unlike interest-bearing
deposits, have no associated interest cost. This is the primary reason that the growth of checking balances has historically
been one of the Corporation’s key strategies for increasing earnings per share.
Although checking deposit growth contributed to the positive volume variance shown in the table above, the growth
was more modest than that of recent prior years. By comparison to the 3.1% growth experienced in 2005, checking
growth in 2004, 2003, and 2002 was 9.7%, 14.7%, and 19.8%, respectively. The recent increase in short-term interest
rates may cause depositors to keep smaller balances in noninterest-bearing checking accounts and thereby put pressure on
the Bank’s ability to continue to grow these balances, particularly at a rate similar to that experienced in recent prior
years. In addition, increased competition in the Bank’s market area could have a similar impact.
Also contributing to the positive volume variance was growth in both time deposit balances and securities sold under
repurchase agreements. Although a portion of the time deposit growth resulted merely from a migration of funds from
lower yielding savings and money market accounts, the balance of the growth was available to fund loan growth. Time
deposit growth during 2005 occurred as the Bank continued to use competitively priced time deposits to defend its deposit
14 The First of Long Island Corporation
base. The growth in securities sold under repurchase agreements is part of an ongoing strategy to preinvest future cash
flows from the securities portfolio.
The Bank’s purchase of $7.5 million of bank-owned life insurance in the fourth quarter of 2004 caused the positive
volume variance for 2005 to be lower than it otherwise would have been. This purchase caused a reduction in net interest
income with a more than offsetting increase in tax-exempt noninterest income.
The growth in the average balance of loans experienced by the Bank when comparing 2005 to last year occurred
primarily in commercial mortgages and home equity products and, to a lesser extent, in residential mortgages. On a
combined basis, the average balance of residential mortgages and home equity products grew by 7.4% and commercial
mortgages grew by 11.7%. Residential mortgage growth continued to slow in 2005 primarily as a result of a reduction in
mortgage refinance activity. The growth in home equity products was primarily attributable to the promotion of fixed rate
amortizing home equity loans with terms of between five and twelve years, more assertive direct advertising, and changes
in credit policy. The commercial mortgage growth occurred principally because of one large loan made during the third
quarter of 2004 along with continued growth during 2005. The 2005 growth is attributable to, among other things, the
relatively low interest rate environment, carefully designed calling programs, credit policy changes, an investment in
additional staff, and a change in lending philosophy.
Rate Variance. Short-term interest rates steadily increased from the middle of 2004 through January 2006 as
evidenced by a 350 basis point increase in both the federal funds target rate and the Bank’s prime lending rate. As a
result, the Bank’s earnings on federal funds sold increased, as did its earnings on those interest-earning assets that reprice
with changes in the Bank’s prime lending rate or other short-term interest rates. Such assets include a majority of the
Bank’s commercial loans, home equity lines, and certain adjustable rate commercial and residential mortgages. Earnings
were also helped to the extent that the Bank was able to reinvest cash flows from short-term securities in higher yielding
securities of similar duration.
The increase in short-term interest rates not only caused earnings on certain of the Bank’s interest-earning assets to
increase, but also drove up the Bank’s cost of deposits and borrowings. The cost of deposits increased primarily because
the Bank, in response to competition in its market area, introduced “Super Select Savings”, a better yielding non-maturity
deposit product, and increased the rates paid on its various time deposit products. The small positive rate variance shown
in the preceding table resulted largely because the benefit derived from increases in the federal funds target and prime
lending rates, when taken together with the better yields realized on securities purchased as part of the year-end 2004 loss
program, a little more than offset increases in the cost of deposits and borrowings.
During the latter half of 2004 management shortened the duration of the Bank’s securities portfolio to better position
the Bank for increases in intermediate and longer-term interest rates. However, intermediate-term interest rates have not
increased nearly as much as short-term interest rates and longer-term interest rates have actually declined. Because
management currently believes that intermediate and longer-term interest rates will not improve significantly in the near
term and may even decline, management has been purchasing intermediate rather than short-term securities as a means of
improving the overall yield of the existing portfolio and protecting the Bank against a decline in short-term interest rates.
Whether or not management will continue in this direction will be based on, among other things, management’s ongoing
view as to how much and when intermediate and longer-term interest rates will change.
If yields on intermediate and longer-term loans and securities remain relatively low in 2006, this could exert
continued pressure on net interest margin and cause net interest margin to move downward from its present level. In
addition, the rate variance as depicted in the preceding table could become negative. Furthermore, while an upward
movement in general interest rates could also have a negative impact on net interest margin, sustained higher interest rates
should eventually have a positive impact. The “Market Risk” section of this discussion and analysis of financial condition
and results of operations includes a more complete discussion of the impact of interest rate movements on the Bank’s net
interest income.
2005 Annual Report 15
Net Interest Income – 2004 Versus 2003
Net interest income on a tax-equivalent basis increased by $1,794,000, or 4.9%, from $36,303,000 in 2003 to
$38,097,000 in 2004. As can be seen from the rate/volume analysis, the increase is primarily comprised of a positive
volume variance of $4,628,000 and a negative rate variance of $2,257,000. It should be noted that without the large
commercial mortgage prepayment fee in the first quarter of 2003, net interest income on a tax-equivalent basis would
have been up by $2,358,000, or 6.6%, and the negative rate variance for loans would have been $564,000 lower.
Volume Variance. When comparing 2004 to 2003, the Bank experienced growth in the average balances of several
key deposit products, with the largest increases occurring in checking, Select Savings and attorney escrow balances. Core
loan products also continued to grow, with the most significant growth occurring in residential mortgages, commercial
loans and home equity lines. In addition, in response to continued downward pressure on net interest margin caused by
low interest rates, management implemented strategy changes with respect to the Bank’s securities portfolio in the latter
half of 2003 which continued to positively impact earnings in 2004. These changes, which increased the volatility of the
Bank’s earnings, involved reducing the size of the short-term securities portfolio, increasing the size of the intermediate-
term securities portfolio and loan portfolio, and using borrowings under repurchase agreements to pre-invest future
security and loan cash flows. It should be noted that in the latter half of 2004, management began to shift the Bank’s
portfolio back from intermediate to shorter-term investment instruments in an effort to better position the Bank for rising
interest rates. The aggregate positive impact of the core deposit and loan growth and the strategy changes made with
respect to the Bank’s securities portfolio largely comprised the positive volume variance of $4,628,000 and more than
offset the negative impact of the reduction in net interest margin discussed in the “Rate Variance” section that follows.
With respect to the growth of core deposit products, average checking deposits increased by $27.0 million, or 10%,
when comparing 2004 to 2003. A bit more than one-third of the increase in checking was attributable to the full-year
impact of the three Manhattan branches that were established in 2003 and growth in the Bank’s free consumer checking
product.
Also when comparing 2004 to 2003, average Select Savings balances increased by $11.6 million, or 9.5%, attorney
escrow balances increased by $6.4 million, or 51.2%, and average borrowings under repurchase agreements increased by
$21.6 million, or 126.2%. It should be noted that traditional money market deposit balances, consisting of personal and
nonpersonal accounts, only grew a bit more than 1% when comparing the average for 2004 to 2003 and actually declined
during the fourth quarter of 2004. This is unlike recent years in which the Bank experienced significantly more growth in
the average balance of such accounts. The reduced growth rate during 2004 and the fourth quarter decline is partially
attributable to the increased competitiveness of the rates paid by the Bank on its time deposit products. During 2004 the
Bank used competitively priced time deposits as a strategy to defend its deposit base with a resulting migration of funds
from money market accounts to time deposits. From year-end 2003 to year-end 2004 time deposits of $100,000 and over
increased by $11.1 million, or 67.7%. Higher yielding product offerings by the Bank’s competitors and improvement in
the performance of the equity markets may have also contributed to the reduced growth rate for money market deposits in
2004 and the fourth quarter decline.
The Bank’s new business solicitation program is a significant factor that favorably impacted growth in the average
balances of checking accounts and attorney escrow accounts. The Bank’s attention to customer service, favorable
conditions in the local economy, and the low interest rate environment are also believed to have made a contribution.
Competitive pricing and customer demographics are believed to be important factors with respect to growth in Select
Savings.
With respect to the growth of core loan products, the average balance of residential mortgage loans grew by $38.5
million, or 35.3%, from $109.1 million in 2003 to $147.5 million this year. Average outstandings on home equity lines of
credit grew by $4.2 million, or 12.9%, from $32.3 million in 2003 to $36.5 million this year. The growth in residential
mortgage loans resulted largely from a campaign promoting 10-year fixed rate mortgages executed in the latter half of
2003 when interest rates were very low and, to a lesser extent, a continuation of the campaign in the early part of 2004.
Despite the continued promotion in 2004, resulting loan production was much less than that experienced in 2003 due to,
among other things, an increase in mortgage rates and a resulting reduction in demand for residential mortgages.
Residential mortgage loan balances were relatively flat during the latter half of 2004.
Rate Variance. Low intermediate and longer-term interest rates, along with the fact that 2003 included the unusually
large commercial mortgage prepayment fee of $564,000, are the primary reasons for the negative rate variance of
$2,257,000. If it were not for the fact that prepayments on mortgage securities slowed during 2004, the negative rate
16 The First of Long Island Corporation
variance would have been greater. The decrease in prepayments enabled the Bank to amortize premiums on mortgage
securities slower.
It should be noted that while intermediate and longer-term rates persisted at low levels, short-term interest rates
increased as evidenced by a 125 basis point increase in the federal funds target rate during the last half of 2004. An
increase in short-term interest rates should initially have a negative impact on the Bank’s net interest income because the
Bank has more interest-bearing deposits and other liabilities than interest-earning assets that are subject to contractual or
discretionary repricing in the near term. To the contrary, the increase in short-term interest rates helped the Bank’s
earnings because while the Bank had not increased its money market and savings rates it had increased its prime lending
rate and enjoyed better yields on short-term investment instruments.
Net interest margin decreased by 20 basis points when comparing 2004 to 2003. When applied to average total
interest-earning assets of approximately $889 million for 2004, the decline in net interest margin results in a decrease in
net interest income of approximately $1.8 million. Other than the fact that 2003 included the large prepayment fee that
added seven basis points to net interest margin, the decrease in net interest margin occurred primarily because with the
passage of time in the low interest rate environment more loans had adjusted to low rates and proceeds from the maturity,
amortization and prepayment of loans and securities continued to be reinvested at low rates. To the extent that these loans
and securities were funded by noninterest-bearing checking deposits and capital, there was no offsetting cost reduction.
To the extent that they were funded by interest-bearing deposits, there was a reduction in the cost of such deposits but
such reduction was not totally offsetting.
Noninterest Income, Noninterest Expense, and Income Taxes
Noninterest income includes service charges on deposit accounts, Investment Management Division income, gains or
losses on sales of securities, and all other items of income, other than interest, resulting from the business activities of the
Corporation. Excluding net gains or losses on sales of securities, noninterest income was $6,573,000 and $6,136,000 in
2005 and 2004, respectively, representing increases over prior year amounts of $437,000, or 7.1%, and $471,000, or
8.3%. The increase for 2005 is comprised of an increase in Investment Management Division income of $230,000 and an
increase in other income of $579,000, as partially offset by a decrease in service charge income of $372,000. The
increase in Investment Management Division income is attributable to a revision of the Division’s fee schedule, the first
quarter receipt of a final executor’s commission on one estate of $72,000, and a change in the mix of business from
custodial to managed assets. The increase in other income is primarily due to a $333,000 recovery of real estate taxes
previously paid and a $278,000 increase in the cash surrender value of bank-owned life insurance that was purchased in
December 2004. Service charge income decreased primarily as a result of reductions in maintenance and activity charges
and the volume of return checks.
The increase in noninterest income for 2004 was primarily comprised of an increase in service charge income of
$278,000 and an increase in Investment Management Division income of $179,000. The increase in service charge
income was largely due to a revision of the Bank’s service charge schedule effective January 1, 2004 and a reduction in
service charge waivers and reversals. The increase in Investment Management Division income was due to a change in
the mix of business to include more managed accounts and fewer custodial accounts.
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
$25,269,000 and $24,097,000 in 2005 and 2004, respectively, representing increases over prior year amounts of
$1,172,000, or 4.9%, and $622,000, or 2.6%.
The increase in noninterest expense for 2005 is comprised of an increase in salaries of $1,259,000, or 11.9%, an
increase in occupancy and equipment expense of $79,000, or 2.2%, and an increase in other operating expense of
$165,000, or 3.3%, as partially offset by a decrease in employee benefits of $331,000, or 6.7%. The increase in salaries is
primarily attributable to normal annual salary increases, additions to staff, and the net cost of severance paid to the
Corporation’s former Chairman. The decrease in employee benefits expense is largely attributable to the termination of a
retiree insurance benefit and the resulting reversal of a $193,000 liability, and a $121,000 decrease in profit sharing plan
expense. Profit sharing expense is down because the Bank’s performance against incentive goals was better in 2004 than
2005. The increase in occupancy and equipment expense is largely attributable to increases in rent expense and the cost
of service contracts. The largest component of the increase in other operating expenses is an increase in fees paid to
nonemployee directors, which became effective April 1, 2005, as partially offset by a decrease in the cost of compliance
with Section 404 of the Sarbanes-Oxley Act of 2002.
2005 Annual Report 17
The increase in noninterest expense for 2004 was comprised of an increase in salaries of $141,000, or 1.4%, an
increase in employee benefits expense of $392,000, or 8.6%, and an increase in occupancy and equipment expense of
$212,000, or 6.3%, as partially offset by a decrease in other operating expenses of $123,000, or 2.4%. The increase in
salaries was primarily attributable to normal annual salary increases, as largely offset by savings resulting from staff
vacancies. The increase in employee benefits expense was primarily attributable to increases in pension and profit sharing
plan expense. Profit sharing expense was up because the Bank’s performance against incentive goals was far better in
2004 than 2003. One reason for the increase in pension plan expense was a 75 basis point reduction in the discount rate
and a 50 basis point reduction in the expected return on plan assets used for the actuarial valuation of the defined benefit
pension plan.
The largest component of the increase in occupancy and equipment expense for 2004 was an increase in rent expense,
most of which resulted from the full-year impact of the three New York City branches opened June 2003. Other operating
expenses were down primarily because of decreases in marketing expense, mortgage tax and appraisal fees, and legal fees
of $136,000, $209,000, and $73,000, respectively, as partially offset by increases in consulting fees and audit and
examination expense of $182,000 and $134,000, respectively. The documenting and testing of internal controls in
compliance with Section 404 of the Sarbanes-Oxley Act of 2002 accounts for a portion of the increase in both consulting
and audit and examination expense. The decrease in marketing expense was largely due to a lack of branch openings in
2004 and a reduction in the amount spent on free checking campaigns. A decrease in the level of residential mortgage
refinance activity contributed to the decrease in mortgage tax and appraisal fees. To a large extent legal fees were down
because there were no branch openings in 2004.
Income tax expense as a percentage of book income (“effective tax rate”) was 20.0% in 2005, 24.2% in 2004 and
25.0% in 2003. Based on the current business, holdings and structure of the Corporation and current provisions of
enacted tax law, the Corporation’s 2006 effective tax rate is expected to be similar to that of 2004. The decrease in the
effective tax rate for 2005 is primarily attributable to tax planning strategies and a reduction of taxes accrued with respect
to the Bank’s investment and REIT subsidiaries. The decrease in the effective tax rate for 2004 was largely due to refunds
received from the New York State Tax Department as a result of its audit of the Corporation’s 2002, 2001, and 2000 tax
returns and a reduction of taxes accrued with respect to the Bank’s investment subsidiary. Despite state income taxes, the
benefits of tax-exempt interest income and tax-exempt income on officers’ life insurance result in an effective tax rate that
is considerably lower than the statutory Federal income tax rate of 34%.
Application of Critical Accounting Policies
In preparing the consolidated financial statements, management is required to make estimates and assumptions that
affect the reported asset and liability balances and revenue and expense amounts. Our determination of the allowance for
loan losses is a critical accounting estimate because it is based on our subjective evaluation of a variety of factors at a
specific point in time and involves difficult and complex judgments about matters that are inherently uncertain. In the
event that management’s estimate needs to be adjusted based on, among other things, additional information that comes to
light after the estimate is made or changes in circumstances, such adjustment could result in the need for a significantly
different allowance for loan losses and thereby materially impact, either positively or negatively, the Bank’s results of
operations.
The Bank’s Reserve Committee, which is chaired by the Senior Lending Officer, meets on a quarterly basis and is
responsible for determining the allowance for loan losses after considering, among other things, the results of credit
reviews performed by the Bank’s loan review officer. In addition, and in consultation with the Bank’s Chief Financial
Officer, the Reserve Committee is responsible for implementing and maintaining policies and procedures surrounding the
calculation of the required allowance. The Bank’s allowance for loan losses is subject to periodic examination by the
Office of the Comptroller of the Currency, the Bank’s primary federal banking regulator, whose safety and soundness
examination includes a determination as to its adequacy to absorb probable losses.
The first step in determining the allowance for loan losses is to identify loans in the Bank’s portfolio that are
individually deemed to be impaired. In doing so, subjective judgments need to be made regarding whether or not it is
probable that a borrower will be unable to pay all principal and interest due according to contractual terms. Once a loan is
identified as being impaired, management uses the fair value of the underlying collateral and/or the discounted value of
expected future cash flows to determine the amount of the impairment loss, if any, that needs to be included in the overall
allowance for loan losses. In estimating the fair value of real estate collateral management utilizes appraisals and also
makes qualitative judgments based on, among other things, its knowledge of the local real estate market and analyses of
current economic conditions. Estimating the fair value of collateral other than real estate is also subjective in nature and
18 The First of Long Island Corporation
sometimes requires difficult and complex judgments. Determining expected future cash flows can be more subjective
than determining fair values. Expected future cash flows could differ significantly, both in timing and amount, from the
cash flows actually received over the loan’s remaining life.
In addition to estimating losses for loans individually deemed to be impaired, management also estimates collective
impairment losses for pools of loans that are not specifically reviewed. Statistical information regarding the Bank’s
historical loss experience over a period of time is the starting point in making such estimates. However, future losses
could vary significantly from those experienced in the past and accordingly management periodically adjusts its historical
loss experience to reflect current conditions. In doing so, management considers a variety of general qualitative factors
and then subjectively determines the weight to assign to each in estimating losses. The factors include, among others,
national and local economic conditions, environmental risks, trends in volume and terms of loans, concentrations of
credit, changes in lending policies and procedures, and experience, ability, and depth of the Bank’s lending staff. Because
of the nature of the factors and the difficulty in assessing their impact, management’s resulting estimate of losses may not
accurately reflect actual losses in the portfolio.
Although the allowance for loan losses has two separate components, one for impairment losses on individual loans
and one for collective impairment losses on pools of loans, the entire allowance for loan losses is available to absorb
realized losses as they occur whether they relate to individual loans or pools of loans.
Asset Quality
The Corporation has identified certain assets as risk elements. These assets include nonaccruing loans, foreclosed real
estate, loans that are contractually past due 90 days or more as to principal or interest payments and still accruing and
troubled debt restructurings. These assets present more than the normal risk that the Corporation will be unable to
eventually collect or realize their full carrying value. Information about the Corporation’s risk elements is as follows:
Nonaccruing loans …...................................................................................................
Loans past due 90 days or more as to
principal or interest payments and still accruing ….....................................................
Foreclosed real estate ..................................................................................................
Total nonperforming assets ........................................................................................
Troubled debt restructurings ….....................................................................................
Total risk elements .....................................................................................................
2005
2004
December 31,
2003
(dollars in thousands)
2002
2001
$
151
$
-
$
97
$
-
$
105
-
-
151
-
151
$
18
-
18
-
18
$
348
-
445
5
450
$
2
-
2
-
$
2
236
-
341
10
351
$
Nonaccruing loans as a percentage of total loans …....................................................
Nonperforming assets as a percentage of total loans
and foreclosed real estate ..........................................................................................
Risk elements as a percentage of total loans and
foreclosed real estate .................................................................................................
.04%
.00%
.04%
.04%
.01%
.01%
.03%
.14%
.14%
.00%
.00%
.00%
.05%
.15%
.15%
2005
Year Ended December 31,
2003
2002
(in thousands)
2004
2001
Gross interest income that would have been
recorded during the year under original terms:
Nonaccrual loans ..................................................................................................
Restructured loans …............................................................................................
$
9
-
$
-
-
$
5
-
$
-
-
$
8
-
Gross interest income recorded during the year:
Nonaccrual loans ..................................................................................................
Restructured loans …............................................................................................
4
-
-
-
2
-
-
-
4
-
Commitments for additional funds - Nonaccrual, restructured, past due loans ............
None
None
None
None
150
2005 Annual Report 19
Allowance and Provision For Loan Losses
The allowance for loan losses grew by $474,000 during 2005, amounting to $3,282,000, or .9% of total loans, at
December 31, 2005 as compared to $2,808,000, or .8% of total loans, at December 31, 2004. During 2005, the Bank had
loan chargeoffs and recoveries of $25,000 and $29,000, respectively, and recorded a $470,000 provision for loan losses.
The provision for loan losses increased by $114,000 from 2004 to 2005 primarily because of more loan growth in 2005.
The allowance for loan losses is an amount that management currently believes will be adequate to absorb probable
losses inherent in the Bank’s loan portfolio. In determining the allowance for loan losses, there is not an exact amount but
rather a range for what constitutes an appropriate allowance. As more fully discussed in the “Application of Critical
Accounting Policies” section of this discussion and analysis of financial condition and results of operations, the process
for estimating credit losses and determining the allowance for loan losses as of any balance sheet date is subjective in
nature and requires material estimates. Actual results could differ significantly from these estimates.
The following table sets forth changes in the Bank’s allowance for loan losses.
Balance, beginning of year ................................
Loans charged off:
Commercial and industrial ...............................
Consumer and other …....................................
Recoveries of loans charged off:
Commercial and industrial ...............................
Secured by real estate …................................
Consumer and other …....................................
Net (chargeoffs) recoveries ...............................
Provision for loan losses …................................
Balance, end of year …......................................
Ratio of net chargeoffs to
average loans outstanding …….......................
2005
2004
Year ended December 31,
2003
(dollars in thousands)
2002
2001
$
2,808
$
2,452
$
2,085
$
2,020
$
1,943
-
25
25
-
-
29
29
4
470
3,282
$
12
33
45
7
-
38
45
-
356
2,808
$
41
69
110
-
12
8
20
(90)
457
2,452
$
68
16
84
13
16
20
49
(35)
100
2,085
$
17
35
52
-
16
13
29
(23)
100
2,020
$
.00%
.00%
.03%
.01%
.01%
The following table sets forth the allocation of the Bank’s total allowance for loan losses by loan type.
2005
2004
% of
Loans
To Total
Loans
12.4%
86.2
1.4
100.0
-
100.0%
Amount
$
789
1,926
93
2,808
-
2,808
$
% of
Loans
To Total
Loans
15.1%
83.3
1.6
100.0
-
100.0%
Amount
$
827
2,357
98
3,282
-
3,282
$
December 31,
2003
% of
Loans
To Total
Amount
Loans
(dollars in thousands)
$
605
1,763
84
2,452
-
2,452
$
14.9%
83.4
1.7
100.0
-
100.0%
2002
2001
% of
Loans
To Total
Loans
14.3%
83.4
2.3
100.0
-
100.0%
Amount
$
438
1,469
94
2,001
84
2,085
$
Amount
$
667
1,252
94
2,013
7
2,020
$
% of
Loans
To Total
Loans
18.1%
79.4
2.5
100.0
-
100.0%
Commercial ...........................
Real-estate secured ..............
Consumer and other ..............
Total allocated ...............
Unallocated ...........................
The amount of future chargeoffs and provisions for loan losses will be affected by, among other things, economic
conditions on Long Island. Such conditions could affect the financial strength of the Bank’s borrowers and do affect the
value of real estate collateral securing the Bank’s mortgage loans. Loans secured by real estate represent approximately
86% of the Bank’s total loans outstanding at December 31, 2005. Most of these loans were made to borrowers domiciled
on Long Island and are secured by Long Island properties. In recent years, economic conditions on Long Island have been
good and residential real estate values have grown to unprecedented highs. Such conditions and values could deteriorate
in the future, and such deterioration could be substantial. If this were to occur, some of the Bank’s borrowers may be
unable to make the required contractual payments on their loans, and the Bank may be unable to realize the full carrying
20 The First of Long Island Corporation
value of such loans through foreclosure. However, management believes that the Bank’s underwriting policies are
relatively conservative and, as a result, the Bank should be less affected than the overall market.
Future provisions and chargeoffs could also be affected by environmental impairment of properties securing the
Bank’s mortgage loans. Environmental audits for commercial mortgages were instituted by the Bank in 1987. Under the
Bank’s current policy, an environmental audit is required on practically all commercial-type properties that are considered
for a mortgage loan. At the present time, the Bank is not aware of any existing loans in the portfolio where there is
environmental pollution originating on or near the mortgaged properties that would materially affect the value of the
portfolio.
Off-Balance Sheet Arrangements and Contractual Obligations
The Corporation’s off-balance sheet arrangements and contractual obligations at December 31, 2005 are summarized
in the table that follows. The amounts shown for commitments to extend credit and letters of credit are contingent
obligations, some of which are expected to expire without being drawn upon. As a result, the amounts shown for these
items do not necessarily represent future cash requirements. The Corporation believes that its current sources of liquidity
are more than sufficient to fulfill the obligations it has as of December 31, 2005 pursuant to off-balance sheet
arrangements and contractual obligations.
Amount of Commitment Expiration Per Period
Commitments to extend credit ...........................................................
Standby letters of credit .....................................................................
Operating lease obligations ...............................................................
Purchase obligations ..........................................................................
Time Deposits ....................................................................................
Total
Amounts
Committed
One
Year
or Less
Over
One Year
Through
Three Years
(in thousands)
Over
Three Years
Through
Five Years
$
$
$
$
74,863
2,568
6,286
2,532
85,993
172,242
41,491
2,568
851
629
82,407
127,946
14,658
-
1,564
655
2,578
19,455
18,714
-
1,269
624
1,000
21,607
$
$
$
$
Over
Five
Years
-
$
-
2,602
624
8
3,234
$
Commitments to extend credit and letters of credit arise in the normal course of the Bank’s business of meeting the
financing needs of its customers and involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the consolidated balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the other party to financial instruments for
commitments to extend credit, standby letters of credit, and commercial letters of credit is represented by the contractual
notional amount of these instruments. The Bank uses the same credit policies in making commitments to extend credit
and generally uses the same credit policies for letters of credit as it does for on-balance-sheet instruments.
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. Unused home equity lines, which comprise a substantial portion of these
commitments, generally expire five years from their date of origination. Other real estate loan commitments generally
expire within 60 days and commercial loan commitments generally expire within one year. The amount of collateral
obtained, if any, by the Bank upon extension of credit is based on management’s credit evaluation of the borrower.
Collateral held varies but may include mortgages on commercial and residential real estate and security interests in
business assets, deposit accounts with the Bank or other financial institutions, and securities.
Standby letters of credit are conditional commitments issued by the Bank to assure the performance or financial
obligations of a customer to a third party. The 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. Commercial letters of credit are conditional commitments issued by the Bank
to assure the payment by a customer to a supplier. The Bank generally obtains personal guarantees supporting these
commitments. The purchase obligations are pursuant to contracts that the Bank has with providers of data processing and
custodial services.
2005 Annual Report 21
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 25.16%, 24.28% and 9.26%, respectively, at December 31, 2005 substantially exceed the requirements for a well-
capitalized bank.
Total stockholders' equity increased by $458,000, or from $90,240,000 at December 31, 2004 to $90,698,000 at
December 31, 2005. The increase is primarily attributable to net income of $12,277,000, as largely offset by stock
repurchases of $8,052,000 and cash dividends declared of $3,362,000.
Stock Repurchase Program and Market Liquidity. Since 1988, the Corporation has had a stock repurchase program
under which it has purchased from time to time shares of its own common stock in market or private transactions. In
2005, the Corporation purchased 166,273 shares under plans approved by the Board of Directors in 2005 and 2004. The
Corporation can still purchase 9,332 shares under a plan approved in 2005 and 150,000 shares under a plan approved by
the Corporation’s Board of Directors on January 17, 2006. The details of the Corporation’s purchases under the stock
repurchase program during the fourth quarter of 2005 are set forth in the table that follows.
Period
October 1, 2005 to October 31, 2005.......................
November 1, 2005 to November 30, 2005...............
December 1, 2005 to December 31, 2005...............
Total
Number of
Shares
Purchased
2,265
30,587
12,526
Average
Price Paid
Per Share
$42.42
$44.66
$44.57
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs (1)
2,265
30,587
12,526
Maximum Number of
of Shares that May Yet
Be Purchased Under the
Plans or Programs (1)
54,263
23,676
11,150
(1) All shares purchased by the Corporation under its stock repurchase program in the fourth quarter of 2005 were purchased under a
100,000 share plan approved by the Corporation’s Board of Directors on May 17, 2005 and publicly announced on May 18,
2005. The Corporation’s share repurchase plans do not have fixed expiration dates.
The stock repurchase program has historically enhanced earnings per share and return on average stockholders’
equity. The program is estimated to have contributed ten cents of the twenty-cent increase in earnings per share for 2005.
In estimating the contribution to the increase in earnings per share, management calculated the full-year impact of the
shares purchased in 2004 plus the pro rata impact of the shares purchased in 2005, taking into account the volume of
shares purchased, the price paid per share, and current interest rates.
The Corporation periodically reevaluates whether it wants to continue purchasing shares of its own common stock in
open market transactions under Rule 10b-18 or otherwise. Because the trading volume in the Corporation’s common
stock is limited, the Corporation believes that a reduction or discontinuance of its share repurchase program could
adversely impact market liquidity for its common stock, the price of its common stock, or both. The publicly reported
trading volume in the Corporation’s common stock in 2005 and 2004 was 1,865,606 and 785,670 shares, respectively.
Open market purchases by the Corporation under its share repurchase program accounted for 6.4% of the trading volume
in 2005 and 8.6% in 2004.
Russell 3000®, 2000® and Microcap Indices®. Frank Russell Company (“Russell”) currently maintains twenty four
U.S. common stock indices. The indices are reconstituted effective the last Friday in June of each year using objective
criteria, primarily market capitalization, and do not reflect subjective opinions. All Indices are subsets of the Russell
3000® Index which represents most of the investable U. S. equity market.
The broad market Russell 3000® Index includes the largest 3,000 companies in terms of market capitalization and the
small cap Russell 2000® Index is comprised of the smallest 2,000 companies in the Russell 3000® Index.
Effective June 24, 2005, the Corporation’s common stock was no longer included in the Russell 3000® and 2000®
Indices but was selected for inclusion in the newly-created Russell Microcap Index®. The Russell Microcap Index®
includes the smallest 1,000 companies in terms of market capitalization in the small-cap Russell 2000 Index plus the next
1,000 companies. The average market capitalization of companies in the Russell Microcap Index® is $217 million, the
22 The First of Long Island Corporation
median market capitalization is $182.6 million, the capitalization of the largest company in the index is $539.5 million,
and the capitalization of the smallest company in the index is $54.8 million. The Corporation’s market capitalization as of
December 31, 2005 was approximately $163 million.
As with its former inclusion in the Russell 3000® and 2000® Indices, the Corporation believes that inclusion in the
Russell Microcap Index® will positively impact the price, trading volume and liquidity of its common stock, in part
because index funds or other institutional investors often purchase securities that are in these indices.
Conversely, if the Corporation’s market capitalization falls below the minimum necessary to be included in the Russell
Microcap Index® at any future annual reconstitution date, the Corporation believes that the opposite could occur.
Cash Flows and Liquidity
Cash Flows. The Corporation’s primary sources of cash are deposit growth, maturities and amortization of loans and
investment securities, operations, and borrowing. The Corporation uses cash from these and other sources to first fund
loan growth. Any remaining cash is used primarily to purchase a combination of short, intermediate, and longer-term
investment securities, pay cash dividends, and repurchase common stock under the Corporation’s share repurchase
program. During 2005, the Corporation’s cash and cash equivalent position increased by $317,000.
Liquidity. The Bank has both internal and external sources of liquidity that can be used to fund loan growth and
accommodate deposit outflows. The Bank’s primary internal sources of liquidity are its overnight position in federal
funds sold; investment securities designated as available-for-sale; and maturities and monthly payments on its investment
securities and loan portfolios. At December 31, 2005, the Bank had no overnight federal funds sold position and an
available-for-sale securities portfolio of $259,137,000.
The Bank is a member of the Federal Home Loan Bank of New York (“FHLB”) and has repurchase agreements in
place with five brokerage firms. In addition to customer deposits, the Bank’s primary external sources of liquidity are
secured borrowings from the FHLB under a variety of borrowing arrangements and brokerage firms under repurchase
agreements. However, neither the Bank’s FHLB membership nor repurchase agreements with brokers represent legal
commitments on the part of the FHLB or the brokerage firms to extend credit to the Bank. The amount that the Bank can
potentially borrow from the FHLB and brokerage firms is dependent on, among other things, the amount of
unencumbered eligible securities that the Bank can use as collateral. At December 31, 2005, the Bank has unencumbered
eligible securities collateral of approximately $222 million.
The Bank can also purchase overnight federal funds on an unsecured basis under lines with two other commercial
banks. These lines in the aggregate amount of $30 million do not represent legal commitments to extend credit on the
part of the other banks.
As a backup to borrowing from the FHLB, brokerage firms and other commercial banks, the Bank is eligible to
borrow on a secured basis at the Federal Reserve Bank (“FRB”) discount window under the primary credit program.
Primary credit, which is normally extended on a very short-term basis, typically overnight, at a rate 100 basis points above
the federal funds target rate, is viewed by the FRB as a backup source of short-term funds for sound depository
institutions like the Bank. The amount that the Bank can borrow under the primary credit program depends on, among
other things, the amount of available eligible collateral.
Market Risk
The Bank invests in interest-earning assets which are funded by interest-bearing deposits and borrowings, noninterest-
bearing deposits, and capital. The Bank’s results of operations are subject to risk resulting from interest rate fluctuations
generally and having assets and liabilities that have different maturity, repricing, and prepayment/withdrawal
characteristics. The Bank defines interest rate risk as the risk that the Bank's earnings and/or net portfolio value (present
value of expected future cash flows from assets less the present value of expected future cash flows from liabilities) will
change when interest rates change. The principal objective of the Bank’s asset/liability management activities is to
maximize net interest income while at the same time maintain acceptable levels of interest rate and liquidity risk and
facilitate the funding needs of the Bank.
Because the Bank’s loans and investment securities generally reprice slower than its interest-bearing liabilities, an
immediate increase in interest rates uniformly across the yield curve should initially have a negative effect on net interest
income. However, if the Bank does not increase the rates paid on its deposit accounts as quickly or in the same amount as
increases in market interest rates, the magnitude of the negative impact will decline. If the Bank does not increase its
deposit rates at all, the impact should be positive. Over a longer period of time, and assuming that interest rates remain
2005 Annual Report 23
stable after the initial rate increase and the Bank purchases securities and originates loans at yields higher than those
maturing and reprices loans at higher yields, the impact of an increase in interest rates should be positive. This occurs
primarily because with the passage of time more loans and investment securities will reprice at the higher rates and there
will be no offsetting increase in interest expense for those loans and investment securities funded by noninterest-bearing
checking deposits and capital.
Conversely, a decrease in interest rates uniformly across the yield curve should initially have a positive impact on the
Bank’s net interest income. However, if the Bank does not or cannot decrease the rates paid on its deposit accounts as
quickly or in the same amount as decreases in market interest rates, the magnitude of the positive impact will decline. If
the Bank does not decrease its deposit rates at all, the impact should be negative.
If interest rates decline, or have declined, and are sustained at the lower levels and, as a result, the Bank purchases
securities at lower yields and loans are originated or repriced at lower yields, the impact on net interest income should be
negative because a significant percent (39% in 2005) of the Bank’s average interest-earning assets are funded by
noninterest-bearing checking deposits and capital.
The Bank monitors and controls interest rate risk through a variety of techniques including the use of interest rate
sensitivity models and traditional interest rate sensitivity gap analysis. Through use of the models, the Bank projects
future net interest income and then estimates the effect on projected net interest income of various changes in interest rates
and balance sheet growth rates. The Bank also uses the models to calculate the change in net portfolio value over a range
of interest rate change scenarios.
Traditional gap analysis involves arranging the Bank’s interest-earning assets and interest-bearing liabilities by
repricing periods and then computing the difference, or interest-rate sensitivity gap, between the assets and liabilities
which are estimated to reprice during each time period and cumulatively through the end of each time period.
Both interest rate sensitivity modeling and gap analysis involve a variety of significant estimates and assumptions and
are done at a specific point in time. Interest rate sensitivity modeling requires, among other things, estimates of: (1) how
much and when yields and costs on individual categories of interest-earning assets and interest-bearing liabilities will
adjust because of projected changes in market interest rates; (2) future cash flows; (3) discount rates; and (4) decay or
runoff rates for nonmaturity deposits such as checking, savings, and money market accounts.
Gap analysis requires estimates as to when individual categories of interest-sensitive assets and liabilities will reprice
and assumes that assets and liabilities assigned to the same repricing period will reprice at the same time and in the same
amount. Like sensitivity modeling, gap analysis does not fully take into account the fact that the repricing of some assets
and liabilities is discretionary and subject to competitive and other pressures.
Changes in the estimates and assumptions made for interest rate sensitivity modeling and gap analysis could have a
significant impact on projected results and conclusions. Therefore, these techniques may not accurately reflect the actual
impact of changes in the interest rate environment on the Bank’s net interest income or net portfolio value.
The table that follows summarizes the Corporation's cumulative interest rate sensitivity gap at December 31, 2005
based upon significant estimates and assumptions that the Corporation believes to be reasonable. The table arranges
interest-earning assets and interest-bearing liabilities according to the period in which they contractually mature or, if
earlier, are estimated to repay or reprice. Repayment and repricing estimates are based on internal data and management’s
assumptions about factors that are inherently uncertain. These factors include, among others, prepayment speeds, changes
in market interest rates and the Bank’s response thereto, early withdrawal of deposits, and competition.
24 The First of Long Island Corporation
Over
Over
Six
Three
Months
Months
Through
Through
Six Months One Year
Three
Months
or Less
Over
One Year
Through
Five
Years
Total
Within
One Year
(in thousands)
Over
Five
Years
Non-
interest-
Sensitive
Total
Assets:
Investment securities .........................
Loans .................................................
Other assets …...................................
Liabilities and Stockholders' Equity:
Checking deposits …..........................
Savings and money market deposits .
Time deposits, other ….......................
Time deposits, $100,000 and over ….
Securities sold under repurchase
agreements....................................
Other liabilities …................................
Stockholders' equity …........................
Interest-rate sensitivity gap ...................
Cumulative interest-rate
sensitivity gap .......................................
$
46,406
111,482
-
157,888
$
32,225
16,475
-
48,700
$
30,943
32,948
-
63,891
$
109,574
160,905
-
270,479
$
251,564
159,074
-
410,638
$
157,600
59,697
-
217,297
$
(341)
(2,466)
48,549
45,742
$
518,397
377,210
48,549
944,156
-
262,673
9,429
54,048
-
8,958
7,284
5,803
-
17,917
4,105
1,738
-
289,548
20,818
61,589
-
104,628
3,050
528
-
-
8
-
307,842
-
-
-
307,842
394,176
23,876
62,117
60,195
-
-
386,345
(228,457)
$
-
-
-
22,045
26,655
$
-
-
-
23,760
40,131
$
60,195
-
-
432,150
(161,671)
$
-
-
-
108,206
302,432
$
-
-
-
8
217,289
$
-
5,252
90,698
403,792
(358,050)
$
60,195
5,252
90,698
944,156
$
-
$
(228,457)
$
(201,802)
$
(161,671)
$
(161,671)
$
140,761
$
358,050
$
-
$
-
As shown in the preceding table, the Bank has a significant volume of savings and money market deposit accounts
that are subject to repricing as short-term interest rates change. Since the amount of these deposits outweighs the assets
held by the Bank whose pricing is tied to short-term interest rates, an increase in short-term interest rates should
negatively impact the Bank’s net interest income in the near term. However, the Bank can reduce the magnitude of the
negative impact by not increasing the rates paid on its savings and money market deposit accounts as quickly or in the
same amount as market increases in the overnight funds rate, the prime lending rate, or other short-term rates.
Conversely, a decrease in short-term interest rates should positively impact the Bank’s net interest income in the near
term. However, if short-term rates decline to the point that the Bank can not, due to competitive pressures and/or the
absolute level of rates, decrease its savings and money market rates in the same amount as market decreases in the federal
funds target rate, the prime lending rate, and other short-term rates, the magnitude of the positive impact will decline.
Furthermore, the balances of certain savings and money market deposit products have been included in categories beyond
three months in the above table because management believes, based on past experience and its knowledge of current
competitive pressures, that the repricing of these products will lag to varying degrees market changes in interest rates.
The table that follows 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 following table is based on significant
estimates and assumptions and constitutes, like certain other statements included herein, a forward-looking statement.
The base case information in the table shows (1) an estimate of the Corporation’s net portfolio value at December 31,
2005 arrived at by discounting estimated future cash flows at current market rates and (2) an estimate of net interest
income on a tax-equivalent basis for the year ending December 31, 2006 assuming that maturing assets or liabilities are
replaced with new balances of the same type, in the same amount, and at current rate levels and repricing balances are
adjusted to current rate levels. For purposes of the base case, nonmaturity deposits are included in the calculation of net
portfolio value at their carrying amount. The rate change information in the table shows estimates of net portfolio value at
December 31, 2005 and net interest income on a tax-equivalent basis for the year ending December 31, 2006 assuming
rate changes of plus 100 and 200 basis points and minus 100 and 200 basis points. The changes in net portfolio value from
the base case have not been tax affected. In addition, cash flows for nonmaturity deposits are based on a decay or runoff
rate of six years. Also, rate changes are assumed to be shock or immediate changes and occur uniformly across the yield
curve regardless of the duration to maturity or repricing of specific assets and liabilities. In projecting future net interest
income under the indicated rate change scenarios, activity is simulated by replacing maturing balances with new balances
of the same type, in the same amount, but at the assumed rate level and adjusting repricing balances to the assumed rate
level.
2005 Annual Report 25
Based on the foregoing assumptions and as depicted in the table that follows, an immediate increase in interest rates
of 100 or 200 basis points would have a negative effect on net interest income over a one-year time period. This is
principally because the Bank’s interest-bearing deposit accounts are assumed to reprice faster than its loans and
investment securities. However, if the Bank does not increase the rates paid on its deposit accounts as quickly or in the
same amount as increases in market interest rates, the magnitude of the negative impact will decline. If the Bank does not
increase its deposit rates at all, the impact should be positive. Over a longer period of time, and assuming that interest
rates remain stable after the initial rate increase and the Bank purchases securities and originates loans at yields higher
than those maturing and reprices loans at higher yields, the impact of an increase in interest rates should be positive. This
occurs primarily because with the passage of time more loans and investment securities will reprice at the higher rates and
there will be no offsetting increase in interest expense for those loans and investment securities funded by noninterest-
bearing checking deposits and capital. Generally, the reverse should be true of an immediate decrease in interest rates of
100 or 200 basis points. However, deposit rates are currently very low as indicated by the Bank’s overall cost of funds of
130 basis points for 2005. Therefore, while rates on many of the Bank’s interest earning assets could drop by 100 or 200
basis points, rates on some of its deposit products could not. It is for this reason that in rates down 100 and 200 basis
points the projected increases in net interest income as compared to the base case are less than the projected decreases in
rates up 100 and 200 basis points.
Rate Change Scenario
Net Portfolio Value (NPV)
at December 31, 2005
Percent
Change
From
Base Case
Amount
Net Interest Income
for 2006
rcent
Pe
Change
From
Base Case
Amount
(dollars in thousands)
+ 200 basis point rate shock ..............................................
+ 100 basis point rate shock ..............................................
Base case (no rate change).............................................
- 100 basis point rate shock ...............................................
- 200 basis point rate shock ...............................................
$
76,692
80,503
84,779
89,564
94,904
(9.5)%
(5.0)
-
5.6
11.9
$
32,246
35,459
38,671
41,380
40,620
(16.6)%
(8.3)
-
7.0
5.0
Regulatory Matters
Pending Legislation. Commercial checking deposits currently account for approximately 29% of the Bank’s total
deposits. Congress has been considering legislation that would allow corporate customers to cover checks by sweeping
funds from interest-bearing deposit accounts each business day and repeal the prohibition of the payment of interest on
corporate checking deposits. Either could have a material adverse impact on the Bank’s future results of operations.
The Bank wholly-owns FNY Service Corp. (“FNY”), an investment company, and FNY owns all of the issued and
outstanding common stock of The First of Long Island REIT, Inc (“REIT”), a real estate investment trust. Under current
New York State tax law, FNY is entitled to a 100% dividends received deduction for any dividends that it receives from
its REIT subsidiary. This favorable tax treatment saves the Corporation approximately $300,000 on an annualized basis.
The tax savings are impacted by, among other things, the current size and asset composition of FNY’s REIT subsidiary
and current interest rates. The 2006-2007 New York State Executive Budget proposes that the tax treatment of REITs be
amended to conform to the federal tax treatment under which there is no dividends received deduction. In the event this
provision were enacted, the Corporation would loose this tax savings.
Examination. The Bank was examined by the Office of the Comptroller of the Currency as of September 30, 2005.
The examination was a regularly scheduled safety and soundness examination. Management is not aware, nor has it been
apprised, of any recommendations by regulatory authorities that would have a material adverse impact on the
Corporation’s liquidity, capital resources, or operations.
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 generally
contained in sentences including the words “may” or “expect” or “could” or “should” or “would” or “believe”. The
Corporation cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties,
and therefore actual results could differ materially from those contemplated by the forward-looking statements. In
addition, the Corporation assumes no duty to update forward-looking statements.
26 The First of Long Island Corporation
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of The First of Long Island Corporation is responsible for establishing and maintaining adequate
internal control over financial reporting, based on the criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The First of Long Island
Corporation’s system of internal control over financial reporting was designed by or under the supervision of the
Corporation’s chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability
of the preparation of the Corporation’s financial statements for external reporting purposes, in accordance with U.S.
generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
The First of Long Island Corporation’s management assessed the effectiveness of the Corporation’s internal control
over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the
assessment, management determined that, as of December 31, 2005, the Corporation’s internal control over financial
reporting is effective. Management’s assessment of the effectiveness of the Corporation’s internal control over financial
reporting as of December 31, 2005 has been audited by Crowe Chizek and Company LLC, an independent registered
public accounting firm, as stated in their report appearing on pages 28 and 29, which expresses an unqualified opinion on
management’s assessment and on the effectiveness of the Corporation’s internal control over financial reporting as of
December 31, 2005.
Michael N. Vittorio
President & Chief Executive Officer
Mark D. Curtis
Senior Vice President & Treasurer
2005 Annual Report 27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The First of Long Island Corporation
Glen Head, New York
We have audited the accompanying balance sheets of The First of Long Island Corporation as of December 31,
2005 and 2004, and the related statements of income, stockholders' equity and cash flows for each of the years
in the three-year period ended December 31, 2005. We also have audited management's assessment, included in
the accompanying Report By Management On Internal Control Over Financial Reporting, that The First of Long
Island Corporation maintained effective internal control over financial reporting as of December 31, 2005, based
on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The First of Long Island Corporation’s management is
responsible for these financial statements, for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to
express an opinion on these financial statements, an opinion on management's assessment, and an opinion on the
effectiveness of the company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal control
over financial reporting was maintained in all material respects. Our audit of financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, evaluating management's assessment,
testing and evaluating the design and operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company's internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
28 The First of Long Island Corporation
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 as of December 31, 2005 and 2004, and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31, 2005 in
conformity with U.S. generally accepted accounting principles. Also in our opinion, management's assessment
that The First of Long Island Corporation maintained effective internal control over financial reporting as of
December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Furthermore, in our opinion, The First of Long Island Corporation maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2005, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
Crowe Chizek and Company LLC
Livingston, New Jersey
January 27, 2006
2005 Annual Report 29
C O N S O L I D A T E D B A L A N C E S H E E T S
Assets:
Cash and due from banks .....................................................................................................
$
24,603,000
$
24,286,000
December 31,
2005
2004
Investment securities:
Held-to-maturity, at amortized cost (fair
value of $257,281,000 and $209,514,000) …….........................................................
Available-for-sale, at fair value (amortized cost
of $259,478,000 and $321,577,000) ...........................................................................
Loans:
Commercial and industrial …..........................................................................................
Secured by real estate ...................................................................................................
Consumer …...................................................................................................................
Other ..............................................................................................................................
Net deferred loan fees …................................................................................................
Allowance for loan losses ..............................................................................................
Bank premises and equipment, net …..................................................................................
Prepaid income taxes ….......................................................................................................
Deferred income tax benefits ................................................................................................
Other assets …......................................................................................................................
Liabilities:
Deposits:
Checking …….................................................................................................................
Savings and money market …........................................................................................
Time, other .....................................................................................................................
Time, $100,000 and over ...............................................................................................
Securities sold under repurchase agreements......................................................................
Accrued expenses and other liabilities …..............................................................................
Current income taxes payable...............................................................................................
Deferred income taxes payable.............................................................................................
Stockholders' Equity:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 3,846,716 and 3,967,548 shares ……........................................
Surplus ..................................................................................................................................
Retained earnings .................................................................................................................
Accumulated other comprehensive income (loss) net of tax ................................................
See notes to consolidated financial statements
259,260,000
259,137,000
518,397,000
47,310,000
328,091,000
4,329,000
816,000
380,546,000
(54,000)
380,492,000
(3,282,000)
377,210,000
7,583,000
-
279,000
16,084,000
944,156,000
$
$
307,842,000
394,176,000
23,876,000
62,117,000
788,011,000
60,195,000
5,219,000
33,000
-
853,458,000
385,000
817,000
89,701,000
90,903,000
(205,000)
90,698,000
944,156,000
$
207,335,000
324,778,000
532,113,000
51,672,000
285,204,000
5,566,000
474,000
342,916,000
(479,000)
342,437,000
(2,808,000)
339,629,000
6,531,000
141,000
-
15,078,000
917,778,000
$
$
298,049,000
427,941,000
17,711,000
27,549,000
771,250,000
49,654,000
5,204,000
-
1,430,000
827,538,000
397,000
1,135,000
86,786,000
88,318,000
1,922,000
90,240,000
917,778,000
$
30 The First of Long Island Corporation
C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E
Interest income:
Loans …….................................................................................................
Investment securities:
Taxable ……..........................................................................................
Nontaxable ............................................................................................
Federal funds sold ….................................................................................
Interest expense:
Savings and money market deposits ........................................................
Time deposits …........................................................................................
Securities sold under repurchase agreements..........................................
Net interest income ...............................................................................
Provision for loan losses ...............................................................................
Net interest income after provision for loan losses....................................
Noninterest income:
Investment Management Division income ….............................................
Service charges on deposit accounts …....................................................
Net gains (losses) on sales of securities....................................................
Other ........................................................................................................
Noninterest expense:
Salaries .....................................................................................................
Employee benefits ....................................................................................
Occupancy and equipment expense ........................................................
Other operating expenses ........................................................................
2005
Year Ended December 31,
2004
2003
$
21,773,000
$
18,990,000
$
17,851,000
13,860,000
6,450,000
606,000
42,689,000
3,485,000
1,964,000
1,977,000
7,426,000
35,263,000
470,000
34,793,000
1,697,000
3,491,000
(755,000)
1,385,000
5,818,000
11,831,000
4,609,000
3,674,000
5,155,000
25,269,000
12,655,000
6,500,000
262,000
38,407,000
2,736,000
503,000
426,000
3,665,000
34,742,000
356,000
34,386,000
1,467,000
3,863,000
(481,000)
806,000
5,655,000
10,572,000
4,940,000
3,595,000
4,990,000
24,097,000
12,426,000
6,218,000
473,000
36,968,000
3,294,000
436,000
148,000
3,878,000
33,090,000
457,000
32,633,000
1,288,000
3,585,000
333,000
792,000
5,998,000
10,431,000
4,548,000
3,383,000
5,113,000
23,475,000
Income before income taxes..................................................................
Income tax expense …..................................................................................
Net Income...........................................................................................
15,342,000
3,065,000
12,277,000
$
15,944,000
3,863,000
12,081,000
$
15,156,000
3,791,000
11,365,000
$
Weighted average:
Common shares …....................................................................................
Dilutive effect of stock options ..................................................................
Earnings per share:
Basic ……..................................................................................................
Diluted .......................................................................................................
See notes to consolidated financial statements
3,910,735
55,576
3,966,311
$3.14
$3.10
4,085,705
85,858
4,171,563
$2.96
$2.90
4,086,650
85,974
4,172,624
$2.78
$2.72
2005 Annual Report 31
C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S
I N S T O C K H O L D E R S ' E Q U I T Y
Common Stock
Shares
4,161,173
Amount
416,000
$
Surplus
$
724,000
(140,121)
62,681
(14,000)
6,000
(5,115,000)
1,063,000
Compre-
hensive
Income
$
11,365,000
Retained
Earnings
80,354,000
11,365,000
$
Accumulated
Other
Compre-
hensive
Income (Loss)
$
3,948,000
$
Total
85,442,000
11,365,000
(5,129,000)
1,069,000
(710,000)
10,655,000
$
(710,000)
(710,000)
109,000
4,000,000
781,000
$
12,081,000
(2,855,000)
(4,000,000)
84,864,000
12,081,000
3,238,000
4,083,733
408,000
(159,880)
43,695
(16,000)
5,000
(7,709,000)
922,000
(2,855,000)
109,000
89,291,000
12,081,000
(7,725,000)
927,000
(1,316,000)
10,765,000
$
(1,316,000)
(1,316,000)
25,000
116,000
7,000,000
1,135,000
3,967,548
397,000
(179,074)
58,242
(18,000)
6,000
(8,034,000)
1,496,000
(3,159,000)
(7,000,000)
86,786,000
12,277,000
1,922,000
$
12,277,000
(3,159,000)
25,000
116,000
90,240,000
12,277,000
(8,052,000)
1,502,000
(2,127,000)
10,150,000
$
(2,127,000)
(2,127,000)
220,000
6,000,000
817,000
$
3,846,716
$
385,000
(3,362,000)
(6,000,000)
89,701,000
$
(3,362,000)
220,000
$
(205,000)
$
90,698,000
Balance, January 1, 2003 ...............
Net Income ..................................
Repurchase and retirement
of common stock .....................
Exercise of stock options ............
Unrealized losses on available-
for-sale-securities, net of
reclassification adjustment
and tax of $510,000 .............
Comprehensive income ..............
Cash dividends declared -
$.70 per share .........................
Tax benefit of stock options ........
Transfer from retained
earnings to surplus ..................
Balance, December 31, 2003 .........
Net Income ..................................
Repurchase and retirement
of common stock .....................
Exercise of stock options ............
Unrealized losses on available-
for-sale-securities, net of
reclassification adjustment
and tax of $876,000 .............
Comprehensive income ..............
Cash dividends declared -
$.78 per share .........................
Stock-based compensation .........
Tax benefit of stock options ........
Transfer from retained
earnings to surplus ..................
Balance, December 31, 2004 .........
Net Income ..................................
Repurchase and retirement
of common stock .....................
Exercise of stock options ............
Unrealized losses on available-
for-sale-securities, net of
reclassification adjustment
and tax of $1,415,000 ..........
Comprehensive income ..............
Cash dividends declared -
$.87 per share .........................
Tax benefit of stock options ........
Transfer from retained
earnings to surplus ..................
Balance, December 31, 2005 .........
See notes to consolidated financial statements
32 The First of Long Island Corporation
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
Cash Flows From Operating Activities:
Net income ..........................................................................................................
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses .................................................................................
Deferred income tax provision (credit) ............................................................
Depreciation and amortization ........................................................................
Premium amortization on investment securities, net .......................................
Net Losses (gains) on sales of securities …....................................................
Stock-based compensation expense...............................................................
Accretion of cash surrender value on bank-owned life insurance....................
Decrease (increase) in prepaid income taxes ….............................................
Increase in other assets ……...........................................................................
Increase (decrease) in accrued expenses and other liabilities …....................
Increase (decrease) in income taxes payable ….............................................
Net cash provided by operating activities ....................................................
Cash Flows From Investing Activities:
Proceeds from sales of securities:
Held-to-maturity …………….............................................................................
Available-for-sale ….........................................................................................
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity …………….............................................................................
Available-for-sale ….........................................................................................
Purchase of investment securities:
Held-to-maturity …...........................................................................................
Available-for-sale ….........................................................................................
Net increase in loans to customers .....................................................................
Purchases of bank premises and equipment ......................................................
Purchase of bank-owned life insurance...............................................................
Net cash used in investing activities …….....................................................
2005
Year Ended December 31,
2004
2003
$
12,277,000
$
12,081,000
$
11,365,000
470,000
(293,000)
1,252,000
1,347,000
755,000
-
(289,000)
141,000
(717,000)
(32,000)
253,000
15,164,000
1,153,000
77,941,000
65,485,000
61,537,000
(118,838,000)
(79,207,000)
(38,051,000)
(2,304,000)
-
(32,284,000)
356,000
270,000
1,298,000
2,354,000
481,000
25,000
(10,000)
(25,000)
(475,000)
658,000
(267,000)
16,746,000
457,000
151,000
1,286,000
4,477,000
(333,000)
-
-
-
(909,000)
(215,000)
87,000
16,366,000
-
208,226,000
-
16,452,000
89,831,000
45,942,000
117,718,000
90,687,000
(60,029,000)
(301,682,000)
(20,466,000)
(1,034,000)
(7,500,000)
(46,712,000)
(86,202,000)
(209,938,000)
(60,953,000)
(1,683,000)
-
(133,919,000)
Cash Flows From Financing Activities:
Net increase (decrease) in total deposits ............................................................
Net increase in securities sold under repurchase agreements............................
Proceeds from exercise of stock options ...........................................................
Repurchase and retirement of common stock ....................................................
Cash dividends paid …........................................................................................
Net cash provided by (used in) financing activities ......................................
Net increase (decrease) in cash and cash equivalents * ……................................
Cash and cash equivalents, beginning of year .......................................................
Cash and cash equivalents, end of year ….............................................................
16,761,000
10,541,000
1,502,000
(8,052,000)
(3,315,000)
17,437,000
317,000
24,286,000
24,603,000
$
(5,905,000)
8,470,000
927,000
(7,725,000)
(2,945,000)
(7,178,000)
(37,144,000)
61,430,000
24,286,000
$
77,430,000
41,184,000
1,069,000
(5,129,000)
(2,800,000)
111,754,000
(5,799,000)
67,229,000
61,430,000
$
* Cash and cash equivalents is defined as cash and due from banks and federal funds sold.
Supplemental Schedule of Noncash Financing Activities:
Cash dividends payable ......................................................................................
$
1,731,000
$
1,684,000
$
1,470,000
The Corporation made interest payments of $7,126,000, $3,622,000, and $3,873,000 and income tax payments of $2,965,000, $3,886,000,
and $3,552,000 in 2005, 2004 and 2003, respectively.
See notes to consolidated financial statements
2005 Annual Report 33
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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 Bank’s
wholly-owned subsidiaries, The First of Long Island Agency, Inc. and FNY Service Corp., and FNY Service Corp’s.
wholly-owned subsidiary, The First of Long Island REIT, Inc. The Corporation’s financial condition and operating
results principally reflect those of the Bank and its subsidiaries. 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 Corporation’s 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
other comprehensive income.
Interest on investment securities includes amortization or accretion of purchase premium or discount. Premiums and
discounts on securities are amortized or accreted on the level-yield method without anticipating prepayments, except for
mortgage-backed securities where prepayments are anticipated. Realized gains and losses on the sale of securities are
determined using the specific identification method.
The Bank evaluates declines in fair value below the amortized cost basis for individual securities classified as either
available-for-sale or held-to-maturity. In estimating other than temporary declines, management considers: (1) the length
of time and extent that fair value has been less than cost, (2) the financial condition and near term prospects of the issuer,
and (3) the Bank’s ability and intent to hold the security for a period sufficient to allow for any anticipated recovery in fair
value. If a decline in fair value is judged to be other than temporary, the cost basis of the individual security is written
down to fair value as a new cost basis and the amount of the write-down is included in earnings as a realized loss. The
new cost basis is not changed for subsequent recoveries, if any, in fair value. Subsequent increases in the fair value of
available-for-sale securities are included in other comprehensive income and subsequent decreases in fair value, if not an
other-than-temporary impairment, are also included in other comprehensive income.
Loans and Allowance For Loan Losses
Loans are reported at their outstanding principal balance less any chargeoffs, the allowance for loan losses, and net
deferred loan fees. Interest on loans is credited to income based on the principal amount outstanding. Loan origination
fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method
without anticipating prepayments.
The accrual of interest income on loans is discontinued when a loan becomes 90 days past due as to principal or
interest payments and any accrued but unpaid interest is reversed against current period income unless the loan is well
secured and in the process of collection. The Bank considers nonaccruing loans to be impaired under Statement of
Financial Accounting Standards No. 114 “Accounting by Creditors for Impairment of a Loan” (“SFAS No. 114”) as
amended. The valuation allowance for nonaccrual and other impaired loans is reported within the overall allowance for
loan losses. At December 31, 2005, the Bank had nonaccrual loans of $151,000 and had no loans past due 90 days or
more as to principal and interest payments and still accruing. At December 31, 2004, the Bank had no nonaccrual loans
and had loans past due 90 days or more as to principal and interest payments and still accruing of $18,000.
34 The First of Long Island Corporation
The allowance for loan losses is established through provisions for loan losses charged against income. Amounts
deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
The allowance for loan losses is an amount that management currently believes will be adequate to absorb probable
losses inherent in the Bank’s loan portfolio. The process for estimating credit losses and determining the allowance for
loan losses as of any balance sheet date is subjective in nature and requires material estimates. Actual results could differ
significantly from these estimates. In determining the allowance for loan losses, there is not an exact amount but rather a
range for what constitutes an appropriate allowance.
In estimating losses the Bank reviews individual credits in its portfolio and, for those loans deemed to be impaired,
measures impairment losses based on either the fair value of collateral or the discounted value of expected future cash
flows. A loan is considered to be impaired when, based on current information and events, it is probable that the Bank
will be unable to collect the scheduled principal and interest when due according to the contractual terms of the loan
agreement. Estimated losses for loans that are not specifically reviewed are determined on a pooled basis using the
Bank’s historical loss experience adjusted to reflect current conditions. In adjusting historical loss experience,
management considers a variety of factors including 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 allowance for loan losses
is comprised of impairment losses on the loans specifically reviewed plus estimated losses on the pools of loans that are
not specifically reviewed.
Bank Premises and Equipment
Bank premises and equipment are carried at cost, less accumulated depreciation and amortization. Buildings are
depreciated using the straight-line method over their estimated useful lives, which range between thirty-one and forty
years. Building improvements are depreciated using the straight-line method over the then remaining lives of the
buildings or their estimated useful lives, whichever is shorter. 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 twenty years. Furniture, fixtures, and equipment are depreciated over their
estimated useful lives, which range between three and ten years. The straight-line method of depreciation is used for
furniture, fixtures, and equipment acquired after 1997 and the 150% declining balance method is used for furniture,
fixtures and equipment previously acquired.
Bank-owned Life Insurance
The Bank is the owner and beneficiary of life insurance policies on certain executives having an aggregate cash
surrender value of $7,799,000 and $7,510,000 at December 31, 2005 and 2004, respectively. Bank-owned life insurance,
which is included in other assets in the consolidated balance sheet, is recorded at the lower of its cash surrender value or
the amount that can be realized.
Long-term Assets
Premises and equipment and intangible assets, if any, and other long-term assets, if any, are reviewed for impairment
when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the
assets are recorded at fair value.
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.
2005 Annual Report 35
Income Taxes
A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current
year. A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary
differences and carryforwards. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax
benefits that, based on available evidence, are not expected to be realized. The measurement of current and deferred tax
liabilities and assets is based on provisions of the enacted tax law. The effects of future changes in tax laws or rates are
not considered.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as
liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.
Management is not currently aware of any loss contingencies that will have a material effect on the Corporation’s
consolidated financial statements.
Stockholders’ Equity
Earnings Per Share. Basic earnings per share excludes dilution and is computed by dividing net income by the
weighted average number of common shares outstanding for the period. Diluted earnings per share, which reflects the
potential dilution that could occur if outstanding stock options were exercised and resulted in the issuance of common
stock that then shared in the earnings of the Corporation, is computed by dividing net income by the weighted average
number of common shares and dilutive stock options. There were 87,636 and 32,815 antidilutive stock options at
December 31, 2005 and 2004, respectively, and no antidilutive stock options at December 31, 2003. Other than the stock
options described in Note J and the Rights described in Note I, the Corporation has no securities that could be converted
into common stock nor does the Corporation have any contracts that could result in the issuance of common stock.
Stock Repurchase Program. Since 1988, the Corporation has had a stock repurchase program under which it is
authorized to purchase shares of its own common stock in market or private transactions. As of December 31, 2005, and
in accordance with prior approval by its Board of Directors, the Corporation was authorized to purchase 11,150 shares of
stock. An additional share repurchase plan for 150,000 shares was approved by the Corporation’s Board of Directors on
January 17, 2006. Share repurchases are financed through available corporate cash.
Shares Tendered Upon The Exercise of Stock Options. The line captioned repurchase and retirement of common
stock in the Consolidated Statement of Changes in Stockholders’ Equity includes common stock tendered upon the
exercise of stock options of 12,801 shares in 2005 with a value of $577,000, 8,560 shares in 2004 with a value of
$415,000, and 15,443 shares in 2003 with a value of $626,000.
Comprehensive Income
Comprehensive income includes net income and all other changes in equity during a period except those resulting
from investments by owners and distributions to owners. Other comprehensive income includes revenues, expenses,
gains, and losses that under generally accepted accounting principles are included in comprehensive income but excluded
from net income. Comprehensive income and accumulated other comprehensive income are reported net of related
income taxes. Accumulated other comprehensive income for the Corporation consists solely of unrealized holding gains
or losses on available-for-sale securities.
Reclassification adjustments on an after-tax basis made for the purpose of determining other comprehensive income
are as follows:
Net unrealized holding losses arising during period ...........................................
Less: reclassification adjustment for losses (gains) included in net income .......
Net unrealized losses on available-for-sale securities ........................................
(2,580)
453
(2,127)
$
2005
2004
(in thousands)
(1,605)
289
(1,316)
$
2003
(510)
(200)
(710)
$
36 The First of Long Island Corporation
Stock-based Compensation
At December 31, 2005, the Corporation had a stock option and appreciation rights plan, as more fully described in
Note J. The Corporation accounts for the Plan under the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. With the
exception of $25,000 of stock-based compensation cost recorded in 2004 upon the modification of certain outstanding
stock options, no stock-based employee compensation cost is reflected in net income since all stock options have been
granted with an exercise price equal to the market value of the underlying common stock on the date of grant. If there
were any stock appreciation rights outstanding, compensation costs would be recorded annually based on the quoted
market price of the Corporation’s stock at the end of the period.
The following table illustrates the effect on net income and earnings per share of applying the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123 “Accounting for Stock Based Compensation” to
stock-based employee compensation.
Net income, as reported................................................................
Deduct: Total cost of stock-based employee compensation
$
12,277
expense determined under fair value based method
2005
2004
(in thousands)
$
12,081
2003
$
11,365
for all awards, net of related tax effects..................................
Pro forma net income....................................................................
(924)
11,353
$
(531)
11,550
$
(341)
11,024
$
Earnings per share:
Basic - as reported.....................................................................
Basic - pro forma........................................................................
Diluted - as reported..................................................................
Diluted - pro forma.....................................................................
$3.14
$2.90
$3.10
$2.86
$2.96
$2.83
$2.90
$2.77
$2.78
$2.70
$2.72
$2.65
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 due from banks. The recorded book value of cash and due from banks is their fair value.
Investment securities. Fair values are based on quoted market prices.
Loans. Fair values are estimated for portfolios of loans with similar financial characteristics. The total loan portfolio
is first divided into adjustable and fixed rate interest terms. For adjustable rate loans that are subject to immediate
repricing, the recorded book value less the related allowance for loan losses is a reasonable estimate of fair value. For
adjustable rate loans that are subject to repricing over time and fixed rate loans, fair value is calculated by discounting
anticipated future repricing amounts or cash flows using discount rates equivalent to the rates at which the Bank would
currently make loans which are similar with regard to collateral, maturity, and the type of borrower. The discounted value
of the repricing amounts and cash flows is reduced by the related allowance for loan losses to arrive at an estimate of fair
value.
Deposit liabilities. The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits,
money market accounts, and savings accounts, is equal to their recorded book value at December 31 of each year. The
fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is equivalent to
the rate currently offered by the Bank for deposits of similar size, type and maturity.
Securities sold under repurchase agreements. For these short-term instruments, the recorded book value is a
reasonable estimate of fair value.
Accrued interest receivable and payable. For these short-term instruments, the recorded book value is a reasonable
estimate of fair value.
Off-balance-sheet assets and liabilities. The fair value of off-balance-sheet commitments to extend credit is estimated
using fees currently charged to enter into similar agreements.
2005 Annual Report 37
Operating Segments
While senior management monitors the revenue streams of the various products and services, the identifiable
segments are not material and operations are managed and financial performance is evaluated on a Company-wide basis.
Accordingly, all of the financial operations are considered by senior management to be aggregated in one reportable
operating segment.
Investment Management Division
Assets held in a fiduciary capacity are not assets of the Corporation and, accordingly, are not included in the
accompanying financial statements. Trust fees are recorded on the accrual basis.
Adoption of New Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board issued a revised Statement of Financial Accounting
Standards No. 123 “Share Based Payments” (“SFAS No. 123R”). SFAS No. 123R applies to awards granted or modified
on or after the beginning of the first interim or annual period that begins after June 15, 2005. However, in April 2005 the
Securities and Exchange Commission announced the adoption of a new rule that allows calendar year companies to
implement SFAS No. 123R at the beginning of the first fiscal year rather than the first interim period beginning after June
15, 2005. Therefore the revised compliance date for calendar year companies like the Corporation is January 1, 2006 (the
“Compliance Date”). The Corporation adopted SFAS No. 123R on the Compliance Date.
SFAS No. 123R requires all public companies to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award (with limited exceptions). The cost will be
recognized over the period during which an employee is required to provide service in exchange for the award – the
requisite service period (usually the vesting period). Compensation cost also needs to be recognized for prior awards that
vest after the Compliance Date. The effect on results of operations for awards granted after the Compliance Date will
depend on the number of awards granted, the calculated fair value of such awards, and the applicable vesting periods, and
accordingly cannot currently be predicted with any degree of certainty. Existing options that will vest after the
Compliance Date are expected to result in additional compensation expense of approximately $40,000 in 2006 and $2,000
in 2007.
Statement of Financial Accounting Standards No. 153 “Exchanges of Nonmonetary Assets” (“SFAS No. 153”)
modifies an exception from fair value measurement of nonmonetary exchanges. Exchanges that are not expected to result
in significant changes in cash flows of the reporting entity are not measured at fair value. This supersedes the prior
exemption from fair value measurement for exchanges of similar productive assets, and applies for fiscal years beginning
after June 15, 2005. The adoption of SFAS No. 153 is not expected to materially impact the Corporation’s financial
statements.
In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154
“Accounting Changes and Error Corrections” as a replacement of APB Opinion No. 20 and FASB Statement No. 3. This
Statement applies to all voluntary changes in accounting principle and changes required by an accounting pronouncement
in the unusual instance that the pronouncement does not include specific transition provisions. This Statement carries
forward without change the guidance contained in APB Opinion No. 20 for reporting the correction of an error in
previously issued financial statements and a change in accounting estimate. This Statement also carries forward the
guidance in APB Opinion No. 20 requiring justification of a change in accounting principle on the basis of preferability.
This Statement will be effective for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005. The Corporation is not currently aware of any accounting changes or errors to which the provisions
of this Statement will apply.
38 The First of Long Island Corporation
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, 2005 and 2004.
2005
Held-to-Maturity Securities:
U.S. Treasury ...........................................................................
State and municipals ................................................................
Pass-through mortgage securities…. .......................................
Collateralized mortgage obligations .........................................
Available-for-Sale Securities:
U.S. Treasury ...........................................................................
U.S. government agencies .......................................................
Corporates ...............................................................................
State and municipals ................................................................
Pass-through mortgage securities…. .......................................
Equity (1) ..................................................................................
Held-to-Maturity Securities:
U.S. Treasury ...........................................................................
U.S. government agencies .......................................................
Corporates ...............................................................................
State and municipals ................................................................
Pass-through mortgage securities…. .......................................
Collateralized mortgage obligations .........................................
Available-for-Sale Securities:
U.S. Treasury ...........................................................................
U.S. government agencies .......................................................
Corporates ...............................................................................
State and municipals ................................................................
Pass-through mortgage securities…. .......................................
Equity (1) ..................................................................................
$
$
$
Amortized
Cost
$
$
$
7,960
64,912
37,570
148,818
259,260
98,542
34,756
3,000
69,740
52,034
1,406
259,478
5,973
2,000
995
64,565
46,121
87,681
207,335
150,136
20,000
4,995
88,363
54,715
3,368
321,577
Amortized
Cost
$
$
$
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair
Value
$
$
$
$
$
$
$
-
1,791
211
109
2,111
$
-
$
-
4
2,707
5
-
2,716
$
2004
(in thousands)
Gross
Unrealized
Gains
$
-
11
132
3,069
604
135
3,951
$
$
1
-
138
4,537
23
-
4,699
$
(95)
(401)
(1,133)
(2,461)
(4,090)
(868)
(115)
-
(14)
(2,060)
-
(3,057)
Gross
Unrealized
Losses
(14)
$
-
-
(229)
(470)
(1,059)
(1,772)
$
$
(282)
(66)
-
(30)
(1,120)
-
(1,498)
7,865
66,302
36,648
146,466
257,281
97,674
34,641
3,004
72,433
49,979
1,406
259,137
5,959
2,011
1,127
67,405
46,255
86,757
209,514
149,855
19,934
5,133
92,870
53,618
3,368
324,778
Fair
Value
$
$
$
$
$
$
(1) Includes stock in the Federal Home Loan Bank of New York of $939,000 and $2,901,000 at December 31, 2005 and 2004,
respectively, and equity investments in New York Bankers Association and Federal Reserve Bank stock of $352,000 and
$115,000, respectively, at each year end date. All equity securities are carried at cost.
The pass-through mortgage securities shown in the preceding tables were issued by the Government National
Mortgage Association (“GNMA”), the Federal National Mortgage Association (“FNMA”), or the Federal Home Loan
Mortgage Corporation (“FHLMC”). Each issuer’s pass-through securities are backed by mortgages conforming to its
underwriting guidelines and each issuer guarantees the timely payment of principal and interest on its securities. The
collateralized mortgage obligations (“CMOs”) shown in the table were also issued by GNMA, FNMA, or FHLMC and all
such securities, regardless of the issuer, are backed by GNMA pass-through mortgage securities. Each issuer guarantees
the timely payment of principal and interest on its CMOs and GNMA guarantees the timely payment of principal and
interest on the underlying pass-through mortgage securities. Obligations of GNMA represent full faith and credit
obligations of the U.S. government (the “Government”), while obligations of FNMA, which is a corporate instrumentality
of the Government, and FHLMC, which is a Government sponsored corporation, do not.
2005 Annual Report 39
At December 31, 2005 and 2004, investment securities with a carrying value of $151,492,000 and $139,475,000,
respectively, were pledged as collateral to secure public deposits and borrowings under repurchase agreements.
Securities With Unrealized Losses. The following table sets forth securities with unrealized losses at December 31,
2005 and 2004 presented by length of time the securities have been in a continuous unrealized loss position.
Less than
12 Months
2005
12 Months
or More
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
U.S. Treasury ................................................
U.S. government agencies ...........................
State and municipals..…................................
Pass-through mortgage securities….............
Collateralized mortgage obligations ..............
Total temporarily impaired..…........................
U.S. Treasury ................................................
U.S. government agencies ...........................
State and municipals..…................................
Pass-through mortgage securities….............
Collateralized mortgage obligations ..............
Total temporarily impaired..…........................
(in thousands)
$
$
$
$
$
$
35,702
34,641
12,000
19,085
82,730
184,158
(184)
(115)
(180)
(334)
(751)
(1,564)
69,837
-
6,538
56,484
46,977
179,836
(779)
-
(235)
(2,859)
(1,710)
(5,583)
105,539
34,641
18,538
75,569
129,707
363,994
$
$
$
$
$
$
(963)
(115)
(415)
(3,193)
(2,461)
(7,147)
Less than
12 Months
Fair
Value
Unrealized
Loss
150,848
19,934
19,301
10,403
48,126
248,612
(296)
(66)
(126)
(128)
(668)
(1,284)
2004
12 Months
or More
Fair
Value
Unrealized
Loss
(in thousands)
-
$
-
3,736
65,810
22,508
92,054
$
-
$
-
(133)
(1,462)
(391)
(1,986)
$
Total
Fair
Value
Unrealized
Loss
150,848
19,934
23,037
76,213
70,634
340,666
(296)
(66)
(259)
(1,590)
(1,059)
(3,270)
$
$
$
$
$
$
$
$
Unrealized losses reflected in the preceding tables have not been included in results of operations because the affected
securities are of high credit quality, management has the intent and ability to hold these securities for the foreseeable
future, and the decline in fair value is largely due to an increase in interest rates since the time the securities were
purchased. The losses on these securities are expected to dissipate as they approach their maturity dates and/or if interest
rates decline.
Sales of Available-for-Sale Securities. Sales of available-for-sale securities were as follows:
2005
2004
(in thousands)
2003
Proceeds ...............................................................
$
77,941
$
208,226
$
16,452
Gross gains ...........................................................
Gross losses ..........................................................
Net gains (losses) ..................................................
-
(912)
(912)
$
460
(941)
(481)
$
464
(131)
333
$
The tax benefit (provision) related to these net realized losses and gains, respectively, was $364,000, $192,000 and
$(133,000) in 2005, 2004 and 2003, respectively.
Sale of Held-To-Maturity Security. In the second quarter of 2005, the Bank sold a held-to-maturity corporate bond
based on a downgrade of the security’s credit rating from AA2 to A2 over a two month time period. The bond had a
stated maturity of October 9, 2026 and could be put back to the issuer at par on October 9, 2006. In light of the long-term
nature of this bond, management deemed the downgrade to be a significant deterioration in the issuer’s creditworthiness.
The bond had a carrying value of $996,000 at the time of sale and the Corporation realized a gain upon sale of $157,000.
40 The First of Long Island Corporation
Maturities and Average Yields. The following table sets forth the maturities and weighted average yields of the Bank’s
investment securities at December 31, 2005.
Principal Maturing (1)
Within
One Year
Amount
Yield
After One But
Within Five Years
Yield
Amount
After Five But
Within Ten Years
Yield
Amount
After
Ten Years
Amount
Yield
(dollars in thousands)
Held-to-Maturity Securities (Amortized Cost)
U.S. Treasury ........................................
State and municipals (2) …....................
Pass-through mortgage securities ….....
Collateralized mortgage obligations ......
Held-to-Maturity Securities (Fair Value)
U.S. Treasury ........................................
State and municipals (2) …....................
Pass-through mortgage securities ….....
Collateralized mortgage obligations ......
$
$
1,992
4,583
-
-
6,575
3.51%
6.62
-
-
5.68%
$
5,968
16,854
1,354
296
24,472
$
3.49%
7.14
6.06
6.28
5.34%
-
$
22,274
29,765
748
52,787
$
- %
6.96
3.94
4.24
5.22%
$
-
21,201
6,451
147,774
175,426
$
- %
6.26
5.24
4.19
4.48%
Principal Maturing (1)
Within
One Year
Amount
Yield
After One But
Within Five Years
Yield
(dollars in thousands)
After Five But
Within Ten Years
Yield
Amount
Amount
After
Ten Years
Amount
Yield
$
$
1,985
4,608
-
-
6,593
3.51%
6.62
-
-
5.68%
$
5,880
17,439
1,384
297
25,000
$
3.49%
7.14
6.06
6.28
5.34%
-
$
23,134
28,717
746
52,597
$
- %
6.96
3.94
4.24
5.22%
$
-
21,121
6,547
145,423
173,091
$
- %
6.26
5.24
4.19
4.48%
Principal Maturing (1)
Available-for-Sale Securities (Fair Value)
U.S. Treasury ........................................
U.S. government agencies ….................
Corporates..............................................
State and municipals (2) …....................
Pass-through mortgage securities ….....
Total debt securities .........................
Equity .....................................................
Within
One Year
Amount
Yield
$
52,785
-
3,004
2,521
-
58,310
-
$
58,310
2.94%
-
5.47
6.61
-
3.23
-
3.23%
After One But
Within Five Years
Yield
(dollars in thousands)
After Five But
Within Ten Years
Yield
Amount
Amount
After
Ten Years
Amount
Yield
$
44,889
20,586
-
29,808
2,784
98,067
-
98,067
$
3.50%
4.64
-
6.85
3.40
4.75
-
4.75%
-
$
14,055
-
29,333
33,592
76,980
-
76,980
$
- %
5.34
-
7.09
3.57
5.23
-
5.23%
-
$
-
-
10,771
13,603
24,374
1,406
25,780
$
- %
-
-
7.05
3.55
5.10
3.50
5.01%
(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 pass-through mortgage securities 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 state and municipal securities have been computed on a tax-equivalent basis.
2005 Annual Report 41
NOTE C – LOANS
The following table sets forth changes in the Bank’s allowance for loan losses.
Balance, beginning of year .....................................................
Loans charged off:
Commercial and industrial ....................................................
Secured by real estate …......................................................
Consumer and other …..........................................................
Recoveries of loans charged off:
Commercial and industrial ....................................................
Secured by real estate ….....................................................
Consumer and other …..........................................................
Net (chargeoffs) recoveries .....................................................
Provision for loan losses …......................................................
Balance, end of year …...........................................................
Ratio of net chargeoffs to
average loans outstanding …….............................................
2005
Year ended December 31,
2004
(dollars in thousands)
2003
$
2,808
$
2,452
$
2,085
-
-
25
25
-
-
29
29
4
470
3,282
$
12
-
33
45
7
-
38
45
-
356
2,808
$
41
-
69
110
-
12
8
20
(90)
457
2,452
$
.00%
.00%
.03%
The Corporation’s loan portfolio at December 31, 2005 and 2004 included $2,002,000 and $1,507,000, respectively,
of loans specifically identified as impaired under SFAS No. 114. Of the Corporation’s total impaired loans at December
31, 2005, $1,702,000 had a related allowance for loan losses of $317,000 and the balance had no related allowance for
loan losses. The average recorded investment during 2005 in loans considered to be impaired as of December 31, 2005
was $2,339,000. Interest income recognized during 2005 on loans considered to be impaired as of December 31, 2005
and during the period in 2005 that such loans were impaired amounted to $81,000. Of the Corporation’s total impaired
loans at December 31, 2004, $1,322,000 had a related allowance for loan losses of $225,000 and the balance had no
related allowance for loan losses. The average recorded investment during 2004 in loans considered to be impaired as of
December 31, 2004 was $1,671,000. Interest income recognized during 2004 on loans considered to be impaired as of
December 31, 2004 and during the period in 2004 that such loans were impaired amounted to $59,000. The average
recorded investment during 2003 in loans considered to be impaired as of December 31, 2003 was $1,288,000. Interest
income recognized during 2003 on loans considered to be impaired as of December 31, 2003 and during the period in
2003 that such loans were impaired amounted to $45,000. All interest income recorded by the Corporation during 2005,
2004, and 2003 on loans considered to be impaired was generally recognized using the accrual method of accounting.
Certain directors, including their immediate families and companies in which they are principal owners, and executive
officers were loan customers of the Bank during 2005 and 2004. Such loans are permitted under Regulation O of the
Board of Governors of The Federal Reserve System. The aggregate amount of these loans was $1,455,000 and
$1,896,000 at December 31, 2005 and 2004, respectively. During 2005, $11,000 of new loans to such persons were made
and repayments totaled $452,000. There were no loans to directors or executive officers which were nonaccruing at
December 31, 2005 or 2004.
42 The First of Long Island Corporation
NOTE D – PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following:
Land ..................................................................................................................
Buildings ….......................................................................................................
Leasehold improvements .................................................................................
Furniture and equipment ..................................................................................
Accumulated depreciation and amortization .....................................................
December 31,
2005
2004
(in thousands)
$
$
1,274
5,284
3,269
10,851
20,678
(13,095)
7,583
1,274
5,124
2,421
9,849
18,668
(12,137)
6,531
$
$
A building occupied by one of the Bank’s branch offices is leased from a director of the Corporation and the Bank.
Although the lease expires on October 31, 2007, the Bank may, on ninety (90) days written notice, elect to extend the
lease for an additional five (5) year period. The lease provides for annual base rent of $31,089 for the year ending
October 31, 2006. In addition to base rent, the Bank is responsible for its proportionate share of the real estate taxes on
the building in which the leased premises are located.
NOTE E – DEPOSITS
The following table sets forth the remaining maturities of the Bank’s time deposits.
Year
2006 ...................................................................................
2007 ...................................................................................
2008 ...................................................................................
2009 ...................................................................................
2010 ...................................................................................
Thereafter ...........................................................................
Less than
$100,000
Amount
$100,000 or
More
(in thousands)
Total
$
$
$
20,818
1,795
468
510
277
8
23,876
61,589
315
-
-
213
-
62,117
82,407
2,110
468
510
490
8
85,993
$
$
$
The aggregate amount of overdrafts that have been reclassified as loans was $816,000 and $474,000 at December 31,
2005 and 2004, respectively.
NOTE F – SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements are short-term collateralized financing arrangements that mature within
one month. At maturity, the securities underlying the agreements will be returned to the Bank. The following table sets
forth information concerning securities sold under repurchase agreements.
December 31,
2005
2004
(dollars in thousands)
Average daily balance during the year.............................................................
Average interest rate during the year...............................................................
Maximum month-end balance during the year.................................................
Weighted average interest rate at year-end.....................................................
$
$
65,714
3.01%
82,600
3.98%
$
$
38,682
1.10%
57,741
1.97%
2005 Annual Report 43
NOTE G – INCOME TAXES
The Corporation and its subsidiary file a consolidated federal income tax return. Income taxes charged to earnings in
2005, 2004, and 2003 had effective tax rates of 20.0%, 24.2%, and 25.0%, respectively. The following table sets forth a
reconciliation of the statutory Federal income tax rate to the Corporation’s effective tax rate.
Statutory federal income tax rate ............................................................................
State and local income taxes, net of federal income tax benefit ............................
Tax-exempt income, net of disallowed cost of funding ...........................................
Other …...................................................................................................................
2005
34.0%
1.4
(14.4)
(1.0)
20.0%
Year Ended December 31,
2004
34.0%
3.7
(13.7)
.2
24.2%
2003
34.0%
4.3
(13.7)
.4
25.0%
Provision For Income Taxes. The following table sets forth the components of the provision for income taxes.
Current:
Federal ...........................................................................................................
State and local ................................................................................................
Deferred:
Federal ...........................................................................................................
State and local ................................................................................................
2005
$
2,725
633
3,358
(20)
(273)
(293)
3,065
$
Year Ended December 31,
2004
(in thousands)
2,747
$
846
3,593
227
43
270
3,863
$
2003
$
2,757
883
3,640
56
95
151
3,791
$
Net Deferred Tax Asset (Liability). The following table sets forth the components of the Bank’s net deferred tax
asset (liability).
Deferred tax assets:
2005
December 31,
(in thousands)
2004
Allowance for loan losses ……............................................................................
Supplemental executive retirement expense …..................................................
Directors' retirement expense ….........................................................................
Other retirement expense ...................................................................................
Depreciation .......................................................................................................
Accrued professional fees ……...........................................................................
Unrealized losses on available-for-sale securities ……………............................
Other....................................................................................................................
Valuation allowance …............................................................................................
Deferred tax liabilities:
Pension expense ….............................................................................................
Depreciation .......................................................................................................
Accumulated earnings of Bank subsidiaries........................................................
Unrealized gains on available-for-sale securities ……………..............................
Other....................................................................................................................
Net deferred tax asset (liability) ..............................................................................
$
796
121
80
-
6
12
136
-
1,151
-
1,151
870
-
-
-
2
872
279
$
$
517
119
75
82
-
12
-
12
817
-
817
624
158
186
1,279
-
2,247
(1,430)
$
44 The First of Long Island Corporation
NOTE H – REGULATORY MATTERS
Capital. The Corporation is subject to various regulatory capital requirements administered by 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. As of December 31, 2005, the most
recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or events since the notification that
management believes have changed the Bank’s category.
The following table sets forth the Corporation’s capital ratios at December 31, 2005 and 2004 and the minimum ratios
necessary for a bank to be classified as well capitalized and adequately capitalized. The capital ratios of the Corporation’s
subsidiary bank at December 31, 2005 and 2004 are not significantly different than those shown in the table below and
substantially exceed the requirements for a well-capitalized bank.
Total Risk-Based Capital Ratio ......................
Tier 1 Risk-Based Capital Ratio ......................
Tier 1 Leverage Capital Ratio .........................
Corporation's Capital Ratios
at December 31:
2005
25.16%
24.28
9.26
2004
26.40%
25.58
9.38
Well
Capitalized
10.00%
6.00
5.00
Adequately
Capitalized
8.00%
4.00
4.00
For purposes of computing the capital ratios in the preceding table, the Corporation had total capital, as defined, of
$93,965,000 and $90,906,000 at December 31, 2005 and 2004, respectively, and Tier 1 capital, as defined, of $90,683,000
and $88,098,000, respectively. The minimum capital needed to be classified as well capitalized at December 31, 2005 for
total risk-based, Tier 1 risk-based, and Tier 1 leverage capital purposes is $37,346,000, $22,408,000 and $48,970,000,
respectively. The minimum capital needed to be classified as adequately capitalized at December 31, 2005 for total risk-
based, Tier 1 risk-based, and Tier 1 leverage capital purposes is $29,877,000, $14,938,000 and $39,176,000, respectively.
The minimum capital needed to be classified as well capitalized at December 31, 2004 for total risk-based, Tier 1 risk-
based, and Tier 1 leverage capital purposes is $34,449,000, $20,670,000 and $46,945,000, respectively. The minimum
capital needed to be classified as adequately capitalized at December 31, 2004 for total risk-based, Tier 1 risk-based, and
Tier 1 leverage capital purposes is $27,559,000, $13,780,000 and $37,556,000, respectively.
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, 2005, the Bank had retained net income for the current
and two preceding calendar years of $8,928,000.
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 2005 was approximately $9,416,000.
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, 2005, the maximum amount available for
transfer from the Bank to the Corporation in the form of loans approximated $13,337,000.
NOTE I – 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
2005 Annual Report 45
decide, the announcement by the Corporation that any person has acquired 20% or more of the outstanding Common
Stock.
When separated from the Common Stock, each Right will entitle the holder to purchase one share of Common Stock
for $56 (the “Exercise Price”). However, in the event that the Corporation has announced that any person has acquired
20% or more of the outstanding Common Stock, the Rights owned by that person will be automatically void and each
other Right will automatically become a right to buy, for the Exercise Price, that number of shares of Common Stock
having a market value of twice the Exercise Price. Also, if any person acquires 20% or more of the outstanding Common
Stock, the Board can require that, in lieu of exercise, each outstanding Right be exchanged for one share of Common
Stock.
The Rights may be redeemed by action of the Board at a price of $.01 per Right at any time prior to announcement by
the Corporation that any person has acquired 20% or more of the outstanding Common Stock. The Exercise Price and the
number of Rights outstanding are subject to adjustment to prevent dilution. The Rights expire ten years from the date of
their issuance.
NOTE J – STOCK-BASED COMPENSATION
The Corporation has a stock option and appreciation rights plan that was approved by its Board of Directors on
January 16, 1996 and subsequently approved by its stockholders (the “1996 Plan”). Under the 1996 Plan, as amended,
options to purchase up to 540,000 shares of common stock were made available for grant to key employees and to non-
employee directors of the Corporation and its subsidiaries through January 15, 2006, at which time the 1996 Plan expired.
Subject to approval by the Corporation’s stockholders, the Corporation currently intends to adopt a new stock
compensation plan to serve as a successor to the 1996 Plan. The new plan will allow for awards to key employees and
non-employee directors, and such awards may include nonqualified stock options, incentive stock options, stock
appreciation rights, restricted stock and restricted stock units.
The number of stock options and stock appreciation rights that could have been granted under the 1996 Plan to any
one person in any one fiscal year was limited to 25,000. Each option granted under the 1996 Plan was granted at a price
equal to the fair market value of one share of the Corporation’s stock on the date of grant. Options granted under the 1996
Plan on or before December 31, 2000 became exercisable in whole or in part commencing six months from the date of
grant and ending ten years after the date of grant. Options granted under the 1996 Plan in January 2005 became
exercisable in whole or in part commencing ninety days from the date of grant and ending ten years after the date of grant.
By the terms of their grant, all other options under the 1996 Plan were granted with a three year vesting period and a ten
year expiration date. However, vesting was subject to acceleration in the event of a change in control, retirement, death,
disability, and certain other limited circumstances.
As of December 31, 2005, there were 196,481 options available for grant under the 1996 Plan, 228,650 options
outstanding, and 207,724 options currently exercisable. None of the options available for grant as of December 31, 2005
were granted prior to the expiration of the 1996 Plan on January 15, 2006.
The Corporation has chosen to account for stock-based compensation using the intrinsic value method prescribed in
APB No. 25. Since each option was 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 except for $25,000 recorded upon the modification
of certain stock options in 2004.
Stock Option Activity. The following table sets forth stock option activity and the weighted average fair value of
options granted.
2005
Year Ended December 31,
2004
2003
Weighted
Average
Exercise
Price
29.99
45.53
25.78
45.90
34.78
34.42
Shares
232,071
57,728
(58,242)
(2,907)
228,650
207,724
$ 13.03
$
$
$
Weighted
Average
Exercise
Price
25.73
47.89
21.20
21.07
29.99
27.67
Shares
253,646
33,346
(43,695)
(11,226)
232,071
163,666
$ 12.01
$
$
$
Weighted
Average
Exercise
Price
21.95
33.11
17.06
27.30
25.73
19.68
Shares
261,920
62,010
(62,681)
(7,603)
253,646
65,010
$ 6.47
$
$
$
Outstanding, beginning of year .................................
Granted ....................................................................
Exercised ..................................................................
Forfeited …................................................................
Outstanding, end of year...........................................
Exercisable, end of year ...........................................
Weighted average fair value of options granted .......
46 The First of Long Island Corporation
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model
using the following weighted average assumptions: risk-free interest rates of 4.15%, 3.80%, and 3.64% for options
granted in 2005, 2004, and 2003, respectively; volatility of 24.17%, 19.94%, and 17.00% for options granted in 2005,
2004, and 2003, respectively; and expected dividend yield of 2.0% and expected life of 7 years for the options granted in
each of the three years in the period ended December 31, 2005.
Stock Options Outstanding. The following table sets forth information about outstanding and exercisable stock
options at December 31, 2005.
Outstanding Stock Options
Weighted Average
Range of Exercise Prices
$16.22 to $19.98 .........................................................
$24.68 to $28.00 .........................................................
$28.90 to $33.11 .........................................................
$45.53 to $47.89 .........................................................
NOTE K – RETIREMENT PLANS
Remaining
Contractual
Life (yrs.)
3.21
5.07
7.01
8.68
6.77
Number
13,467
77,399
50,148
87,636
228,650
Exercise
Price
$
18.93
25.58
32.94
46.40
34.78
$
Exercisable Stock Options
Weighted
Average
Ex
ercise
Price
Number
13,467
77,399
36,722
80,136
207,724
$
$
18.93
25.58
32.88
46.26
34.42
The Bank has a combined profit sharing/401(k) plan (the “Profit Sharing Plan”). Employees are eligible to participate
provided they are at least 21 years of age and have completed one year of service in which they worked 1,000 hours if
full-time and 700 hours if part-time. Participants may elect to contribute, on a tax-deferred basis, up to 25% of gross
compensation, as defined, subject to the limitations of Section 401(k) of the Internal Revenue Code. The Bank may, at its
sole discretion, make “Additional” contributions to each participant's account based on the amount of the participant's tax
deferred contributions and make profit sharing contributions to each participant's account equal to a percentage of the
participant's compensation, as defined. In determining an appropriate profit sharing contribution percentage for any given
year, the Compensation Committee of the Board of Directors considers the Bank’s actual performance against targeted
earnings goals. 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 $166,000, $165,000, and $149,000 for 2005, 2004, and 2003, respectively, and
profit sharing contributions were $664,000, $814,000, and $492,000, respectively.
The Bank’s Supplemental Executive Retirement Program (“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. SERP expense was $196,000, $240,000, and $205,000 in 2005, 2004, and 2003,
respectively.
The Bank has a defined benefit pension plan (the “Pension Plan” or the “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. The Retirement System is overseen by a Board of Trustees (the “Trustees”) who meet quarterly and, among
other things, set the investment policy guidelines. 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, the major categories of which are set forth in the table that follows. The Pension Plan
has a September 30 year end and therefore the Company uses September 30 as the measurement date for this Plan.
Employees are eligible to participate in the Pension Plan after attaining 21 years of age and completing 12 full months
of service. Pension benefits are generally based on a percentage of average annual compensation during the period of
creditable service. The Bank makes annual contributions to the Pension Plan in an amount sufficient to fund these
benefits and participants contribute 2% of their compensation. The Bank’s funding policy, the entry age normal cost-
frozen initial liability method, is consistent with the funding requirements of federal law and regulations. Employees
become fully vested after four years of participation in the Pension Plan (no vesting occurs during the four-year period).
2005 Annual Report 47
Major Categories of Plan Assets. The following table sets forth the major categories of Plan assets as of the last two
Plan year ends and the percentage of the total value of Plan assets accounted for by each.
Equity Securities......................................................................................................
Debt Securities........................................................................................................
Real Estate..............................................................................................................
All Other Assets.......................................................................................................
Percentage of Fair Value
of Total Plan Assets at:
9/30/05
9/30/04
58.8 %
41.2
-
-
100.0 %
64.7 %
34.9
-
0.4
100.0 %
The Retirement System uses two investment management firms, with one firm investing approximately 68% and the
other firm investing approximately 32% of the total portfolio. Each firm operates under a separate written investment
policy approved by the Trustees. The mix of equity and debt securities is determined from time to time by the Trustees
based on a review of the Retirement System's requirements.
The current target allocation percentage for equity securities is 60% but may vary from 50% to 70% based on the
investment managers’ discretion. The equity portfolio includes, among other things, international securities and equities
in a separately managed large cap core equity fund that is permitted to invest in a diversified range of securities in the US
equity markets.
The current target allocation percentage for debt securities is 40% but may vary from 30% to 50% at the investment
manager’s discretion. Fixed income investments include various debt securities included in a fixed income portfolio and a
core bond fixed income fund. The fixed income portfolio operates with guidelines relating to types of debt securities,
quality ratings, maturities, and single company and sector allocation limits. The portfolio investments in the core bond
fixed income fund are limited to US Dollar denominated, fixed income securities and selective derivatives designed to
have similar attributes of such fixed income securities.
Net Pension Cost. The following table sets forth the components of net periodic pension cost.
2005
2004
(in thousands)
2003
Service cost, net of plan participant contributions ..................................................
Interest cost ............................................................................................................
Expected return on plan assets ..............................................................................
Net amortization and deferral .................................................................................
Net pension cost ..................................................................................................
$
$
$
761
690
(839)
78
690
672
627
(703)
72
668
504
570
(543)
23
554
$
$
$
Significant Actuarial Assumptions. The following tables set forth the significant actuarial assumptions used to
determine the benefit obligation as of September 30, 2005, 2004, and 2003 and the benefit cost for each of the Plan years
then ended.
Weighted average assumptions used to determine the
benefit obligation at September 30
Discount rate ..........................................................................................................
Rate of increase in compensation levels ................................................................
Expected long-term rate of return on plan assets ...................................................
Weighted average assumptions used to determine
pension cost for the year ended September 30
Discount rate ..........................................................................................................
Rate of increase in compensation levels ................................................................
Expected long-term rate of return on plan assets ...................................................
2005
5.50%
5.00%
7.00%
2005
5.75%
5.00%
7.00%
2004
5.75%
5.00%
7.00%
2004
6.00%
5.00%
7.00%
2003
6.00%
5.00%
7.00%
2003
6.75%
5.00%
7.50%
The expected long-term rate-of-return on plan assets reflects long-term earnings expectations on the total assets
currently in the Retirement System and contributions expected to be received by the Retirement System during the current
plan year. In estimating the rate, appropriate consideration is given to historical returns earned by the Retirement System
assets and the rates of return expected to be available for reinvestment. Average rates of return over the past 1, 3, 5 and 10
48 The First of Long Island Corporation
year periods were determined and subsequently adjusted to reflect current capital market assumptions and changes in
investment allocations.
Funded Status of The Plan. The following table sets forth the change in the projected benefit obligation and Plan
assets for each Plan year and, as of the end of each Plan year, the funded status of the Plan, prepaid benefit cost, and
accumulated benefit obligation.
Change in projected benefit obligation
Projected benefit obligation at beginning of year.....................................................
Service cost.............................................................................................................
Plan participants' contributions................................................................................
Expenses.................................................................................................................
Interest cost.............................................................................................................
Benefits paid............................................................................................................
Assumption changes and other...............................................................................
Projected benefit obligation at end of year.........................................................
Change in plan assets
Fair value of plan assets at beginning of year.........................................................
Actual return on plan assets....................................................................................
Employer contributions............................................................................................
Plan participants' contributions................................................................................
Benefits paid............................................................................................................
Expenses.................................................................................................................
Fair value of plan assets at end of year..............................................................
Funded status........................................................................................................
Unrecognized net actuarial loss .............................................................................
Unrecognized prior service cost..............................................................................
Unrecognized transition asset.................................................................................
Prepaid benefit cost..............................................................................................
2005
Year Ended September 30,
2004
(in thousands)
2003
$
12,197
933
(172)
(92)
690
(411)
649
13,794
12,108
1,441
1,284
171
(411)
(92)
14,501
707
1,807
196
-
2,710
$
$
10,617
828
(156)
(81)
627
(396)
758
12,197
10,133
1,113
1,183
156
(396)
(81)
12,108
(89)
1,989
216
-
2,116
$
$
8,608
659
(155)
(59)
570
(374)
1,368
10,617
7,329
1,309
1,773
155
(374)
(59)
10,133
(484)
1,857
235
(6)
1,602
$
Accumulated Benefit Obligation..........................................................................
$
11,165
$
9,750
$
8,406
Prepaid benefit cost as of December 31, 2005 differs from the amount presented in the above table largely due to an
accrual of three additional months of pension expense. The Bank currently expects to contribute approximately
$1,087,000 to the Pension Plan on or before September 30, 2006, representing the maximum tax deductible contribution
for the Plan year then ended.
Estimated Future Benefit Payments. The following benefit payments, which reflect expected future service, as
appropriate, are expected to be made.
Year
2006 ..........................................................................
2007 ..........................................................................
2008 ..........................................................................
2009 ..........................................................................
2010 ..........................................................................
2011-2015 .................................................................
Amount
(in thousands)
560
$
608
650
676
670
4,535
2005 Annual Report 49
NOTE L – OTHER OPERATING EXPENSES
Expenses included in other operating expenses which exceed one percent of the aggregate of total interest income and
noninterest income in 2005, 2004, and 2003 are as follows:
2005
Computer services ......................................................
Property and liability insurance ...................................
Marketing ....................................................................
$ 840
738
492
2004
(in thousands)
$ 773
753
483
2003
$ 712
726
619
NOTE M – COMMITMENTS AND CONTINGENT LIABILITIES
Financial Instruments With Off-Balance-Sheet Risk. The Bank is a party to financial instruments with off-balance-
sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments
include commitments to extend credit, standby letters of credit, and commercial letters of credit. These instruments
involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the other party to financial instruments for
commitments to extend credit, standby letters of credit, and commercial letters of credit is represented by the contractual
notional amount of these instruments. The Bank uses the same credit policies in making commitments to extend credit
and generally uses the same credit policies for letters of credit as it does for on-balance-sheet instruments. At December
31, financial instruments whose contract amounts represent credit risk are as follows:
2005
2004
Fixed
Rate
Variable
Rate
Fixed
Rate
Variable
Rate
(in thousands)
Commitments to extend credit ..............................................................
Standby letters of credit ........................................................................
$
4,735
2,568
$
70,128
-
$
4,953
3,433
$
59,141
-
There were no commercial letters of credit outstanding at December 31, 2005 or 2004.
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. Since some of these commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash requirements. Unused home equity lines,
which comprise a substantial portion of these commitments, generally expire five years from their date of origination.
Other real estate loan commitments generally expire within 60 days and commercial loan commitments generally expire
within one year. The fixed rate loan commitments shown in the table are to make loans with interest rates ranging from
5.50% to 6.50% and maturities ranging from 9 years to 20 years. The amount of collateral obtained, if any, by the Bank
upon extension of credit is based on management’s credit evaluation of the borrower. Collateral held varies but may
include mortgages on commercial and residential real estate and security interests in business assets, deposit accounts with
the Bank or other financial institutions, and securities.
Standby letters of credit are conditional commitments issued by the Bank to assure the performance or financial
obligations of a customer to a third party. The Bank's standby letters of credit extend through December 2006. However,
most are effectively automatically renewable. 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, 2005
varied from 0% to 100%, and averaged 74%. Standby letters of credit are considered financial guarantees and are
recorded at fair value.
Commercial letters of credit are conditional commitments issued by the Bank to assure the payment by a customer to
a supplier. The Bank generally obtains personal guarantees supporting these commitments.
Concentrations of Credit Risk. Most of the Bank’s loans, personal and commercial, are to borrowers who are
domiciled on Long Island. As a result, the income of many of the Bank’s borrowers is dependent on the Long Island
economy. In addition, most of the Bank's real estate loans involve mortgages on Long Island properties. Thus, the
Bank's loan portfolio is susceptible to the economy of Long Island.
50 The First of Long Island Corporation
Lease Commitments. At December 31, 2005, minimum annual rental commitments under noncancelable operating
leases are as follows:
Year
2006 ................................................................................
2007 ................................................................................
2008 ................................................................................
2009 ................................................................................
2010 ................................................................................
Thereafter .......................................................................
Amount
(in thousands)
851
$
833
731
657
612
2,602
6,286
$
The Bank has various renewal options on the above leases. Rent expense was $765,000, $714,000, and $620,000 in
2005, 2004, and 2003, respectively.
Employment Contracts. All of the Bank’s executive officers have employment contracts with the Corporation under
which they are entitled to severance compensation in the event of an involuntary termination of employment or
resignation of employment following a change in control. The terms of these contracts range from eighteen months to
three years and, unless the Corporation gives written notice of non-extension within the time frames set forth in the
contracts, are automatically extended at the expiration of each year for an additional period of one year, thus resulting in
new terms of between eighteen months and three years. The current aggregate annual salaries provided for in these
contracts is approximately $1,578,000.
NOTE N – FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time and are based on existing on and off-balance-sheet financial
instruments. Such estimates are generally subjective in nature and dependent upon a number of significant assumptions
associated with each financial instrument or group of similar financial instruments, including estimates of discount rates,
risks associated with specific financial instruments, estimates of future cash flows, and relevant available market
information. Changes in assumptions could significantly affect the estimates. In addition, fair value estimates do not
reflect the value of anticipated future business, premiums or discounts that could result from offering for sale at one time
the Corporation’s entire holdings of a particular financial instrument, or the tax consequences of realizing gains or losses
on the sale of financial instruments. The following table sets forth the carrying/contract amounts and estimated fair values
of the Corporation’s financial instruments at December 31, 2005 and 2004.
Financial Assets:
Cash and due from banks ….............................................................
Held-to-maturity securities ................................................................
Available-for-sale securities .............................................................
Loans …............................................................................................
Accrued interest receivable ..............................................................
Financial Liabilities:
Checking deposits …........................................................................
Savings and money market deposits ...............................................
Time deposits …...............................................................................
Securities sold under repurchase agreements .................................
Accrued interest payable ……...........................................................
Off-Balance-Sheet Liabilities:
Commitments to extend credit ..........................................................
Carrying/
Contract
Amount
$
24,603
259,260
259,137
377,210
4,828
307,842
394,176
85,993
60,195
408
74,863
2005
2004
Carrying/
Contract
Amount
Fair Value
(in thousands)
$
24,603
257,281
259,137
373,064
4,828
$
24,286
207,335
324,778
339,629
4,640
307,842
394,176
85,787
60,195
408
298,049
427,941
45,260
49,654
108
Fair Value
$
24,286
209,514
324,778
340,504
4,640
298,049
427,941
45,217
49,654
108
-
64,094
-
2005 Annual Report 51
NOTE O – PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information for The First of Long Island Corporation (parent company only) is as follows:
CONDENSED BALANCE SHEETS
Assets:
Cash and due from banks...........................................................................................
Investment in subsidiary bank, at equity …................................................................
Other assets ..............................................................................................................
December 31,
2005
(in thousands)
2004
$
3,221
88,913
295
92,429
$
$
2,419
89,351
154
91,924
$
Liabilities:
Cash dividends payable .............................................................................................
$
1,731
$
1,684
Stockholders' equity:
Common stock ….......................................................................................................
Surplus .......................................................................................................................
Retained earnings ......................................................................................................
Accumulated other comprehensive income (loss), net of tax ....................................
385
817
89,701
90,903
(205)
90,698
92,429
$
397
1,135
86,786
88,318
1,922
90,240
91,924
$
CONDENSED STATEMENTS OF INCOME
Income:
Dividends from subsidiary bank .................................................................................
Interest on deposits with subsidiary bank ..................................................................
Other ..........................................................................................................................
Expenses:
Stock-based compensation expense .........................................................................
Other operating expenses .........................................................................................
Income before income taxes ......................................................................................
Income tax benefit .........................................................................................................
Income before undistributed earnings of
2005
$
10,700
12
2
10,714
-
200
200
10,514
(74)
Year ended December 31,
2004
(in thousands)
$
9,600
13
-
9,613
25
83
108
9,505
(38)
2003
$
6,700
17
-
6,717
-
76
76
6,641
(23)
subsidiary bank .......................................................................................................
Equity in undistributed earnings ....................................................................................
Net income …............................................................................................................
10,588
1,689
12,277
$
9,543
2,538
12,081
$
6,664
4,701
11,365
$
52 The First of Long Island Corporation
CONDENSED STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities:
Net income .................................................................................................................
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of subsidiary bank ..........................................................
Stock-based compensation expense ..................................................................
Decrease in other assets ....................................................................................
Net cash provided by operating activities ...............................................................
Cash Flows From Financing Activities:
Repurchase and retirement of common stock ...........................................................
Proceeds from exercise of stock options ...................................................................
Cash dividends paid …...............................................................................................
Net cash used in financing activities .......................................................................
Net increase (decrease) in cash and cash equivalents* ..............................................
Cash and cash equivalents, beginning of year …..........................................................
Cash and cash equivalents, end of year .......................................................................
Supplemental Schedule of Noncash Financing Activities:
2005
Year ended December 31,
2004
(in thousands)
2003
$
12,277
$
12,081
$
11,365
(1,689)
-
79
10,667
(8,052)
1,502
(3,315)
(9,865)
802
2,419
3,221
$
(2,538)
25
95
9,663
(7,725)
927
(2,945)
(9,743)
(80)
2,499
2,419
$
(4,701)
-
42
6,706
(5,129)
1,069
(2,800)
(6,860)
(154)
2,653
2,499
$
Cash dividends payable .............................................................................................
1,731
1,684
1,470
*Cash and cash equivalents is defined as cash and due from banks and includes the checking and money market accounts with the
Corporation’s wholly-owned bank subsidiary.
NOTE P – QUARTERLY FINANCIAL DATA (Unaudited)
2005
Interest income ..............................................................
Interest expense ............................................................
Net interest income …....................................................
Provision for loan losses (credit)…………......................
Noninterest income …....................................................
Noninterest expense …..................................................
Income before income taxes ........................................
Income taxes .................................................................
Net income …….............................................................
Earnings per share:
Basic…........................................................................
Diluted ........................................................................
Comprehensive income.................................................
2004
Interest income ..............................................................
Interest expense ............................................................
Net interest income …....................................................
Provision for loan losses ………….................................
Noninterest income …....................................................
Noninterest expense …..................................................
Income before income taxes ........................................
Income taxes .................................................................
Net income …….............................................................
Earnings per share:
Basic…........................................................................
Diluted ........................................................................
Comprehensive income (loss)........................................
First
Quarter
$
9,701
1,235
8,466
150
1,689
6,225
3,780
738
3,042
Second
Quarter
Third
Quarter
(in thousands, except per share data)
Fourth
Quarter
$
10,596
1,869
8,727
176
1,803
6,657
3,697
730
2,967
$
11,157
2,171
8,986
(12)
1,558
6,263
4,293
962
3,331
$
11,235
2,151
9,084
156
768
6,124
3,572
635
2,937
Total
$
42,689
7,426
35,263
470
5,818
25,269
15,342
3,065
12,277
.77
.76
931
.75
.74
4,352
.86
.85
2,067
.76
.75
2,800
3.14
3.10
10,150
$
9,488
923
8,565
100
1,559
6,031
3,993
1,019
2,974
$
9,647
880
8,767
100
1,571
6,109
4,129
1,067
3,062
$
9,560
922
8,638
100
1,537
5,929
4,146
1,055
3,091
$
9,712
940
8,772
56
988
6,028
3,676
722
2,954
$
38,407
3,665
34,742
356
5,655
24,097
15,944
3,863
12,081
.73
.71
4,085
.74
.73
(2,088)
.75
.74
6,599
.74
.72
2,169
2.96
2.90
10,765
2005 Annual Report 53
Official Staff
ADMINISTRATION
Michael N. Vittorio
President &
Chief Executive Officer
Arthur J. Lupinacci, Jr.
Executive Vice President
Lorraine Fogarty
Executive Assistant
Constance Miller
Executive Assistant
Donna A. Puglisi
Executive Assistant
AUDITING
Kitty W. Craig
Vice President
Margaret M. DeBonis
Assistant Vice President
Neil Dastas
Assistant Manager
BRANCH ADMINISTRATION
James Clavell
Senior Vice President
Monica T. Baker
Assistant Vice President
Leonora A. Mintz
Assistant Vice President
Patricia A. Ovalle Wood
Assistant Vice President
Anna P. Beis
Assistant Manager
Patrice Goncalves
Assistant Manager
Augustus W. Imor
Assistant Manager
Paula C. Lavrado
Assistant Manager
Sabrina Mallay
Assistant Manager
James V. McGlynn
Assistant Manager
Patricia L. Scrudato
Assistant Manager
COMMERCIAL LENDING
Donald L. Manfredonia
Executive Vice President
Paul J. Daley
Senior Vice President
Albert Arena
Vice President
Sean L. O’Connor
Vice President
John J. Reilly
Vice President
William W. Riley
Vice President
Gretchen B. Nesky
Assistant Vice President
Ivan G. Nunez
Assistant Vice President
Maureen Cannarsa
Assistant Manager
COMMERCIAL BANKING
Joseph G. Perri
Executive Vice President
James P. Johnis
Senior Vice President
John L. Attanasio
Vice President
Deborah A. Cassidy
Vice President
Margaret M. Curran
Vice President
Stephen Durso
Vice President
Albert T. Ghelarducci
Vice President
Edward V. Mirabella
Vice President
James A. Oliveri
Vice President
Jane F. Reed
Vice President
Richard B. Smith
Vice President
John P. Solensky
Vice President
Diane M. Mucci
Assistant Manager
Patricia Miller
Administrative Assistant
COMPLIANCE AND
PROCEDURES
Sara R. Melamed
Assistant Vice President
Joseph Ambrosio
Administrative Assistant
Evan Lieberman
Administrative Assistant
DATA CENTER
Lori Ruggiero
Administrative Assistant
DEPOSIT OPERATIONS
Carmela Lalonde
Assistant Manager
Donna M. Long
Assistant Manager
Linda G. Bannen
Administrative Assistant
FINANCE
Mark D. Curtis
Executive Vice President
Wayne B. Drake
Senior Vice President
Howard F. Hoeberlein
Vice President
Matthew J. Mankowski
Assistant Vice President
Cheryl A. Romanski
Assistant Cashier
Catherine E. Irvin
Assistant Manager
Diane M. Pascucci
Assistant Manager
Eva Figlarova
Administrative Assistant
GENERAL SERVICES
Daniel Sapanara
General Services Officer
Carol Daley
Administrative Assistant
HUMAN RESOURCES
Debbie L. Ryan
Vice President
Takako Endo
Assistant Vice President
Susan J. Hempton
Assistant Vice President
Rita E. Quinn
Assistant Manager
INFORMATION TECHNOLOGY
SERVICES
Conrad Lissade
Information Technology Services
Manager
John R. Marshall
Administrative Assistant
LOAN CENTER
Robert B. Jacobs
Vice President
John F. Darcy
Senior Mortgage Consultant
Demetrios C. Jangarathis
Mortgage Originator
Marco A. Leon
Mortgage Originator
Veronica T. Gajkowski
Assistant Manager
Eveline Q. Ratte
Assistant Manager
Anna S. Fleming
Administrative Assistant
Andrea R. Hill
Administrative Assistant
Barbara A. Johnson
Administrative Assistant
MARKETING
Laura C. Ierulli
Vice President
Maureen Barcelo
Assistant Manager
Rose Cartwright
Administrative Assistant
OPERATIONS ADMINISTRATION
Richard Kick
Executive Vice President
Betsy Gustafson
Senior Vice President
Kristen M. Mucci
Administrative Assistant
COUNSEL
Schupbach, Williams & Pavone LLP
INDEPENDENT AUDITORS
Crowe Chizek and Company LLC
ANNUAL REPORT ON FORM 10-K
A copy of the Corporation’s annual report on
Form 10-K for 2005, 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.
EXECUTIVE OFFICE
The First of Long Island Corporation
10 Glen Head Road
Glen Head, New York 11545
(516) 671-4900
www.fnbli.com
TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
(800) 368-5948
www.rtco.com
ANNUAL MEETING NOTICE
The Annual Meeting of Stockholders
will be held at the Westbury Manor,
1100 Jericho Turnpike, Westbury, N.Y.
on Tuesday, April 18, 2006 at 3:30 P.M.
54 The First of Long Island Corporation
Business Advisory Board
Howard Annenberg
President & CEO
Shannen Promotions, Inc.
Nicola Arena
Chairman
Mediterranean
Shipping Co. (USA), Inc.
Richard Arote Sr.
President
Air Distribution
Enterprises, Inc.
Beverly J. Bell, Esq.
Humes & Wagner, LLP
Robert Bogardt, CPA
Bogardt & Company, LLP
Thomas Burke
Chief Executive Officer
Ophthalmic Consultants
of Long Island
Emil V. Cianciulli, Esq.
Partner
Cianciulli, Meng &
Panos, P.C.
Thomas N. Dufek, CPA
President
Dufek & Associates
Bernard Esquenet
Chief Executive Officer
The Ruhof Corp.
Robert Giambalvo, CPA
President
Giambalvo, Kilgannon &
Giammarese, CPAs, PC
Leonard Gleicher
Partner
Goldberg Bros. Realtors
Stephen R. Greenwald
President
Metropolitan College of
New York
Herbert Haber, CPA
Kevin J. Harding, Esq.
Partner
Harding and Harding
Herbert Kotler, Esq.
Kenneth R. Latham
Melvin F. Lazar, CPA
Founder
Lazar Levine & Felix LLP
Wallace Leinheardt, Esq.
Jaspan Schlesinger Hoffman
LLP
James Lynch, Esq.
John I. Martinelli
Principal
Owen Petersen & Co., LLP
Susan Mohr
President
J.W. Hirschfeld Agency, Inc.
Richard E. Nussbaum, CPA
Nussbaum Yates
& Wolpow, P.C.
James Panos, Esq.
Partner
Cianciulli, Meng
& Panos, P.C.
Douglas Pierce
President
Pierce Country Day School
& Camp Inc.
Jay Pitti
President
Merrick House & Gardens
Stephen Ruchman
Ruchman Associates
Melvin Schreiber, CPA
Moses & Schreiber
Arthur C. Schupbach, Esq.
Partner
Schupbach, Williams
& Pavone, LLP
Shaw Shahery
President
Convermat Corporation
J. Stanley Shaw
Senior Member
Shaw, Licitra, Gulotta,
Esernio & Schwartz P.C.
H. Craig Treiber
Chairman & CEO
The Treiber Insurance
Group
Sal Turano
President
Abstracts Incorporated
Arthur Ventura
President
Badge Agency, Inc.
George J. Walsh, Esq.
Thompson Hine LLP
Robert Wilkie, Esq.
Wilkie & Wilkie
Mark Wurzel
President
Calico Cottage, Inc.
Photos not available:
Zachary Levy, Esq.
and
Scott Sammis
President
Sammis, Smith & Brush Inc.
LONG ISLAND
(516) 671-4900
MANHATTAN
(212) 566-1500
Full Service Offices
www.fnbli.com
Commercial Banking Offices
GLEN HEAD
10 GLEN HEAD ROAD
GLEN HEAD, NY 11545
(516) 671-4900
John J. Mulder, Jr.
Vice President and Branch Manager
Elaine Ballinger
Assistant Vice President
GREENVALE
7 GLEN COVE ROAD
GREENVALE, NY 11548
(516) 621-8811
Christina Cocca
Assistant Vice President
and Branch Manager
Julie Kelly
Assistant Manager
HUNTINGTON
253 NEW YORK AVENUE
HUNTINGTON, NY 11743
(631) 427-4143
Rick P. Perro
Vice President and Branch Manager
Jenny V. Malandruccolo
Assistant Vice President
Milka Elbayar
Administrative Assistant
Michael Gervase
Administrative Assistant
LOCUST VALLEY
108 FOREST AVENUE
LOCUST VALLEY, NY 11560
(516) 671-2299
Elizabeth A. Materia
Vice President and Branch Manager
Mary Lou Martin
Assistant Vice President
Carol M. Luzynski
Administrative Assistant
MERRICK
1810 MERRICK AVENUE
MERRICK, NY 11566
(516) 771-6000
Cathy C. O’Malley
Vice President and Branch Manager
Giuseppe Sparacino
Assistant Manager
NORTHPORT
711 FORT SALONGA ROAD
NORTHPORT, NY 11768
(631) 261-4000
Henry C. Suhr
Vice President and Branch Manager
Inger Dzwlewicz
Assistant Manager
Pamela Cosgrove
Administrative Assistant
OLD BROOKVILLE
209 GLEN HEAD ROAD
OLD BROOKVILLE, NY 11545
(516) 759-9002
Frank M. Plesche
Vice President and Branch Manager
Vincent P. Bartilucci
Assistant Cashier
ROCKVILLE CENTRE
310 MERRICK ROAD
ROCKVILLE CENTRE, NY 11570
(516) 763-5533
Lucy Ortiz
Vice President and Branch Manager
Theresa A. Crawford
Assistant Manager
ROSLYN HEIGHTS
130 MINEOLA AVENUE
ROSLYN HEIGHTS, NY 11577
(516) 621-1900
Frieda M. O'Mara
Vice President and Branch Manager
Daphne Johnson
Assistant Manager
Lucile A. Pelliccione
Administrative Assistant
WOODBURY
800 WOODBURY ROAD, SUITE M
WOODBURY, NY 11797
(516) 364-3434
George P. Knott
Vice President and Branch Manager
June E. Pipito
Assistant Vice President
BOHEMIA
30 ORVILLE DRIVE
BOHEMIA, NY 11716
(631) 218-2500
Robert F. Covino
Vice President and Branch Manager
DEER PARK
60 E. INDUSTRY COURT
DEER PARK, NY 11729
(631) 243-2600
Albert M. Nordt, Jr.
Vice President and Branch Manager
FARMINGDALE
22 ALLEN BOULEVARD
FARMINGDALE, NY 11735
(631) 753-8888
Sandy F. Buttacy
Vice President and Branch Manager
2091 NEW HIGHWAY
FARMINGDALE, NY 11735
(631) 454-2022
Monica T. Baker
Assistant Vice President
GARDEN CITY
1050 FRANKLIN AVENUE
GARDEN CITY, NY 11530
(516) 742-6262
John T. Noonan
Vice President and Branch Manager
Linda Ciuffo
Assistant Manager
GREAT NECK
536 NORTHERN BOULEVARD
GREAT NECK, NY 11021
(516) 482-6666
Jane B. Manditch
Vice President and Branch Manager
Joanne M. Bosco
Assistant Manager
HAUPPAUGE
330 MOTOR PARKWAY
HAUPPAUGE, NY 11788
(631) 952-2900
JoAnn Diamond
Assistant Vice President
and Branch Manager
HICKSVILLE
106 OLD COUNTRY ROAD
HICKSVILLE, NY 11801
(516) 932-7150
Joyce C. Graber
Vice President and Branch Manager
Diane Frost
Assistant Manager
LAKE SUCCESS
3000 MARCUS AVENUE
LAKE SUCCESS, NY 11042
(516) 775-3133
Allison Stansfield
Vice President and Branch Manager
Susan M. Costabile
Assistant Manager
MINEOLA
194 FIRST STREET
MINEOLA, NY 11501
(516) 742-1144
Herta Tscherne
Vice President and Branch Manager
NEW HYDE PARK
200 JERICHO TURNPIKE
NEW HYDE PARK, NY 11040
(516) 328-3100
Linda A. Cutter
Vice President and Branch Manager
Kathleen M. Martin
Assistant Manager
VALLEY STREAM
133 E. MERRICK ROAD
VALLEY STREAM, NY 11580
(516) 825-0202
Susan Pickrodt
Assistant Cashier
MANHATTAN
232 MADISON AVENUE
NEW YORK, NY 10016
(212) 213-8111
Judith A. Ferdinand
Vice President and Branch Manager
225 BROADWAY, SUITE 703
NEW YORK, NY 10007
(212) 693-1515
Gladys Ruggiero
Assistant Vice President
and Branch Manager
1501 BROADWAY, SUITE 301
NEW YORK, NY 10036
(212) 278-0707
Leonora A. Mintz
Assistant Vice President
Investment Management Division
800 WOODBURY ROAD, SUITE M
WOODBURY, NY 11797 • (516) 364-3436
Suffolk County Regional Office
330 MOTOR PARKWAY, SUITE 102
HAUPPAUGE, NY 11788 • (631) 952-2223
Brian J. Keeney
Executive Vice President
Sharon E. Pazienza
Vice President
Quyen T. Pham
Operations Manager
James P. Johnis
Senior Vice President
Margaret M. Curran
Vice President
Richard B. Smith
Vice President
Francis V. Liantonio
Vice President
Joanne Buckley
Assistant Vice President
Dawn LoBraico
Administrative Assistant
Deborah A. Cassidy
Vice President
Stephen Durso
Vice President
Patricia A. Miller
Administrative Assistant
Edward V. Mirabella
Vice President