Defining the Future
2008 Annual Report
18%
Total assets grew
$193 million
or 18% to $1.26
billion
$12,962,000
Historical record
profits of
$12,962,000
$1.78
Earnings per share
grew by 17.9% or
27 cents per share
tab le of contents
President’s message
seLected financi aL data
board of directors & eXecUtiVe officers
branch Locations
branch eXP ansion
ProdUcts & ser Vices
PersonaL ser Vice
Looking ahead
commUnity inVoLVement
financiaLs
officers & offi ciaL staff
bUsiness adVi sory board
2 - 3
4
5
6 - 7
8
9
10
11
12
13 - 59
60
61
14%
Cash dividends
increased 14%, or
8 cents per share
6%
Deposits grew
$51 million or 6%
37%
Commercial
Mortgages grew
$54 million or 37%
e
g
a
s
s
e
M
s
’
t
n
e
d
i
s
e
r
P
2
michaeL n. Vittorio, President & chief executive officer
Dear Shareholder, 2008 was one of the most challenging years for
banking and the financial services industry. Our philosophy of balanced
and disciplined growth, coupled with sound credit underwriting, paid
off during this tumultuous period. To date, we have only a handful of
relatively small delinquencies; our capital is above that of our peer
group, and we have a strong liquidity position. We say it often within
the Bank.....we must remain measured and disciplined, yet I am sure
our growth in footings and earnings has not escaped your attention.
On an average year-to-date basis, Commercial Mortgages grew $54 million, or 37%. Our
Residential Mortgages grew $19 million, or 10%, and our Home Equity loans grew $17 million,
or 23%. Our average year-to-date deposits outperformed most of our peer group, growing $51
million, or 6%.
We feel our deposit growth was
While these accolades are certainly
I would
like
to
thank our
directly related to new branch
satisfying, they have not lulled us
shareholders for the confidence
openings, lending, and local market
into a sense of complacency, and we
you have expressed in our Bank.
recognition of our institution’s
are ever watchful of the economic
I want to assure our customers
financial strength. During this
environment in which we operate.
of our continued focus on service
same time period, we maintained
As we enter 2009, we foresee
quality, and want to applaud our
a solid net interest margin of
new challenges for the banking
employees for their high energy
4.12%, which again reflected our
industry in terms of managing
level, strong work ethic and
adherence
to disciplined and
interest rate risk, namely, inflation.
dedication to the needs of those
measured growth. Earnings per
We are already repositioning our
they serve. The First National
share grew from $1.51 last year
balance sheet to prepare for this
Bank of Long Island is positioned
to $1.78 this year, representing an
challenge, and we will continue to
as well as any institution can be in
increase of $.27, or 17.9%. This
look at each new business situation
this economic climate. We remain
performance did not go unnoticed.
with a sense of urgency and a long-
committed to the principles of a
On October 27, 2008, Newsday
term view. We are determined
steady and consistent management
reported that our stock was up 10%
not to abandon the principles of
approach that have guided us
in 2008, making it Long Island’s
measured and disciplined growth
over the years, as we continue to
best performing stock. For the full
that have given us the financial
build shareholder value through
year 2008, our stock was up 28%.
success we experienced in the past,
sustainable and profitable long-
and again this year.
term growth.
Michael N. Vittorio
President & Chief Executive Officer
3
Selected Financial Data
The following is selected consolidated financial data for the past five years. This data should be read in conjunction with
the information contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and the accompanying consolidated financial statements and related notes.
Income Statement Data
Interest Income
Interest Expense
Net Interest Income
Provision for Loan Losses
Net Income
Per Share Data
Basic Earnings
Diluted Earnings
Cash Dividends Declared
Dividend Payout Ratio
Stock Splits/Dividends Declared
Book Value
Balance Sheet Data At Year End
Total Assets
Loans
Allowance for Loan Losses
Deposits
Borrowed Funds
Stockholders’ Equity
Average Balance Sheet Data
Total Assets
Loans
Allowance for Loan Losses
Deposits
Borrowed Funds
Stockholders’ Equity
2008
2007
2006
2005
2004
$ 59,686,000
16,743,000
42,943,000
1,945,000
12,962,000
$ 53,023,000
16,269,000
36,754,000
575,000
11,482,000
$ 49,000,000
12,949,000
36,051,000
670,000
11,227,000
$ 42,689,000
7,426,000
35,263,000
470,000
12,277,000
$ 38,407,000
3,665,000
34,742,000
356,000
12,081,000
$1.79
1.78
.66
37.08%
-
$14.25
$1.52
1.51
.58
38.41%
2-for-1
$13.73
$1.47
1.45
.50
34.48%
-
$12.60
$1.57
1.55
.44
28.06%
-
$11.79
$1.48
1.45
.39
26.90%
-
$11.37
$ 1,261,609,000 $ 1,069,019,000
525,539,000
4,453,000
869,038,000
92,110,000
102,384,000
658,134,000
6,076,000
900,337,000
251,122,000
102,532,000
$ 954,166,000
449,465,000
3,891,000
824,797,000
28,143,000
95,561,000
$ 944,156,000
380,492,000
3,282,000
788,011,000
60,195,000
90,698,000
$ 917,778,000
342,437,000
2,808,000
771,250,000
49,654,000
90,240,000
$ 1,181,655,000 $ 1,003,240,000
480,166,000
4,167,000
868,421,000
32,705,000
98,402,000
572,356,000
4,947,000
919,490,000
157,275,000
100,710,000
$ 977,232,000
418,746,000
3,609,000
842,399,000
37,989,000
93,064,000
$ 978,869,000
359,288,000
3,072,000
818,842,000
65,714,000
90,403,000
$ 935,278,000
336,587,000
2,655,000
799,458,000
38,682,000
92,248,000
Financial Ratios
Return on Average Assets (ROA)
1.10%
Return on Average Stockholders’ Equity (ROE) 12.87%
8.52%
Average Equity to Average Assets
1.14%
11.67%
9.81%
1.15%
12.06%
9.52%
1.25%
13.58%
9.24%
1.29%
13.10%
9.86%
Stock Prices
The Corporation’s Common Stock trades on The Nasdaq Capital
Market tier of The Nasdaq Stock Market under the symbol FLIC.
The following table sets forth high and low sales prices for the
years ended December 31, 2008 and 2007.
At December 31, 2008, there were 600 stockholders of record of
the Corporation’s Common Stock. The number of stockholders of
record includes banks and brokers who act as nominees, each of
whom may represent more than one stockholder.
2008
2007
Quarter
High
Low
High
Low
First
$ 19.49
$ 18.25 $ 22.89
$ 21.30
Second
Third
Fourth
21.00
24.50
24.45
18.53
18.55
20.00
23.99
22.00
20.99
20.20
17.50
18.04
a
t
a
D
l
a
i
c
n
a
n
i
F
d
e
t
c
e
l
e
S
4
Board of Directors – The First of Long Island Corporation
allen e. busching
Principal
b&b capital
(consulting and private investment)
William H.J. Hoefling
CEO – Managing Member
crystal Pond capital Partners LLc
(equity investments)
J. Douglas Maxwell Jr.
Chief Financial Officer
nirx medical technologies LLc
(medical instrumentation)
Paul t. canarick
President & Principal
Paul todd, inc.
(construction company)
alexander l. cover
Management Consultant
self employed
(financial consulting)
Howard thomas Hogan Jr., esq.
Director
hogan & hogan
(attorney at law)
stephen V. Murphy
President
s.V. murphy & co., inc.
(investment banking)
John t. lane
Retired Managing Director
J.P. morgan & co.
Milbrey Rennie taylor
Strategic and Media Consultant
Walter c. teagle III
Non-executive Chairman
President
teagle management, inc.
(private investment company)
Michael n. Vittorio
President & Chief Executive Officer
fRoM left to RIGHt: (standing): aLeXander L. coVer, J. doUgLas maXweLL Jr., stePhen V. mUrPhy, miLbrey rennie tayLor, michaeL n. Vittorio, aLLen e. bUsching,
PaUL t. canarick, and howard thomas hogan Jr., esq. (sitting): John t. Lane, waLter c. teagLe iii, wiLLiam h.J. hoefLing
Executive Officers – The First National Bank of Long Island
fRoM left to RIGHt: (standing): brian J. keeney, donaLd L. manfredonia, michaeL n. Vittorio, richard kick and
John grasso; (sitting): saLLyanne k. baLLweg and mark d. cUrtis
Michael n. Vittorio
President & Chief Executive Officer
sallyanne K. ballweg
Senior Executive Vice President
Mark D. curtis
Executive Vice President
Chief Financial Officer & Cashier
John Grasso
Executive Vice President
Distribution Executive
brian J. Keeney
Executive Vice President
Executive Trust Officer
Richard Kick
Executive Vice President
Senior Operations Officer
Donald l. Manfredonia
Executive Vice President
Senior Lending Officer
B
o
a
r
d
o
f
D
i
r
e
c
t
o
r
s
&
E
x
e
c
u
t
i
v
e
O
f
fi
c
e
r
s
5
s
n
o
i
t
a
c
o
L
h
c
n
a
r
B
27
25
26
29
23
15
2
7
4
13
5
11
14
28
22
3
19
24
12
8
10
6
9
20
16
21
18
17
1
Full Service Offices
BABYLON
42 deer Park avenue, babylon, ny 11702
(631) 422-1700
colleen a. Vogelsberg, Vice President & branch manager
BAYVILLE
282 bayville avenue, bayville, new york 11709
coming
soon!
GARDEN CITY
1050 franklin avenue, garden city, ny 11530
(516) 742-6262
carol a. kolesar, Vice President & branch manager
GLEN HEAD
10 glen head road, glen head, ny 11545
(516) 671-4900
John J. mulder Jr., Vice President & branch manager
GREENVALE
7 glen cove road, greenvale, ny 11548
(516) 621-8811
christina marotta, Vice President & branch manager
HUNTINGTON
253 new york avenue, huntington, ny 11743
(631) 427-4143
frank m. Plesche, Vice President & branch manager
1
2
3
4
5
6
7
8
9
10
11
12
LOCUST VALLEY
108 forest avenue, Locust Valley, ny 11560
(516) 671-2299
elizabeth a. materia, Vice President & branch manager
MERRICK
1810 merrick avenue, merrick, ny 11566
(516) 771-6000
cathy c. o’malley, Vice President & branch manager
NORTHPORT
711 fort salonga road, northport, ny 11768
(631) 261-4000
mary t. sullivan, Vice President & branch market manager
NORTHPORT VILLAGE
105 main street, northport, ny 11768
(631) 261-0331
mary t. sullivan, Vice President & branch market manager
OLD BROOKVILLE
209 glen head road, old brookville, ny 11545
(516) 759-9002
henry c. suhr, Vice President & branch manager
ROCKVILLE CENTRE
310 merrick road, rockville centre, ny 11570
(516) 763-5533
Linda roldan, Vice President & branch manager
6
HICKSVILLE
106 old country road, hicksville, ny 11801
(516) 932-7150
Joyce c. graber, Vice President & branch manager
NEW HYDE PARK
243 Jericho turnpike, new hyde Park, ny 11040
(516) 328-3100
Joanne maiorana-davis, Vice President & branch manager
PORT JEFFERSON STATION
davis Professional Park, 5225 nesconset highway
building 4, suite 21, Port Jefferson station, ny 11776
(631) 928-4411
susan donovan, Vice President & branch manager
VALLEY STREAM
133 east merrick road, Valley stream, ny 11580
(516) 825-0202
toni Valente, Vice President & branch manager
MANHATTAN
232 madison avenue, new york, ny 10016
(212) 213-8111
Judith a. ferdinand, Vice President & branch manager
225 broadway, suite 703, new york, ny 10007
(212) 693-1515
gladys ruggiero, Vice President & branch manager
1501 broadway, suite 301, new york, ny 10036
(212) 278-0707
doris m. burkett, Vice President & branch manager
21
22
23
24
25
26
27
Select Service Banking Centers
ROSLYN HEIGHTS
130 mineola avenue, roslyn heights, ny 11577
(516) 621-1900
frieda m. o’mara, Vice President & branch manager
WOODBURY
800 woodbury road, suite m, woodbury, ny 11797
(516) 364-3434
allison stansfield, Vice President & branch manager
13
14
Commercial Banking Offices
BOHEMIA
30 orville drive, bohemia, ny 11716
(631) 218-2500
kathleen crowe, Vice President & branch manager
DEER PARK
60 east industry court, deer Park, ny 11729
(631) 243-2600
albert m. nordt Jr., Vice President & branch manager
FARMINGDALE
22 allen boulevard, farmingdale, ny 11735
(631) 753-8888
sandy f. buttacy, Vice President & branch manager
2091 new highway, farmingdale, ny 11735
(631) 454-2022
Lorraine russo, Vice President & branch manager
15
16
17
18
19
20
GREAT NECK
536 northern boulevard, great neck, ny 11021
(516) 482-6666
Joanne bosco, Vice President & branch manager
HAUPPAUGE
330 motor Parkway, hauppauge, ny 11788
(631) 952-2900
Joann diamond, Vice President & branch manager
28
29
LAKE SUCCESS
3000 marcus avenue, Lake success, ny 11042
(516) 775-3133
Jerry scansarole, Vice President & branch manager
SMITHTOWN
285 middle country road, suite 104, smithtown, ny 11787
(631) 265-0200
frances a. koslow, Vice President & branch manager
7
we are one of the strongest and most
financially stable community banks.
It remains an ongoing initiative for us
to build our franchise in the affluent
communities of Nassau and Suffolk
Counties, as well as Manhattan. Our
branch-expansion strategy has proven
to be successful and has allowed us to
capture a share of the loan and deposit
growth in our operating markets.
opened a new commercial banking
more branches in the future, our model
Most recently, in February 2009, we
of banking and reputation as the Bank
have grown at rates that exceed our
expectations, and as we continue to open
office in Port Jefferson Station. Our
recent grand openings in these markets
service branch
in Babylon, Long
opportunities, we opened a new full-
presence and capture new banking
Conveniently located in the heart
In an effort to expand our market
Island, during the first quarter of 2008.
is equipped with a 24-hour ATM, a
of the Village of Babylon, the office
talented staff of banking professionals
n Our new full-service branch in Babylon, Long Island
o
i
s
n
a
p
x
E
h
c
n
a
r
B
In addition, we converted our Garden
City office from a commercial banking
serve the needs of affluent households
second quarter of 2008 in order to better
office to a full-service branch during the
will continue to be enhanced.
and businesses in the area.
and upscale decor.
Manhattan and continue to grow during
Since 2003, we have opened eight
markets. With over $1 billion in assets, 28
“Where Everyone Knows Your Name™”
this challenging time for financial
branches and more than 275 employees,
new branches on Long Island and in
8
10%
Residential
Mortgages grew
$19 million or 10%
23%
Home Equity
loans were up
$17 million
or 23%
fRoM left to RIGHt: mrs. PaLLadino, from the homestead school in garden city, and caroL a. koLesar,
Vice President & branch manager of our garden city office. carol introduced the bank’s “teach children to
save” program to mrs. Palladino’s kindergarten class.
Since the upgrade of our technology
infrastructure in 2007, and the ongoing
investment we have made toward hiring
talented professionals, the Bank has been
able to deliver more value-added products
and services to our customers, which has
strengthened the value of our franchise.
In 2008, we implemented several new
programs, such as:
The Teach Children to Save Program –
Our branches have been actively
involved with the schools in their
communities, educating children
about the importance of saving
money and banking.
This includes teaching in the
classroom setting and providing
banking-related premium items to
students. Interest in the program
grew to such an extent that in 2008,
we introduced a new product called
“K” Savings.
The program was accompanied
with a promotion in our full-service
branches in which children who
opened up a “K” Savings account
not only received a free gift and
a special 90-day rate, but also
qualified to participate in our annual
credit incentive plan where they are
rewarded for saving money.
Online Statements – Our online
banking customers now have access
to log into their accounts and view
their statements online.
24/7 Banking – Customers now
have greater access to 24/7 banking
through our growing Internet and
telephone banking services.
Green Initiative – The First National
Bank of Long Island implemented a
“going green” initiative and developed
a free e-statements campaign for
personal banking customers.
Online Education Center – The Bank
introduced an online education center,
found on our web site at www.fnbli.
com. The resource provides useful
information to our customers such as
identity theft prevention, enhanced
business security and online bill pay.
st o cK PeRf oRMa nce
The First National Bank of Long Island,
corporately recognized as The First of
Long Island Corporation (FLIC), is proud
to have been recognized by Newsday as
a top performing Long Island stock. On
October 27, 2008, Newsday reported that
“FLIC is up 10% in 2008, making it Long
Island’s best performing stock.” For the
full year 2008, our stock was up 28%.
“Our commitment is to build value
for our shareholders,” said Michael
Vittorio, President & CEO of The
First National Bank of Long Island,
In addition to these accomplishments,
in reaction to the news. “Our Bank
credit quality continues to remain our
remains financially sound, growing in
strength. Unlike some of our mega-bank
a controlled and disciplined way.”
In addition, FLIC raised its quarterly
dividend 20 percent in 2008, and when
compared to competitor Long Island
banks, its stock performance clearly
overshadowed the others, as it was
one of the few to see a continued
upward trend toward the end of the
calendar year, despite the nation’s
economic woes.
competitors
that experienced credit
quality problems, insufficient capital and
liquidity issues, we have no exposure to
the sub-prime mortgages that have caused
these issues in the current market. The
First National Bank of Long Island has
excellent credit quality, a capital level
well beyond that of our peer group and
no liquidity problems. The emphasis
on credit culture and underwriting
quality loans will continue within our
organization. We remain an extremely
strong financial institution and are poised
for future expansion throughout the Long
Island and Manhattan marketplaces.
P
r
o
d
u
c
t
s
&
S
e
r
v
i
c
e
s
9
e
c
i
v
r
e
S
l
a
n
o
s
r
e
P
10
Service quality is what differentiates us from our competitors. Our goal is to build long-term
customer relationships with affluent businesses and consumers by providing superior service
that is not available from the large mega banks. We have established a relationship-based culture
in the Bank that has helped us build a loyal and growing customer base. We understand that
personal and business banking is relationship driven, and our branches have been structured
to avoid the rigid systems found at larger banks. Branches are staffed with highly skilled and
experienced bankers, and clients are given access to executive decision makers, a rarity at large
financial institutions. The First National Bank of Long Island is a customer-focused financial
institution, which is why we are the Bank “Where Everyone Knows Your Name.™”
saLLyanne k. baLL weg, senior executive Vice President, bernard esqUenet, chief executive
officer, the ruhof corporation and James P. Johnis, senior Vice President, commercial banking
L
o
o
k
i
n
g
A
h
e
a
d
l ooK InG aHe aD
As
a
growing
community banking
organization, we continue to transform to
a more market-savvy banking organization
that is focused on enhancing its earnings
performance for shareholders. In addition to
our existing community banking philosophy,
which includes a strong management team,
the drivers for our success looking ahead in
the future include:
Further branch growth in our operating
footprint.
Additional hiring and an expanded employee
base. Although the economy is experiencing
one of the worst recessions in recent years,
we continued to grow and prosper in 2008,
in part by hiring more experienced banking
professionals. Unlike so many other banks
and companies, we did not have to resort to
draconian expense measures because our
growth was disciplined and balanced. We
plan to continue this positive trend in 2009.
Adding more innovative products and services.
Expanding the emphasis of our financial-
services plan by offering customers
products such as annuities, mutual
funds and life insurance.
Continued loan growth. We are lending
money and are in a strong position to
continue doing so.
11
t
n
e
m
e
v
l
o
v
n
I
y
t
i
n
u
m
m
o
C
12
the first nationaL bank of Long isLand proudly supports Long island cares, inc. and the harry chapin food bank
tHe fI Rst natIonal banK of lonG IslanD
Participated in the
by the New York State Society of Certified Public
Accountants (NYSSCPA) – Suffolk Chapter.
Toys for Tots Campaign, conducted
Supported Long Island Cares, Inc. and The Harry Chapin
Food Bank by collecting 682 pounds of food in our
branches to help feed Long Island families.
Team members raised more than $4,000 as part of the
Making Strides Against Breast Cancer Walk at Jones
Beach in October 2008!
Team members raised more than $3,000 for the
March of Dimes WalkAmerica Event!
cynthia barry, Partner, sheehan & company, cPa Pc, John reiLLy,
Vice President, commercial Lending, Jane reed, Vice President, commercial
banking, the first national bank of Long island and Lisa martineLLi-
bowman, cPa, Partner, owen Peterson & co., LLP and President of nysscPas
suffolk chapter
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 I N 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 subsidiaries wholly-owned by the Bank, either directly or indirectly, The First of Long Island Agency, Inc.,
FNY Service Corp., and 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 is Nassau
and Suffolk Counties, Long Island. However, the Bank has three commercial banking branches in Manhattan and may
open additional Manhattan branches in the future.
Overview
Overview – 2008 Versus 2007. Earnings per share increased by 17.9%, or $.27 per share, from $1.51 in 2007 to $1.78
this year. Net income increased by $1,480,000 from $11,482,000 in 2007 to $12,962,000 this year. Returns on average
assets (“ROA”) and equity (“ROE”) were 1.10% and 12.87%, respectively, in 2008 as compared to 1.14% and 11.67% in
2007. The improvement in ROE is attributable to increased earnings and share repurchases made pursuant to the
Corporation’s share repurchase program.
Earnings increased in 2008 largely because of loan growth. From year-end 2007 to year-end 2008 total loans grew by
$132.6 million, or 25.2%. Commercial mortgages were up $103.5 million, or 61.0%, traditional residential mortgage
loans were up $21.7 million, or 11.1%, and home equity loans were up $18.1 million, or 22.1%. The loan growth resulted
from management’s continued efforts to improve the Bank’s current and future earnings prospects by making loans a
larger portion of the overall balance sheet. The growth was partially funded by a $31.3 million increase in deposits, with
the balance being funded by an increase in overnight borrowings.
Also contributing to the increase in earnings was a borrowing and investing strategy undertaken in the latter part of
2007 and continued in 2008. This strategy, which accounts for $127 million of the borrowings under repurchase
agreements at December 31, 2008, is primarily responsible for the increase in investment securities of $81.9 million when
comparing year-end 2008 to 2007. The borrowings were undertaken to increase current earnings and, for those
borrowings with embedded interest rate caps (“caps”), protect the Bank’s future earnings in the event of an increase in
interest rates.
A decline in interest rates in 2008 is yet another important factor that contributed to the increase in earnings. Earnings
increased because the Bank’s interest-bearing deposits are generally shorter in duration than its interest-earning assets and
therefore reprice faster in a changing rate environment. In addition, short-term interest rates, which are the primary driver
of the rates paid by the Bank on its deposit products, declined more than intermediate and longer-term interest rates,
which are the primary drivers of the yields available to the Bank on the repricing and origination of loans and purchase of
securities.
The Corporation continued its share repurchase program in 2008. Under the program, the Corporation purchased
296,479 shares, representing 4.0% of total shares outstanding at the beginning of the year. This compares to 180,800
shares purchased in 2007, or 2.4% of total shares outstanding at the start of the year. The share repurchase program has
historically enhanced earnings per share and return on average stockholders’ equity. The program is estimated to have
contributed four cents more to earnings per share in 2008 than 2007. The larger contribution to earnings per share this
year is attributable to the full-year impact of the shares purchased in 2007 plus the pro rata impact of the shares purchased
throughout 2008.
The positive impact on earnings of loan growth, the borrowing and investing strategy, the decline in interest rates and
the share repurchase program was partially offset by an increase in noninterest expense of $2.3 million and a loss of the
tax benefit associated with the Corporation’s REIT entity of approximately $600,000. The major components of the
increase in noninterest expense are a $458,000 increase in FDIC deposit insurance expense, a $460,000 increase in
retirement plan expense, and personnel costs and other expenses of branch expansion. The loss of the REIT tax benefit
resulted from a change in New York State tax law effective January 1, 2008. In response to the law change, the
ownership of the REIT entity within the consolidated group was changed in December 2008 to once again obtain
favorable tax treatment. The ownership change combined with the simultaneous implementation of other tax planning
strategies should reduce 2009 income taxes by approximately $800,000.
2 0 0 8 an nUaL rePo r t
13
The credit quality of the Bank’s loan portfolio continues to be excellent as evidenced by the low level of
nonperforming loans. The Bank has not originated nor does it hold any subprime mortgages in its loan portfolio. In
addition, all of the Bank’s mortgage securities are backed by mortgages underwritten on conventional terms. The U.S.
government guarantees the timely payment of principal and interest on most of the securities and underlying mortgages.
Fannie Mae and Freddie Mac guarantee the remainder. Fannie Mae and Freddie Mac have been placed into
conservatorship by their primary regulator, the Federal Housing Finance Agency who also acts as conservator. In
conjunction with the conservatorship, the U.S. Department of the Treasury entered into Preferred Stock Purchase
Agreements with Fannie Mae and Freddie Mac to ensure that each of these entities maintains positive net worth and
established new borrowing facilities for these entities intended to serve as an ultimate liquidity backstop. The Preferred
Stock Purchase Agreements and borrowing facilities serve to protect the existing and future holders of Fannie Mae and
Freddie Mac mortgage securities and other debt instruments.
Total stockholders’ equity before accumulated other comprehensive income or loss grew by $3,449,000 in 2008,
despite the amount spent for share repurchases and a 13.8% increase in cash dividends. The Bank’s capital ratios continue
to substantially exceed the current regulatory criteria for a well-capitalized bank.
The Bank opened a full service branch in Northport Village, Long Island in late 2007. In early 2008, the Bank opened
a full service branch in Babylon, Long Island, consolidated its Mineola branch with its Garden City branch, and converted
the Garden City branch from a commercial banking office to a full service branch. In early 2009, The Bank opened a
commercial banking office in Port Jefferson Station, Long Island. During the remainder of 2009, the Bank expects to
open a full service branch in Bayville, Long Island and relocate its Valley Stream commercial banking office to premises
purchased by the Bank in January 2009 and convert it to a full service branch. Continued branch expansion in key
markets on Long Island and in Manhattan remains a key strategic initiative.
Looking forward into 2009, the Bank’s earnings could be challenged by low interest rates and strong competition for
deposits in its market area. Making loans and purchasing securities in a low rate environment could cause the overall
yield on the Bank’s loan and securities portfolios to decline. Competition for deposits could exert upward pressure on
deposit cost and make core deposit growth challenging. The Bank’s earnings could also be challenged by an increased
level of loan losses caused by the upward trend in unemployment levels and downward trend in real estate values
experienced in 2008 and thus far in 2009. Other challenges in 2009 will include significant increases in pension expense
and FDIC insurance cost. Pension expense will increase by approximately $1,025,000 because of a significant decline
during 2008 in the value of pension plan assets. Management currently estimates that FDIC insurance cost could increase
by approximately $2,800,000 as a result of recent bank failures.
Overview – 2007 Versus 2006. In 2007, the Corporation earned $1.51 per share versus $1.45 in the prior year. Net
income increased by $255,000, or from $11,227,000 in 2006 to $11,482,000 in 2007. ROA and ROE were 1.14% and
11.67%, respectively, in 2007 as compared to 1.15% and 12.06% in 2006. In addition the Corporation declared a 2-for-1
stock split in the first quarter of 2007 and changed from a semi-annual to a quarterly cash dividend.
Earnings increased in 2007 largely because of loan growth. From year-end 2006 to year-end 2007 total loans grew by
$76.1 million, or 16.9%. The loan categories with the most significant growth were commercial mortgages which were
up $31.4 million, or 22.7%, traditional residential mortgage loans which were up $21.2 million, or 12.2%, and home
equity loans which were up by $14.9 million, or 22.3%. Credit quality was excellent at December 31, 2007 as measured
by the year-end ratio of nonaccruing loans to total loans of .05%.
In 2007, the Bank continued to use maturities and paydowns from its investment securities portfolio to fund loan
growth. As a result, loans became an increasingly larger portion of the Bank’s overall balance sheet. This, along with a
better yielding securities portfolio and deposit cost controls, enabled the Bank to maintain its net interest margin in 2007
despite the unfavorable interest rate environment and the strong competition for loans and deposits in its market area.
Contributing to the better securities portfolio yield was the loss program conducted in the fourth quarter of 2006 and an
improvement in yields available for reinvestment during 2007.
Salaries expense increased in 2007 by $1.1 million, or 8.5%. In addition to normal annual salary adjustments, the
increase in salaries expense was due to staffing for lending and business development initiatives and new branches and an
increase in stock-based compensation expense. Employee benefits expense declined by $695,000 in 2007, or 14.8%,
principally because of changes to the Bank’s retirement program.
The Corporation continued its share repurchase program in 2007. Under the program, the Corporation purchased
180,800 shares, representing 2.4% of total shares outstanding at the beginning of 2007. This compares to 131,010 shares
purchased in 2006, or 1.7% of total shares outstanding at the start of that year. The program is estimated to have
contributed two cents more to earnings per share in 2007 than 2006. The larger contribution to earnings per share in 2007
14 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
is attributable to the full-year impact of the shares purchased in 2006 plus the pro rata impact of the shares purchased
throughout 2007.
Total stockholders’ equity before accumulated other comprehensive income or loss grew by $4,659,000 in 2007,
despite the amount spent for share repurchases and a 16% increase in cash dividends. The Bank’s capital ratios continue
to substantially exceed the current regulatory criteria for a well-capitalized bank.
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.
Assets:
Federal funds sold and overnight
investments ..................................
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 .................................
Total interest-bearing deposits .......
Short-term borrowings ....................
Long-term debt ...............................
Total interest-bearing liabilities .......
Checking deposits ..........................
Other liabilities ................................
Stockholders' equity ........................
Net interest income (1) ...................
Net interest spread (1) ....................
Net interest margin (1) …................
2008
2007
2006
Average
Balance
Interest/
Dividends
Average
Rate
Average
Balance
Interest/
Dividends
Average
Rate
Average
Balance
Interest/
Dividends
Average
Rate
(dollars in thousands)
$
19,362
$
480
2.48%
$
30,166
$
1,505
4.99%
$
17,866
$
882
4.94%
13,529
9,639
31,632
56,305
4.68
6.59
6.59
5.96
18,857
9,373
34,193
62,903
4.88
6.55
5.97
5.61
386,404
143,121
572,356
1,121,243
(4,947)
1,116,296
32,524
11,587
21,248
289,040
146,341
480,166
945,713
(4,167)
941,546
32,672
9,374
19,648
14,536
9,520
27,303
52,241
4.23
6.61
6.52
5.65
344,012
143,918
418,746
924,542
(3,609)
920,933
29,252
8,149
18,898
$
1,181,655
$
1,003,240
$
977,232
$
364,974
236,820
601,794
48,379
108,896
759,069
317,696
4,180
1,080,945
100,710
$
1,181,655
4,576
6,782
11,358
746
4,639
16,743
1.25
2.86
1.89
1.54
4.26
2.21
$
320,539
220,196
540,735
20,856
11,849
573,440
327,686
3,712
904,838
98,402
4,768
10,081
14,849
896
524
16,269
1.49
4.58
2.75
4.30
4.42
2.84
$
362,339
158,622
520,961
37,989
-
558,950
321,438
3,780
884,168
93,064
4,629
6,575
11,204
1,745
-
12,949
1.28
4.15
2.15
4.59
-
2.32
$
1,003,240
$
977,232
$
46,160
$
40,036
$
39,292
3.40%
4.12%
3.12%
4.23%
3.33%
4.25%
(1)
(2)
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%.
For the purpose of these computations, nonaccruing loans are included in the daily average loan amounts outstanding.
2 0 0 8 an nUaL rePo r t
15
Rate/Volume Analysis. The following table sets forth the effect of changes in volumes, rates, and rate/volume on tax-
ivalent interest income, interest expense and net interest income.
equ
Year Ended December 31,
2008 versus 2007
Increase (decrease) due to changes in:
Net
Rate/
2007 versus 2006
Increase (decrease) due to changes in:
Net
Rate/
Volume
Rate
Volume (1) Change
Volume
Rate
Volume (1) Change
(in thousands)
$
(539)
$
(757)
$
271
$
(1,025)
$
607
$
9
$
7
$
623
4,557
(212)
6,073
9,879
577
(55)
(2,947)
(3,182)
194
1
(565)
(99)
5,328
(266)
2,561
6,598
(2,323)
160
4,005
2,449
1,566
(41)
283
1,817
661
761
1,182
4,292
6,896
(749)
(3,775)
(574)
(19)
(5,117)
(104)
(285)
(758)
(158)
(1,305)
(192)
(3,299)
(150)
4,115
474
(534)
2,552
(243)
-
1,775
761
687
(96)
-
1,352
(250)
-
41
(202)
(88)
267
(510)
524
193
(1,007)
119
4,329
4,064
139
3,506
(849)
524
3,320
$
2,983
$
1,935
$
1,206
$
6,124
$
674
$
465
$
(395)
$
744
Interest Income:
Federal funds sold and overnight investments......
Investment securities:
Taxable …............................................................
Nontaxable …......................................................
Loans.....................................................................
Total interest income..............................................
Interest Expense:
Savings and money
market deposits ...................................................
Time deposits ........................................................
Short-term borrowings ..........................................
Long-term debt ......................................................
Total interest expense ...........................................
Increase (decrease) in net
interest income.....................................................
(1)
Represents the change not solely attributable to change in rate or change i
rate/volume variance could be allocated between the volume and rate va
each to the total for both.
n volume but a combination of these two factors. The
riances shown in the table based on the absolute value of
N
et Interest Income – 2008 Versus 2007
Net interest income on
a tax-equivalent basis increased by $6,124,000, or from $40,036,000 in 2007 to $46,160,000
he increase in net interest income was growth in the Bank’s loan portfolio. On
y $92.2 million in 2008, or 19.2%. A majority of the growth in average loan
nces was funded by an increase of $61.1 million in average interest bearing deposits and the remainder was funded by
this year. The most significant reason for t
an average balance basis, total loans grew b
bala
an increase in average borrowings.
Also contributing to the increase in net interest income was a borrowing and investing strategy undertaken in the latter
part of 2007 and continued in 2008. This strategy, which accounts for $127 million of the borrowings under repurchase
is primarily responsible for an increase in average borrowings under repurchase
agreements at December 31, 2008,
agreements of $98.7 million and the increase in average taxable investment securities of $97.4 million when comparing
2008 to 2007. Of the total borrowings under this strategy, $75 million have embedded interest rate caps with a notional
amount of $120 million. The borrowings without caps were undertaken to increase current earnings by taking advantage
of the spread between borrowing and investing rates for similar duration instruments. The borrowings with caps also
added to earnings, but to a lesser extent because they include the cost of the caps, and were primarily undertaken to
protect the Bank’s future earnings in the event of an increase in interest rates.
A decline in interest rates in 2008 is yet another important factor that contributed to the increase in net interest
income. Net interest income increased because the Bank’s interest-bearing deposit liabilities are generally shorter in
duration than its interest-earning assets and therefore reprice faster in a chan
ging rate environment. In addition, short-
term interest rates, which are the primary driver of the rates paid by the Bank on its deposit products, declined more than
intermediate and longer-term interest rates, which are the primary drivers of the yields available to the Bank on the
repricing and origination of loans and purchase of securities. When comparing 2008 to 2007, the overall yield on interest-
earning assets declined by 35 basis points while the overall cost of deposits decreased by 86 basis points.
16 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
The investment securities purchased with borrowed funds had a higher overall yield than the Bank’s existing
securities portfolio. This is the primary reason that the yield on the Bank’s taxable securities portfolio increased by 20
basis points when comparing 2008 to 2007.
Although net interest spread increased by 28 basis points in 2008, net interest margin declined by 11 basis points. The
decline in net interest margin occurred largely
because the margin on the borrowing and investing strategy is less than the
margin on the balance of the Bank’s interest-earning assets and interest-bearing liabilities. In addition, the return on
noninterest-bearing checking balances and capital decreased due to the lower yield on interest-earning assets. Excluding
the borrowing and investing strategy, net interest margin for 2008 would have increased versus 2007 and the increase in
net interest spread would have been greater.
Competition for deposits in the Bank’s market area could continue to exert downward pressure on net interest margin
branch openings should cause the Bank’s overall cost of deposits to trend
and net interest spread. Furthermore, new
upw
ard because new branches will have a competitively priced deposit base rather than a base consisting of a mix of
historically and competitively priced deposits as found in the Bank’s established branches. 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.
Net Interest Income – 2007 Versus 2006
Net interest income on a tax-equivalent basis increased by $744,0
00, or from $39,292,000 in 2006 to $40,036,000 in
growth in net interest income was that management used proceeds from the
2007. The most significant reason for the
mat
urity and paydown of taxable securities to fund loan growth and thereby moved money from a lower to a higher
yielding asset category. In 2007, average total loan balances grew by $61.4 million, or 14.7%, and represented 50.8% of
average interest earning assets compared to 45.3% in 2006.
iel
In 2007, the yield on interest-earning assets increased by 31 basis points. Important reasons for the increase were the
ields better than those currently in portfolio, and the better
shift from securities to loans, the purchase of securities at y
y
ds realized on securities purchased as part of the portfolio restructuring conducted late in 2006. The higher overall
yield on interest-earning assets resulted in an increase in net interest income on those interest-earning assets funded by
checking deposits and capital, since checking deposits and capital have no associated interest cost. Although checking
balances decreased by approximately $3.2 million when comparing year-end 2007 to year-end 2006, on an average
balance basis checking deposits were up by $6.2 million, or 1.9%, in 2007 versus 2006. Although competition in the
Bank’s market area and higher interest rates have caused the rate of growth in checking deposits to trend down in recent
years, a significant portion of the Bank’s interest-earning assets continues to be funded by such deposits.
As a partial offset to the increase in net interest income realized on interest-earning assets funded by checking
decrease in net
deposits and capital, the Bank’s net interest spread declined by 21 basis points in 2007 thus causing a
inte
rest income on those interest-earning assets funded by interest-bearing liabilities. Net interest spread declined in the
presence of a yield curve characterized by short-term interest rates that were approximately the same or higher than
intermediate and longer-term interest rates. This negatively impacted the Bank’s net interest spread because short-term
interest rates are a key driver of the Bank’s deposit rates and intermediate and longer-term interest rates are key drivers of
the yields that can be earned by the Bank on loans and securities. Net interest spread was also negatively impacted by
increased competition for loans and deposits in the Bank’s market area which put upward pressure on deposit pricing,
downward pressure on loan pricing and made core deposit growth challenging. With upward pressure on deposit pricing,
funds migrated from the Bank’s lower yielding savings and money market products to its higher priced savings and
money market products and competitively priced time deposits. This accounts for the downward trend in savings and
money market balances and upward trend in time deposits experienced in recent years.
Noninterest Income, Noninterest Expense, and Income Taxes
Noninterest income includes service charges on deposit accounts, Investment Mana
gement Division income, gains or
han interest, resulting from the business activities of the
losses on sales of securities, and all other items of income, other t
Cor
poration. Noninterest income increased by $699,000, or 12.5%, from $5,582,000 in 2007 to $6,281,000 in 2008. The
increase is principally due to a $482,000 increase in net gains on sales of available-for-sale securities, a $198,000 increase
in other noninterest income and a $102,000 increase in service charge income. The increase in other noninterest income is
primarily attributable to small increases in miscellaneous consumer fees. Service charge income increased as a result of
an increase in maintenance and activity charges.
2 0 0 8 an nUaL rePo r t
17
Excluding net losses on sales of securities, noninterest income decreased by $117,000, or 2.0%, from $5,933,000 in
2006 to $5,816,000 in 2007. The decrease is primarily due to a decrease in service charge income of $179,000 largely
caused by reductions in maintenance and activity and returned check charges.
Noninterest expense is comprised of salaries, employee benefits, occupancy and equipment expense and other
operating expenses incurred in supporting the various business activities of the Corporation. Noninterest expense was
$29,689,000 and $27,384,000 in 2008 and 2007, respectively, representing increases over prior year amounts of
$2,305,000, or 8.4%, and $717,000, or 2.7%.
The increase in noninterest expense for 2008 is comprised of increases in other operating expenses of $730,000, or
13.7%, employee benefits expense of $608,000, or 15.2%, occupancy and equipment expense of $567,000, or 12.8%, and
salaries of $400,000, or 2.9%. The increase in other operating expenses is largely attributable to a $458,000 increase in
FDIC deposit insurance expense. Based on the FDIC’s base assessment rates for 2009 and a recently adopted emergency
special assessment of 20 basis points on deposits as of June 30, 2009, the Bank currently estimates that its FDIC insurance
expense will increase by approximately $2,800,000 in 2009. The increase in employee benefits expense is largely the
result of an increase in retirement plan expense. Based primarily on the poor performance of the equity markets in 2008,
pension expense will increase by approximately $1,025,000 in 2009. Occupancy and equipment expense increased
primarily due to branch openings and branch expansion. The increase in salaries expense is due to normal annual salary
adjustments, additions to staff related to branch expansion, and severance payments, as largely offset by staff reductions
accomplished through attrition.
The increase in noninterest expense for 2007 is largely comprised of an increase in salaries of $1,074,000, or 8.5%,
and an increase in occupancy and equipment expense of $379,000, or 9.4%, as partially offset by a decrease in employee
benefits of $695,000, or 14.8%. In addition to normal salary adjustments, the increase in salaries expense principally
resulted from an increase in lending and business development staff, staffing for new branches, and an increase in stock-
based compensation expense. A significant reason for the increase in stock-based compensation expense is additional
equity awards in 2007 as well as the timing and terms of such equity awards. The increase in occupancy and equipment
expense is largely attributable to the opening of the Smithtown branch in the fourth quarter of 2006 and investments in
new technology. Significant reasons for the decrease in employee benefits expense are the discontinuation of profit
sharing contributions beginning in 2007 and a reduction in the number of SERP plan participants in 2007.
Income tax expense as a percentage of book income (“effective tax rate”) was 26.3% in 2008, 20.1% in 2007 and
19.9% in 2006. Despite state income taxes, the benefit of tax-exempt income causes the effective tax rate to be
considerably lower than the statutory Federal income tax rate of 34%. The increase in the effective tax rate in 2008 is the
result of the Corporation losing the tax benefit derived from its REIT entity and tax-exempt income now representing a
smaller percentage of income before income taxes. The loss of the REIT tax benefit resulted from a change in New York
State tax law effective January 1, 2008. In December 2008, the ownership of the REIT entity within the consolidated
group was changed to once again obtain favorable tax treatment. This change, combined with the implementation of other
tax planning strategies, should reduce 2009 taxes by approximately $800,000.
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 officers. 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 incurred 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
18 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
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
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:
Nonaccrual loans ….....................................................................................................
Loans past due 90 days or more and still accruing …..................................................
Foreclosed real estate ..................................................................................................
Total nonperforming assets ........................................................................................
Troubled debt restructurings ….....................................................................................
Total risk elements .....................................................................................................
112
42
-
154
-
154
257
95
-
352
-
352
135
50
-
185
-
185
$
$
$
$
2008
2007
December 31,
2006
(dollars in thousands)
2005
$
$
$
$
2004
-
$
18
-
18
-
18
$
151
-
-
151
-
151
Nonaccrual 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 .................................................................................................
.02%
.05%
.03%
.04%
.00%
.02%
.07%
.04%
.04%
.01%
.02%
.07%
.04%
.04%
.01%
Gross interest income on nonaccrual loans:
Amount that would have been recorded during the year under original terms ...........
Actual amount recorded during the year ....................................................................
$
10
-
$
13
10
$
12
-
9
$
4
-
$
-
Commitments for additional funds - Nonaccrual, restructured, past due loans ............
None
None
None
None
None
2008
2007
Year Ended December 31,
2005
2006
(in thousands)
2004
2 0 0 8 an nUaL rePo r t
19
Allowance and Provision for Loan Losses
The allowance for loan losses grew by $1,623,000 during 2008, amounting to $6,076,000, or .92% of total loans, at
December 31, 2008 as compared to $4,453,000, or .85% of total loans, at December 31, 2007. During 2008, the Bank had
loan chargeoffs and recoveries of $325,000 and $3,000, respectively, and recorded a $1,945,000 provision for loan losses.
The provision for loan losses increased by $1,370,000 in 2008 primarily because of more loan growth in 2008, a $275,000
chargeoff on one commercial loan, the establishment of a $200,000 impairment reserve on another commercial loan, and a
deterioration in local economic conditions. The chargeoff and establishment of the impairment reserve occurred in the
fourth quarter.
The allowance for loan losses is an amount that management currently believes will be adequate to absorb probable
incurred losses 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 those 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 ...............................
Other …............................................................
Recoveries of loans charged off:
Commercial and industrial ...............................
Other …............................................................
Net (chargeoffs) recoveries ...............................
Provision for loan losses …................................
Balance, end of year …......................................
Ratio of net chargeoffs or recoveries
to average loans outstanding ……...................
2008
2007
Year ended December 31,
2006
(dollars in thousands)
2005
2004
$
4,453
$
3,891
$
3,282
$
2,808
$
2,452
275
50
325
-
3
3
(322)
1,945
6,076
$
-
14
14
-
1
1
(13)
575
4,453
$
65
11
76
-
15
15
(61)
670
3,891
$
-
25
25
-
29
29
4
470
3,282
$
12
33
45
7
38
45
-
356
2,808
$
.06%
.00%
.01%
.00%
.00%
The following table sets forth the allocation of the Bank’s total allowance for loan losses by loan type.
Amount
Amount
Amount
Amount
2008
2007
2005
2004
December 31,
2006
% of
Loans
To Total
Amount
Loans
(dollars in thousands)
833
1,464
914
497
89
94
3,891
12.3%
30.7
38.7
14.9
2.2
1.2
100.0%
% of
Loans
To Total
Loans
11.7%
32.3
37.1
15.8
2.2
.9
100.0%
874
1,785
1,026
551
116
101
4,453
% of
Loans
To Total
Loans
8.1%
41.5
32.9
15.5
1.4
.6
100.0%
% of
Loans
To Total
Loans
12.4%
28.3
42.0
14.0
1.9
1.4
100.0%
% of
Loans
To Total
Loans
15.1%
25.9
44.0
12.0
1.4
1.6
100.0%
789
865
790
226
45
93
2,808
827
1,095
843
348
71
98
3,282
$
$
$
$
$
$
$
$
$
$
Commercial and industrial .....
Commercial mortgages .........
Residential mortgages ...........
Home equity loans .................
Construction loans .................
Other .....................................
933
3,011
1,227
706
100
99
6,076
The amount of future chargeoffs and provisions for loan losses will be affected by, among other things, economic
conditions on Long Island and in New York City. Such conditions could affect the financial strength of the Bank’s
borrowers and will affect the value of real estate collateral securing the Bank’s mortgage loans. Loans secured by real
estate represent approximately 91% of the Bank’s total loans outstanding at December 31, 2008. Most of these loans were
made to borrowers domiciled on Long Island and in New York City. Although local economic conditions had been good
20 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
and real estate values had grown considerably over a number of years, over the last year or so residential real estate values
on Long Island declined and economic conditions deteriorated. The decline and deterioration could continue, and
commercial real estate values could also decline. This could cause some of the Bank’s borrowers to be unable to make
the required contractual payments on their loans and the Bank to be unable to realize the full carrying value of such loans
through foreclosure. However, management believes that the Bank’s underwriting policies are relatively conservative
and, as a result, the Bank should be less affected than the overall market.
Future provisions and chargeoffs could also be affected by environmental impairment of properties securing the
Bank’s mortgage loans. At the present time, management is not aware of any environmental pollution originating on or
near properties securing the Bank’s loans that would materially affect the carrying value of such loans.
Off-Balance Sheet Arrangements and Contractual Obligations
The Corporation’s off-balance sheet arrangements and contractual obligations at December 31, 2008 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 amounts shown for securities sold under repurchas
e
agreements are based on the contractual maturities of such agreements and include scheduled principal and interest
ments. The interest payments do not reflect any offset that the Bank could get from interest rate caps embedded in the
pay
agreements. Some of these repurchase agreements can be terminated by the purchaser prior to contractual maturity (see
Note F to the Corporation’s 2008 consolidated financial statements for more detailed disclosures regarding repurchase
agreements). The Corporation believes that its current sources of liquidity are more than sufficient to fulfill the
obligations it has at December 31, 2008 pursuant to off-balance sheet arrangements and contractual obligations.
Amount of Commitment Expiration Per Period
Total
Amounts
Committed
One
Year
or Less
Over
One Year
Through
Three Years
(in thousands)
Over
Three Years
Through
Five Years
Over
Five
Years
Commitments to extend credit ...........................................................
Standby letters of credit .....................................................................
Commercial letters of credit ...............................................................
Securities sold under repurchase agreements - Long-term ...............
rating lease obligations ...............................................................
Ope
Purchase obligations ..........................................................................
Time Deposits ....................................................................................
$
$
$
$
$
116,653
3,641
-
157,97
0
8,974
1,687
192,152
481,077
48,291
3,641
-
5,478
1,181
348
167,834
226,773
14,392
-
-
22,682
2,245
697
10,513
50,529
8,890
-
-
67,592
1,794
642
13,600
92,518
45,080
-
-
62,218
3,754
-
205
111,257
$
$
$
$
$
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 co
ntractual
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 ten 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, 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
2 0 0 8 an nUaL rePo r t
21
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 shown in the preceding table are pursuant to contracts that the Bank has with providers of
data processing services. Required pension plan contributions for years beyond 2009 are not presently known and are
therefore not included in the table. For the Plan year ending September 30, 2009, the Bank has a minimum required
pension contribution of $1,119,000 and a maximum tax deductible contribution of $8,765,000. The Bank expects to make
a contribution within that range by September 30, 2009, but the amount of such contribution has not yet been determined.
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 Bank’s total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage capital ratios of
17.27%, 16.29% and 8.03%, respectivel
y, at December 31, 2008 substantially exceed the requirements for a well-
capitalized bank. The Corporation (on a consolidated basis) is subject to minimum risk-based and leverage capital
requirements, which the Corporation substantially exceeds as of December 31, 2008.
Total stockholders' equity increased slightly from $102,384,000 at December 31, 2007 to $102,532,000 at December
31, 2008. The positive impact on stockholders’ equity of net income, unrealized gains on available-for-sale securities, and
stock-based compensation transactions was almost entirely offset by stock repurchases, cash dividends declared, and a
decrease in the funded status of the Bank’s pension plan.
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. Under
plans approved by the Board of Directors in 2007 and 2008, the Corporation purchased 296,479 shares in 2008 and can
purchase 114,011 shares in the future. The details of the Corporation’s purchases under the stock repurchase program
during the fourth quarter of 2008 are set forth in the table that follows.
Period
October 1, 2008 to October 31, 2008............................
November 1, 2008 to November 30, 2008.....................
December 1, 2008 t
o December 31, 2008.....................
Total
Number of
Shares
Purchased
-
2,500
200
Average
Price Paid
Per Share
-
$21.40
$22.08
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs (1)
-
2,500
200
Maximum Number of
of Shares that May Yet
Be Purchased Under the
Plans or Programs (1)
116,711
114,211
114,011
(1) All shares purchased by the Corporation under its stock repurchase program in the fourth quarter of 2008 were purchased under a
200,000 share plan approved by the Corporation’s Board of Directors on February 21, 2008 and publicly announced on February
22, 2008. 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’
he program is estimated to have contributed four cents more to earnings per share in 2008 than 2007. The larger
equity. T
con
tribution to earnings per share this year is attributable to the full-year impact of the shares purchased in 2007 plus the
pro rata impact of the shares purchased throughout 2008, 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 the safe harbor provisions of 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
7 was 979,245 and 615,795 shares,
publicly reported trading volume in the Corporation’s common stock in 2008 and 200
resp
ectively. Open market purchases by the Corporation under its share repurchase program accounted for 14.6% of the
trading volume in 2008 and 12.2% in 2007.
22 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
Russell Microcap Index. Frank Russell Company (“Russell”) maintains a family of U.S. equity indices. The indices
are reconstituted in June of each year based on market capitalization and do not reflect subjective opinions. All indices
are subsets of the Russell 3000E Index, which represents most of the investable U. S. equity market.
The Corporation’s common stock is included in the Russell Microcap Index. When reconstituted in June 2008, the
average market capitalization of companies in the Russell Microcap Index was $310 million, the median market
capitalization was $169 million, the capitalization of the largest company in the index was $617 million, and the
. The Corporation’s market capitalization as of
capitalization of the smallest company in the index was $37 million
December 31, 2008 was approximately $171 million.
The strong performance of the Corporation’s stock over the last year relative to the overall market should result in its
stock being included in the Russell 3000 and 2000 Indexes when they are reconstituted in June 2009. The Corporation
believes that migration of its stock from the Russell Microcap to the Russell 3000 and 2000 Indexes could improve the
stock’s price, trading volume and liquidity. Conversely, if the Corporation’s market capitalization falls below the
minimum necessary to be included in the Russell 3000 and 2000 Indexes or the Russell Microcap Index at any future
reconstitution date, the opposite could occur.
Performance Graph. The following graph compares the Corporation's total stockholder return over a 5-year
measurement period with the NASDAQ Market Index and the NASDAQ Bank Stocks Index.
$200
$160
$120
$80
$40
$0
1/1/04
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
The First of Long Island
NASDAQ Market Index
NASDAQ Bank Stocks
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
THE FIRST OF LO
NG ISLAND CORPORATION,
NASDAQ BANK STOCKS INDEX AND NASDAQ MARKET INDEX
Assumes $100 Invested on January 1, 2004
Assumes Dividends Reinvested
Fiscal Year Ended December 31, 2008
Cash Flows and Liquidity
Cash Flows. The Corporation’s primary sources of cash are depo
sit growth, maturities and amortization of loans and
investment securities, operations, and borrowing. The Corporation uses cash from these and other sources to fund loan
growth, purchase investment securities, pay cash dividends, and repurchase common stock under the Corporation’s share
repurchase program. During 2008, the cash needed to grow loans significantly exceeded the cash provided by deposit
growth and operations. This is the main reason for the increase in Federal Home Loan Bank advances. Savings and
money market products increased during the year, driven partially by new branch openings and the migration of funds
2 0 0 8 an nUaL rePo r t
23
time deposit accounts. As further discussed below, the increase in securities sold under repurchase agreements is
from
primarily a result of the Corporation’s borrowing and investing strategy.
In 2008, the Bank continued to use maturities and paydowns from its investment securities portfolio to fund loan
growth. Despite this, the securities portfolio grew by almost $82 million from year-end 2007 to year-end 2008. The
growth occurred because the Bank continued with the leveraging program that began in the latter part of 2007, whereby it
borrowed an additional $47 million under repurchase agreements and used the resulting proceeds to purchase securities.
The leveraging program was undertaken to increase current earnings and also protect the Bank’s future earnings in the
event of an increase in interest rates. $75 million of the borrowings have embedded interest rate caps. The purpose of
borrowing with embedded interest rate caps is to potentially reduce the negative impact on the Bank’s net interest income
that could occur with an increase in interest rates. Additional information regarding the Bank’s sensitivity to changes in
interest rates can be found under the caption “Market Risk” in this discussion and analysis of financial condition and
results of operations. Additional information regarding the borrowings under repurchase agreements and embedded
interest rate caps can be found in Note F to the Corporation’s consolidated financial statements.
The Corporation paid $4,575,000 in cash dividends in 2008, which is $767,000 less than the $5,342,000 paid in 2007.
The decrease is primarily due to the change from a semi-annual to a quarterly dividend in 2007 and the resulting payment
in 2007 of one semi-annual and three quarterly dividends.
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 investments,
investment securities designated as available-for-sale, and maturities and monthly payments on its investment securities
and loan portfolios. At December 31, 2008, the Bank had approximately $93 million in unencumbered available-for-sale
securities.
The Bank is a member of the Federal Home Loan Bank of New York (“FHLB”) and has repurchase agreements in
place with a number of brokerage firms and commercial banks. In addition to customer deposits, the Bank’s primary
external sources of liquidity are secured borrowings in the form of FHLB advances and repurchase agreements. However,
n the part of the FHLB or
neither the Bank’s FHLB m
embership nor repurchase agreements represent legal commitments o
y borrow from
repurchase agreement coun
terpartie
s to extend credit to the Bank. The amount that the
these parties is currently d
le securities that the Bank
ependent on, among other things, the amount of unencumbered eligib
can use as collateral. At December 31,
ies of approximately $183 million that
2008, the Bank had unencumbered securit
securities, $35 million are eligible collateral
are eligible collateral for borrowing under rep
urchase agreements. Of these
reasing its liquidity by obtaining FHLB
for FHLB borrowings. In addition, the B
ank is currently working towards inc
approval to pledge its residen
tial and commercial mortgages as collateral for borrowings.
Bank can potentiall
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 $25 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 which is currently
between 25 and 50 basis points above the federal funds target rate, is viewed by the FRB as a backup source of short-term
the Bank can borrow under the primary credit
funds for sound depository institutions like the Bank. The amount that
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
24 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
incr
eases in market interest rates and/or owns interest rate caps that are in-the-money at the time of the interest rate
increase or become in-the-money as a result of the increase, the magnitude of the negative impact will decline and the
impact could even 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
her yields, the impact of an increase in interest rates should be positive. This occurs primarily because with
loans at hig
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. Furthermore, if the Bank owns interest rate floors that are in-the-money at the time of the
interest rate decrease or become in-the-money as a result of the decrease, the magnitude of the positive impact should
increase. 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, regardless of whether or not it owns interest rate floors, the magnitude of the
positive impact will decline and could even be negative.
as a result, the Bank purchases
If interest rates decline, or have declined, and are sustained at the lower levels and,
secu
rities at lower yields and loans are originated or repriced at lower yields, the impact on net interest income should be
negative because a significant portion 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 repricing 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 asset
s and interest-bearing liabilities by
d and then computing the difference, or gap, between the assets and liabilities which are estimated to
rice during each time period and cumulatively through the end of each time period.
repricing perio s
rep
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
change 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
igned to the same repricing period will reprice at the same time and in the same
unt. Like sensitivity modeling, gap analysis does not fully take into account the fact that the repricing of some assets
and assumes that assets and liabilities ass
amo
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 repricing gap at December 31, 2008 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
ons about factors that are inherently uncertain. These factors include, among others, prepayment speeds, changes
assumpti
in m
arket interest rates and the Bank’s response thereto, early withdrawal of deposits, and competition. The balances of
non-maturity deposit products have been included in categories beyond three months in the table because management
believes, based on past experience and its knowledge of current competitive pressures, that the repricing of these products
will lag market changes in interest rates to varying degrees. The table does not reflect any protection against interest rate
changes that the Corporation may have as a result of its ownership of derivative instruments such as interest rate caps or
floors. The only such instruments that the Corporation owns at December 31, 2008 are the interest rate caps disclosed in
Note F to the Corporation’s December 31, 2008 consolida
ted financial statements.
2 0 0 8 an nUaL rePo r t
25
Over
Three
Months
Through
Six Months
Over
Six
Months
Through
One Year
Three
Months
or Less
Repricing Period
Over
One Year
Through
Five
Years
Total
Within
One Year
(in thousands)
Over
Five
Years
Non-
interest-
Sensitive
Total
$
514
30,014
172,449
-
202,977
$
-
33,884
29,941
-
63,825
-
$
77,036
59,881
-
136,917
$
514
140,934
262,271
-
403,719
$
-
258,835
313,899
-
572,734
$
-
143,057
81,088
-
224,145
$
-
5,427
(5,200)
60,784
61,011
$
514
548,253
652,058
60,784
1,261,609
-
287,772
110,706
28,105
124,122
-
-
550,705
(347,728)
$
-
8,069
7,717
11,593
-
-
-
27,379
36,446
$
-
16,137
5,330
4,382
-
-
-
25,849
111,068
$
-
311,978
123,753
44,080
124,122
-
-
603,933
(200,214)
$
-
72,069
10,197
13,917
72,000
-
-
168,183
404,551
$
-
-
100
105
55,000
-
-
55,205
168,940
$
324,138
-
-
-
-
7,618
102,532
434,288
77)
(373,2
$
324,138
384,047
134,050
58,102
251,122
7,618
102,532
1,261,609
$
-
$
(347,728)
$
(311,282)
$
(200,214)
$
(200,214)
$
204,337
$
373,277
$
-
$
-
Assets:
Federal funds sold &
overnight
investments...............................
Investment securities ......................
Loans ..............................................
O
ther assets …................................
Liabilities & Stockholders' Equity:
Checking deposits ….......................
Savings & money market deposits ..
Ti
me deposits, $100,000 and over...
Time deposits, other …....................
Borrowed funds................................
Other liabilities ….............................
St
ockholders' equity …....................
Interest-rate sensitivity gap ................
Cum
sensitivity gap ...................................
ulative interest-rate
As shown in the preceding table, the Bank has a significant volume of deposit accounts and borrowings that are
subject to repricing as short-term interest rates change. Since the amount of these liabilities 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. The interest rate caps owned by the Bank at December 31, 2008 may help
to reduce the negative impact. In addition, the Bank can reduce the magnitude of the negative impact by not increasing
the rates paid on its 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 and the Bank cannot, due to
competitive pressures and/or the absolute level of rates, decrease its deposit 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 and the impact could even be negative.
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,
2008 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, 2009 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, 2008 and net interest income on a tax-equivalent basis for the year ending December 31, 2009 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 eight 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.
26 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
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, the positive impact of a decrease in interest rates of 100 or 200 basis points is currently
reduced by the fact that some of the Bank’s deposit products have yields below 1% while others have yields below 2%.
Net Portfolio Value at
December 31, 2008
Net Interest Income
for 2009
Rate Change Scenario
Amount
Percent
Change
From
Base Case
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 ...............................................
$
83,957
88,054
92,426
97,111
104,289
(9.2)%
(4.7)
-
5.1
12.8
$
44,493
48,365
52,310
56,037
57,163
(14.9)%
(7.5)
-
7.1
9.3
L
egislation and Regulatory Matters
Enacted Legislation. In the latter part of 2008, two major pieces of legislation (the “Legislation”) impacting the
financial services industry were enacted; the Housing and Economic Recovery Act of 2008 and the Emergency Economic
Stabilization Act of 2008. This Legislation was enacted to address the subprime mortgage crisis and in response to capital
adequacy, asset quality, management, liquidity, earnings and sensitivity to market risk problems being experienced by a
large number of financial institutions. It contains broad changes that impact, either directly or indirectly, the Bank’s
business operations. The significant changes brought about by this Legislation include, among others, the following:
• The placing of Fannie Mae and Freddie Mac into conservatorship by their primary regulator, the Federal Housing
Finance Agency;
• A temporary increase through December 31, 2009 in FDIC insurance coverage from $100,000 to $250,000;
• A temporary guarantee by the FDIC th
rough December 31, 2009 of all transaction account balances, without
limitation, which is in addition to and separate from the $250,000 insurance limit under the FDIC’s general
deposit insurance regulations. Transaction accounts include traditional checking accounts and funds swept from
such accounts to another noninterest-bearing deposit account, NOW accounts paying less than .5% interest, and
Interest on Lawyer Accounts;
• A guarantee by the FDIC of the senior unsecured debt of financial institutions issued through June 30, 2009. The
guarantee expires upon maturity of the debt or June 30, 2012, whichever is earlier;
• A provision that allows the Federal Reserve Bank to pay interest to banks on sterile reserves beginning October 1,
2008, three years earlier than previously permitted;
• The creation of the $700 billion Troubled Asset Relief Program (“TARP”) within the U.S. Treasury Department
to purchase troubled assets from any financial institution through December 31, 2009;
• As part of the TARP, the $250 billion Capital Purchase Program that enables financial institutions to raise capital
by selling senior preferred shares to the federal government.
2 0 0 8 an nUaL rePo r t
27
Financial institutions may opt out of the FDIC’s unlimited guarantee of transaction account balances and the FDIC’s
guarantee of senior unsecured debt. In addition, raising capital by selling senior preferred shares to the federal
government is voluntary on the part of banks. The Bank did not opt out of the FDIC’s transaction account and senior
unsecured debt guarantees and, based on the Bank’s strong capital position, chose not to participate in the Capital
Purchase Program. In addition, the Bank has no assets in its loan or securities portfolios that it would consider selling to
the Treasury Department under the TARP.
In February 2009, the American Recovery and Reinvestment Act of 2009 (the “Act”) became law. Otherwise known
as the Stimulus Plan, the Act is a $787 billion package of spending, tax cuts and tax credits that’s designed to help pull the
nation out of the significant current downturn. The provisions of the Act are intended to have significant positive impact
on the economy and could significantly impact the Bank’s business on a near and longer-term basis. Also in February
2009, the FDIC took two actions designed to allow the Deposit Insurance Fund to withstand the existing problems in the
banking industry. The first was the imposition of an emergency special assessment of 20 basis points on deposits of
insured banks and savings associations as of June 30, 2009. The second was adoption of previously proposed changes to
its risk-based assessment system. These changes considered, the Bank currently estimates that its FDIC insurance cost
will increase by approximately $2,800,000 in 2009.
Pending Legislation. Commercial checking deposits currently account for approximately 27% 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.
Examination. The Bank was examined by the Office of the Comptroller of the Currency as of September 30, 2008.
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.
Impact of Not Yet Effective Authoritative Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007) “Business Combinations” (“SFAS No. 141(R)”),
which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements t
he
identifiable assets acquired, liabilities a
ssumed, and any noncontrolling interest in an acquiree, including the recognition
and measurement of goodwill acquir
ed in a business combination. SFAS No. 141(R) is effective for fiscal years
beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this standard is not expected to
materially affect the Corporation’s results of operations or financial position.
In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interest in Consolidated Financial Statements, an
amendment of ARB No. 51” (“SFAS No. 160”), which will change the accounting and reporting for minority interests.
Under SFAS No. 160, minority interests will be recharacterized as noncontrolling interests and classified as a component
of equity within the consolidated balance sheets. SFAS No. 160 is effective as of the beginning of the first fiscal
year
inn ng on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this standard is not expected to
beg
i
materia
ration’s results of operations or financial position.
lly affect the Corpo
In March 2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activi
ties –
am ndment of SFAS No. 133” (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about an entity’s
ve and hedging activities and thereby improves the transparency of financial reporting. SFAS No. 161 is effective
ncial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of
dard is not expected to materially affect the Corporation’s results of operations or financial position.
an
e
derivati
for fina
this stan
In May 2008, the FASB issued SFAS No. 162 “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS
1
”). This Statement identifies the sources of accounting principles and the framework for selecting the principles
No. 62
e used in the preparation of financial statements of nongovernmental entities that are presented in conformity with
to b
ra ly accepted accounting principles (“GAAP”) in the United States. This Statement will be effective 60 days
gene l
ow g the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411. The
foll
in
adop o
ti n of SFAS No. 162 is not expected to impact the Corporation’s consolidated financial statements.
28 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
On February 20, 2008, the FASB issued FSP FAS 140-3 “Accounting for Transfers of Financial Assets and
urchase Financing Transactions” (“FSP 140-3”) to resolve questions about the accounting for repurchase financings.
Rep
This FSP is effective for repurchase financings in which the initial transfer is entered into in fiscal years beginning after
November 15, 2008. The adoption of FSP 140-3 on January 1, 2009 had no impact on the Corporation’s consolidated
financial statements.
On April 25, 2008, the FASB issued FSP FAS 142-3 “Determination of the Useful Life of Intangible Assets” (“FSP
entity should consider in developing renewal or extension assumptions used
142-3”), which amends the list of factors an
in d
etermining the useful life of recognized intangible assets under SFAS No. 142 “Goodwill and Other Intangible
Assets.” FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after
December 15, 2008. The adoption of FSP 142-3 on January 1, 2009 did not impact the Corporation’s consolidated
financial statements.
On May 9, 2008, the FASB issued FSP APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled
in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP 14-1”). FSP 14-1 is effective for financial
statements issued for fiscal years and interim periods beginning after December 15, 2008. The adoption of FSP 14-1 on
January 1, 2009 had no impact on the Corporation’s consolidated financial statements.
On June 16, 2008, the FASB issued FSP EITF 03-6-1 “Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities” (“FSP 03-6-1”). The FSP addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the
earnings allocation in computing earnings per share under the two-class method described in paragraphs 60 and 61 of
SFAS No. 128, Earnings per Share. FSP 03-6-1 is effective for financial statements issued for fiscal years and int
erim
peri
ods beginning after December 15, 2008. The adoption of FSP 03-6-1 on January 1, 2009 had no impact on the
Corporation’s consolidated financial statements.
Forward Looking Statements
d Results of Operations” contains various
“Management’s Discussion and Analysis of Financial Condition an
ness matters. Such statements are generally
forward-looking statements with respect to financial performance and busi
con
tained 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.
2 0 0 8 an nUaL rePo r t
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 .....................................................................................................
Federal funds sold and overnight investments......................................................................
Cash and cash equivalents .................................................................................................
$
20,924,000
514,000
21,438,000
$
25,729,000
21,768,000
47,497,000
December 31,
2008
2007
Investment securities:
Held-to-maturity, at amortized cost (fair
value of $172,640,000 and $193,890,000).................................................................
Available-for-sale, at fair value (amortized cost
of $373,346,000 and $270,325,000) ...........................................................................
Loans:
Commercial and industrial..............................................................................................
Secured by real estate:
Commercial mortgages.............................................................................................
Residential mortgages..............................................................................................
Home equity loans....................................................................................................
Construction loans....................................................................................................
Other ..............................................................................................................................
Net deferred loan origination costs ................................................................................
Allowance for loan losses ..............................................................................................
Federal Home Loan Bank stock, at cost................................................................................
Bank premises and equipment, net.......................................................................................
Deferred income tax benefits ................................................................................................
Bank-owned life insurance.....................................................................................................
Other assets..........................................................................................................................
Liabilities:
Deposits:
Checking.........................................................................................................................
Savings and money market............................................................................................
Time, $100,000 and over ...............................................................................................
Time, other .....................................................................................................................
Short-term borrowings...........................................................................................................
Long-term debt......................................................................................................................
Accrued expenses and other liabilities..................................................................................
Current income taxes payable...............................................................................................
Deferred income taxes payable.............................................................................................
Commitments and Contingent Liabilities (Note M)
Stockholders' Equity:
Common stock, par value $.10 per share:
Authorized, 20,000,000 shares;
Issued and outstanding, 7,194,747 and 7,454,385 shares................................................
Surplus ..................................................................................................................................
Retained earnings .................................................................................................................
Accumulated other comprehensive income (loss) net of tax ................................................
See notes to consolidated financial statements
30 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
169,480,000
378,773,000
548,253,000
53,555,000
273,097,000
216,654,000
99,953,000
9,175,000
3,761,000
656,195,000
1,939,000
658,134,000
(6,076,000)
652,058,000
6,199,000
12,593,000
1,638,000
11,650,000
7,780,000
1,261,609,000
$
$
324,138,000
384,047,000
134,050,000
58,102,000
900,337,000
124,122,000
127,000,000
7,543,000
75,000
-
1,159,077,000
193,234,000
273,080,000
466,314,000
61,317,000
169,621,000
194,926,000
81,846,000
11,751,000
4,893,000
524,354,000
1,185,000
525,539,000
(4,453,000)
521,086,000
1,184,000
10,922,000
-
11,158,000
10,858,000
1,069,019,000
$
$
318,322,000
302,158,000
197,554,000
51,004,000
869,038,000
12,110,000
80,000,000
4,686,000
37,000
764,000
966,635,000
719,000
1,354,000
102,061,000
104,134,000
(1,602,000)
102,532,000
1,261,609,000
$
745,000
96,000
99,844,000
100,685,000
1,699,000
102,384,000
1,069,019,000
$
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 and dividend income:
Loans.........................................................................................................
Investment securities:
Taxable..................................................................................................
Nontaxable ............................................................................................
Federal funds sold and overnight investments..........................................
Interest expense:
Savings and money market deposits ........................................................
Time deposits …........................................................................................
Short-term borrowings...............................................................................
Long-term debt..........................................................................................
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 available-for-sale securities.......................
Other..........................................................................................................
Noninterest expense:
Salaries .....................................................................................................
Employee benefits ....................................................................................
Occupancy and equipment expense ........................................................
Other operating expenses ........................................................................
2008
Year Ended December 31,
2007
2006
$
34,163,000
$
31,627,000
$
27,299,000
18,857,000
6,186,000
480,000
59,686,000
4,576,000
6,782,000
746,000
4,639,000
16,743,000
42,943,000
1,945,000
40,998,000
1,703,000
2,985,000
248,000
1,345,000
6,281,000
14,037,000
4,599,000
4,987,000
6,066,000
29,689,000
13,529,000
6,362,000
1,505,000
53,023,000
4,768,000
10,081,000
896,000
524,000
16,269,000
36,754,000
575,000
36,179,000
1,786,000
2,883,000
(234,000)
1,147,000
5,582,000
13,637,000
3,991,000
4,420,000
5,336,000
27,384,000
14,536,000
6,283,000
882,000
49,000,000
4,629,000
6,575,000
1,745,000
-
12,949,000
36,051,000
670,000
35,381,000
1,728,000
3,062,000
(635,000)
1,143,000
5,298,000
12,563,000
4,686,000
4,041,000
5,377,000
26,667,000
Income before income taxes..................................................................
Income tax expense …..................................................................................
Net Income...........................................................................................
17,590,000
4,628,000
12,962,000
$
14,377,000
2,895,000
11,482,000
$
14,012,000
2,785,000
11,227,000
$
Weighted average:
Common shares …....................................................................................
Dilutive stock options and restricted stock units........................................
Earnings per share:
Basic..........................................................................................................
Diluted .......................................................................................................
Cash dividends declared per share
See notes to consolidated financial statements
7,225,530
69,012
7,294,542
$1.79
$1.78
$.66
7,553,495
73,740
7,627,235
$1.52
$1.51
$.58
7,641,424
92,244
7,733,668
$1.47
$1.45
$.50
2 0 0 8 an nUaL rePo r t
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
3,846,716
Amount
385,000
$
Surplus
$
817,000
(67,814)
(7,000)
(2,920,000)
Compre-
hensive
Income
$
11,227,000
Retained
Earnings
89,701,000
11,227,000
$
Balance, January 1, 2006 ....................
Net Income .......................................
Repurchase of common stock ..........
Common stock issued under
stock compensation plans,
including tax benefit ..................
14,673
1,000
418,000
Accumulated
Other
Compre-
hensive
Income (Loss)
$
(205,000)
Total
$
90,698,000
11,227,000
(2,927,000)
419,000
Unrealized gains on available-
for-sale-securities, net of
reclassification adjustment
and taxes ...................................
Comprehensive income ....................
Adjustment to initially apply SFAS
No. 158, net of taxes ....................
Cash dividends declared ..................
Stock-based compensation ..............
Transfer from retained earnings
to surplus ......................................
Balance, December 31, 2006 ...............
Net Income .......................................
Repurchase of common stock ..........
Common stock issued under
stock compensation plans,
including tax benefit ..................
2-for-1 stock split ..............................
Unrealized gains on available-
for-sale-securities, net of
reclassification adjustment
and taxes ...................................
Change in funded status of pension
plan, net of taxes ..........................
Comprehensive income ....................
Cash dividends declared ..................
Stock-based compensation ..............
Transfer from retained earnings
to surplus ......................................
Balance, December 31, 2007 ...............
Net Income .......................................
Repurchase of common stock ..........
Common stock issued under
stock compensation plans,
447,000
11,674,000
$
447,000
447,000
3,793,575
379,000
210,000
2,000,000
525,000
(183,015)
(18,000)
(3,701,000)
$
11,482,000
39,202
3,804,623
4,000
380,000
766,000
(707,000)
(465,000)
(707,000)
(3,806,000)
210,000
95,561,000
11,482,000
(3,719,000)
770,000
(3,806,000)
(2,000,000)
95,122,000
11,482,000
(380,000)
1,419,000
745,000
13,646,000
$
1,419,000
1,419,000
745,000
745,000
7,454,385
745,000
506,000
2,000,000
96,000
(298,322)
(30,000)
(5,734,000)
$
12,962,000
(4,380,000)
(2,000,000)
99,844,000
12,962,000
1,699,000
(4,380,000)
506,000
102,384,000
12,962,000
(5,764,000)
546,000
including tax benefit ..................
38,684
4,000
542,000
Unrealized gains on available-
for-sale-securities, net of
reclassification adjustment
and taxes ...................................
Change in funded status of pension
plan, net of taxes ..........................
Comprehensive income ....................
Cash dividends declared ..................
Stock-based compensation ..............
Transfer from retained earnings
to surplus ......................................
Balance, December 31, 2008 ...............
1,612,000
(4,913,000)
9,661,000
$
1,612,000
1,612,000
(4,913,000)
(4,913,000)
(4,745,000)
450,000
$
(1,602,000)
$
102,532,000
(4,745,000)
(6,000,000)
102,061,000
$
450,000
6,000,000
1,354,000
$
7,194,747
$
719,000
See notes to consolidated financial statements
32 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
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 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 available-for-sale securities............................................
Proceeds from maturities and redemptions of investment securities:
Held-to-maturity …………….............................................................................
Available-for-sale ….........................................................................................
Purchase of investment securities:
2008
Year Ended December 31,
2007
2006
$
12,962,000
$
11,482,000
$
11,227,000
1,945,000
(229,000)
1,831,000
544,000
(248,000)
450,000
(492,000)
-
(2,355,000)
(27,000)
38,000
14,419,000
575,000
-
1,536,000
358,000
234,000
506,000
(449,000)
240,000
(1,159,000)
(17,000)
37,000
13,343,000
670,000
(211,000)
1,363,000
306,000
635,000
210,000
(410,000)
(240,000)
(1,130,000)
90,000
(33,000)
12,477,000
36,993,000
14,578,000
28,048,000
28,410,000
66,569,000
43,537,000
95,708,000
49,257,000
81,996,000
(8,560,000)
(88,798,000)
(69,034,000)
-
(2,475,000)
(2,500,000)
(12,066,000)
Held-to-maturity................................................................................................
Available-for-sale.............................................................................................
Net increase in loans to customers .....................................................................
Net increase in Federal Home Loan Bank stock..................................................
Purchases of bank premises and equipment ......................................................
Purchase of bank-owned life insurance...............................................................
Net cash used in investing activities …….....................................................
(4,637,000)
(206,897,000)
(132,917,000)
(5,015,000)
(3,502,000)
-
(220,996,000)
(18,477,000)
(145,049,000)
(76,087,000)
-
(3,763,000)
-
(89,553,000)
Cash Flows From Financing Activities:
Net increase in total deposits ..............................................................................
Net increase (decrease) in short-term borrowings ..............................................
Proceeds from long-term debt ............................................................................
Proceeds from exercise of stock options ...........................................................
Tax benefit 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.................................................................
31,299,000
112,012,000
47,000,000
525,000
21,000
(5,764,000)
(4,575,000)
180,518,000
(26,059,000)
47,497,000
21,438,000
$
44,241,000
(16,033,000)
80,000,000
694,000
76,000
(3,719,000)
(5,342,000)
99,917,000
23,707,000
23,790,000
47,497,000
$
36,786,000
(32,052,000)
-
402,000
17,000
(2,927,000)
(3,450,000)
(1,224,000)
(813,000)
24,603,000
23,790,000
$
Supplemental Schedule of Noncash Financing Activities:
Cash dividends payable ......................................................................................
$
1,295,000
$
1,125,000
$
2,087,000
The Corporation made interest payments of $17,159,000, $15,590,000, and $12,571,000 and income tax payments of $4,797,000, $2,541,000,
and $3,253,000 in 2008, 2007 and 2006, respectively.
See notes to consolidated financial statements
2 0 0 8 an nUaL rePo r t
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”), and subsidiaries
wholly-owned by the Bank, either directly or indirectly, The First of Long Island Agency, Inc., FNY Service Corp., and
The First of Long Island REIT, Inc. (the “REIT”). 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, revenue and expense amounts, and the disclosure of contingent assets and liabilities. 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 in the United States. 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. 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 and the allowance for loan losses and
plus or minus net deferred loan costs and fees, respectively. Interest on loans is credited to income based on the principal
amount outstanding. Direct loan origination costs, net of loan origination fees, 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, 2008, the Bank had nonaccrual loans of $112,000 and loans past due 90 days or more as to
principal and interest payments and still accruing of $42,000. At December 31, 2007, the Bank had nonaccrual loans of
$257,000 and loans past due 90 days or more as to principal and interest payments and still accruing of $95,000.
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.
34 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
The allowance for loan losses is an amount that management currently believes will be adequate to absorb probable
incurred losses in the Bank’s loan portfolio. The process for estimating credit losses and determining the allowance for
loan losses as of any balance sheet date is subjective in nature and requires material estimates. Actual results could differ
significantly from those estimates. In determining the allowance for loan losses, there is not an exact amount but rather a
range for what constitutes an appropriate allowance.
In estimating losses the Bank reviews individual loans in its portfolio and, for those 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
Land is carried at cost. Other 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 using the straight-line method over their estimated useful lives, which range between three and ten years.
Bank-owned Life Insurance
The Bank is the owner and beneficiary of insurance policies on the lives of certain executives. In accordance with
Financial Accounting Standards Board Emerging Issues Task Force Issue No. 06-5, bank-owned life insurance is recorded
at the lower of its cash surrender value or the amount that can be realized.
Federal Home Loan Bank Stock
The Bank is a member of the Federal Home Loan Bank of New York (“FHLB”) and as such is required to own a
certain amount of stock based on membership and the level of FHLB advances. FHLB stock is carried at cost, classified
as a restricted stock, and periodically evaluated for impairment based on the ultimate recovery of cost. Cash dividends, if
any, are reported as income.
Long-term Assets
Premises and equipment, intangible assets, and other long-term assets, if any, are reviewed for impairment when
events indicate that 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 reserve balances that the Bank is required to maintain with the Federal Reserve
Bank, and thereby increase funds available for investment. Although the sweep accounts are classified as savings
accounts for regulatory purposes, they are included in checking deposits in the accompanying consolidated balance sheets.
Income Taxes
A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current
year. A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary
differences and carryforwards. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax
benefits that, based on available evidence, are not expected to be realized. The measurement of current and deferred tax
liabilities and assets is based on provisions of the enacted tax law. The effects of future changes in tax laws or rates are
not considered. The Corporation recognizes interest and/or penalties related to income tax matters in noninterest income
or noninterest expense as appropriate.
2 0 0 8 an nUaL rePo r t
35
The Corporation adopted FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”)
as of January 1, 2007. FIN No. 48 prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides
guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The adoption of FIN No. 48 had no impact on the Corporation’s consolidated financial statements.
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 reflects the potential
dilution that could occur if outstanding stock options and restricted stock units (“RSUs”) were converted into shares of
common stock that then shared in the earnings of the Corporation. Diluted earnings per share is computed by dividing net
income by the weighted average number of common shares and dilutive stock options and RSUs. There were 275,762,
308,420 and 277,286 antidilutive stock options at December 31, 2008, 2007 and 2006, respectively, and no antidilutive
RSUs. Other than the stock options and RSUs 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 Split. On March 22, 2007, the Corporation announced the declaration of a 2-for-1 stock split which was paid on
April 16, 2007. Where applicable, all share and per share amounts included in the consolidated financial statements and
notes thereto have been adjusted to reflect the effect of the split.
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. At December 31, 2008, and in
accordance with prior approval by its Board of Directors, the Corporation was authorized to purchase 114,011 shares of
stock. 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 1,843 shares in 2008 with a value of $40,000, 2,215 shares in 2007 with a value of $43,000,
and 2,309 shares in 2006 with a value of $100,000.
Stock-based Compensation
The Corporation has a stock-based compensation plan as more fully described in Note J. Compensation cost is
recognized for stock options and RSUs issued to employees, based on the grant date fair value of the award. The cost is
recognized over the period during which an employee is required to provide service in exchange for the award (usually
the vesting period).
36 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
Comprehensive Income
Comprehensive income includes net income and other comprehensive income. 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. Other comprehensive income for the Corporation consists of unrealized holding
gains or losses on available-for-sale securities and changes in the funded status of the Bank’s defined benefit pension plan,
both net of related income taxes, which are also recognized as a separate component of stockholders’ equity.
The components of other comprehensive income (loss) and the related tax effects are as follows:
Unrealized holding gains on available-for-sale securities:
Net unrealized holding gains arising during period .............................................
Reclassification adjustment for (gain) losses included in net income .................
Net unrealized gains on available-for-sale securities .........................................
Tax effect ............................................................................................................
Change in funded status of pension plan:
Net unrealized gain (loss) arising during period .................................................
Amortization of prior service cost included in pension expense .........................
Tax effect ............................................................................................................
2008
2007
(in thousands)
2006
$
2,921
(248)
2,673
1,061
1,612
$
2,118
234
2,352
933
1,419
$
109
635
744
297
447
(8,172)
25
(8,147)
(3,234)
(4,913)
1,220
20
1,240
495
745
-
-
-
-
-
Other comprehensive income (loss) ...........................................................
$
(3,301)
$
2,164
$
447
Embedded Derivative Instruments
The Corporation accounts for embedded derivative instruments under Statement of Financial Accounting Standards
No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”) and related pronouncements.
Accordingly, changes in the fair value of embedded derivative instruments with economic characteristics and risks that are
clearly and closely related to the economic characteristics and risks of the related host contracts are not recognized in
earnings in the period of change. Generally, all other embedded derivative instruments, unless they are embedded in
contracts that are remeasured at fair value with changes in fair value reported in earnings as they occur, are accounted for
as fair value hedges, cash flow hedges, foreign currency hedges or nonhedging instruments under SFAS No. 133 and
related pronouncements.
Fair Values of Financial Instruments
The following methods and assumptions are used by the Corporation in measuring assets and liabilities carried at fair
value in its financial statements and for the fair values of financial instruments disclosed herein.
Cash and cash equivalents. The recorded book value of cash and due from banks is their fair value.
Investment securities. Fair values are based on quoted prices for similar assets in active markets or derived
principally from observable market data.
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.
FHLB stock. The recorded book value of FHLB stock is its 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.
2 0 0 8 an nUaL rePo r t
37
Borrowed funds. For repurchase agreements and FHLB advances maturing within ninety days, the recorded book
value is a reasonable estimate of fair value. The fair values of longer-term repurchase agreements, including those with
embedded derivative instruments, are based on quoted prices for similar instruments in active markets.
Accrued interest receivable and payable. For these short-term instruments, the recorded book value is a reasonable
estimate of fair value.
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 consolidated financial statements. The Investment Management Division records fees on the accrual basis.
Reclassifications
Some items in the prior year financial statements were reclassified to conform to the current presentation.
Adoption of New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standards (“SFAS”) No. 157 “Fair Value Measurements” (“SFAS No. 157”). This statement defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Statement
establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk
and the effect of a restriction on the sale or use of an asset. SFAS No. 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (“FSP”) 157-2,
“Effective Date of SFAS No. 157.” This FSP delays the effective date of SFAS No. 157 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to
fiscal years beginning after November 15, 2008. In October 2008, the FASB issued FSP 157-3, “Determining the Fair
Value of a Financial Asset when the Market for That Asset Is Not Active.” This FSP clarifies the application of SFAS
No. 157 in a market that is not active. The adoption of SFAS No. 157 on January 1, 2008 did not materially impact the
disclosures made in the Corporation’s consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial
Liabilities” (“SFAS No. 159”). SFAS No. 159 provides companies with an option to report selected financial assets and
liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types of assets and liabilities. The
Corporation has not elected the fair value option for any financial assets or financial liabilities.
In September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-4 “Accounting for Deferred
Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (“EITF 06-
4”). This issue requires that a liability be recorded during the service period when a split-dollar life insurance agreement
continues after employment terminates. The required accrued liability will be based on either the post-employment
benefit cost for the continuing life insurance or the future death benefit, depending on the contractual terms of the
underlying agreement. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The adoption of EITF
06-4 on January 1, 2008 had no impact on the Corporation’s consolidated financial statements.
On November 5, 2007, the SEC issued Staff Accounting Bulletin (“SAB”) No. 109, “Written Loan Commitments
Recorded at Fair Value through Earnings” (“SAB 109”). Previously, SAB 105, “Application of Accounting Principles to
Loan Commitments”, stated that in measuring the fair value of a derivative loan commitment, a company should not
incorporate the expected net future cash flows related to the associated servicing of the loan. SAB 109 supersedes SAB
105 and indicates that the expected net future cash flows related to the associated servicing of the loan should be included
in measuring fair value for all written loan commitments that are accounted for at fair value through earnings. SAB 105
also indicated that internally-developed intangible assets should not be recorded as part of the fair value of a derivative
loan commitment, and SAB 109 retains that view. SAB 109 is effective for derivative loan commitments issued or
modified in fiscal quarters beginning after December 15, 2007. The adoption of SAB 109 on January 1, 2008 had no
impact on the Corporation’s consolidated financial statements.
38 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
In December 2007, the SEC issued SAB 110, which expresses the views of the SEC regarding the use of a “simplified”
method, as discussed in SAB 107, in developing an estimate of expected term of “plain vanilla” share options in
accordance with SFAS No. 123(R) “Share-Based Payment.” The SEC concluded that a company could, under certain
circumstances, continue to use the simplified method for share option grants after December 31, 2007. The Company
does not use the simplified method for share options and therefore SAB 110 had no impact on the Company’s
consolidated financial statements.
Impact of Not Yet Effective Authoritative Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007) “Business Combinations” (“SFAS No. 141(R)”),
which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition
and measurement of goodwill acquired in a business combination. SFAS No. 141(R) is effective for fiscal years
beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this standard is not expected to
materially affect the Corporation’s results of operations or financial position.
In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interest in Consolidated Financial Statements, an
amendment of ARB No. 51” (“SFAS No. 160”), which will change the accounting and reporting for minority interests.
Under SFAS No. 160, minority interests will be recharacterized as noncontrolling interests and classified as a component
of equity within the consolidated balance sheets. SFAS No. 160 is effective as of the beginning of the first fiscal year
beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of this standard is not expected to
materially affect the Corporation’s results of operations or financial position.
In March 2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities –
an amendment of SFAS No. 133” (“SFAS No. 161”). SFAS No. 161 requires enhanced disclosures about an entity’s
derivative and hedging activities and thereby improves the transparency of financial reporting. SFAS No. 161 is effective
for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of
this standard is not expected to materially affect the Corporation’s results of operations or financial position.
In May 2008, the FASB issued SFAS No. 162 “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS
No. 162”). This Statement identifies the sources of accounting principles and the framework for selecting the principles
to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with
generally accepted accounting principles (“GAAP”) in the United States. This Statement will be effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411. The
adoption of SFAS No. 162 is not expected to impact the Corporation’s consolidated financial statements.
On February 20, 2008, the FASB issued FSP FAS 140-3 “Accounting for Transfers of Financial Assets and
Repurchase Financing Transactions” (“FSP 140-3”) to resolve questions about the accounting for repurchase financings.
This FSP is effective for repurchase financings in which the initial transfer is entered into in fiscal years beginning after
November 15, 2008. The adoption of FSP 140-3 on January 1, 2009 had no impact on the Corporation’s consolidated
financial statements.
On April 25, 2008, the FASB issued FSP FAS 142-3 “Determination of the Useful Life of Intangible Assets” (“FSP
142-3”), which amends the list of factors an entity should consider in developing renewal or extension assumptions used
in determining the useful life of recognized intangible assets under SFAS No. 142 “Goodwill and Other Intangible
Assets.” FSP 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after
December 15, 2008. The adoption of FSP 142-3 on January 1, 2009 did not impact the Corporation’s consolidated
financial statements.
On May 9, 2008, the FASB issued FSP APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled
in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP 14-1”). FSP 14-1 is effective for financial
statements issued for fiscal years and interim periods beginning after December 15, 2008. The adoption of FSP 14-1 on
January 1, 2009 had no impact on the Corporation’s consolidated financial statements.
On June 16, 2008, the FASB issued FSP EITF 03-6-1 “Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities” (“FSP 03-6-1”). The FSP addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the
earnings allocation in computing earnings per share under the two-class method described in paragraphs 60 and 61 of
SFAS No. 128, Earnings per Share. FSP 03-6-1 is effective for financial statements issued for fiscal years and interim
periods beginning after December 15, 2008. The adoption of FSP 03-6-1 on January 1, 2009 had no impact on the
Corporation’s consolidated financial statements.
2 0 0 8 an nUaL rePo r t
39
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, 2008 and 2007.
Held-to-Maturity Securities:
State and municipals ................................................................
Pass-through mortgage securities ...........................................
Collateralized mortgage obligations .........................................
Available-for-Sale Securities:
U.S. government agencies .......................................................
State and municipals ................................................................
Pass-through mortgage securities ...........................................
Collateralized mortgage obligations .........................................
Held-to-Maturity Securities:
State and municipals ................................................................
Pass-through mortgage securities ...........................................
Collateralized mortgage obligations .........................................
Available-for-Sale Securities:
U.S. Treasury ...........................................................................
U.S. government agencies .......................................................
State and municipals ................................................................
Pass-through mortgage securities ...........................................
Collateralized mortgage obligations .........................................
Amortized
Cost
2008
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair
Value
$
$
$
$
$
$
$
$
$
1,708
447
1,330
3,485
130
2,375
2,324
1,052
5,881
1,327
146
388
1,861
-
$
158
2,070
896
6
3,130
$
(228)
(1)
(96)
(325)
-
$
(359)
(19)
(76)
(454)
$
(130)
(264)
(811)
(1,205)
(2)
(4)
(27)
(339)
(3)
(375)
$
$
$
Amortized
Cost
2007
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Fair
Value
$
$
$
$
$
$
$
$
$
$
$
$
$
66,817
20,802
81,861
169,480
33,555
74,625
122,465
142,701
373,346
67,233
27,119
98,882
193,234
5,058
49,961
74,579
92,492
48,235
270,325
68,297
21,248
83,095
172,640
33,685
76,641
124,770
143,677
378,773
68,430
27,001
98,459
193,890
5,056
50,115
76,622
93,049
48,238
273,080
$
$
$
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”), and 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. FNMA and FHLMC have been
placed into conservatorship by their primary regulator, the Federal Housing Finance Agency (“FHFA”) who also acts as
conservator. In conjunction with the conservatorship, the U.S. Department of the Treasury entered into Preferred Stock
Purchase Agreements with FNMA and FHLMC to ensure that each of these entities maintains positive net worth, and
established new borrowing facilities for these entities intended to serve as an ultimate liquidity backstop. The Preferred
Stock Purchase Agreements and borrowing facilities serve to protect the existing and future holders of FNMA and
FHLMC mortgage securities and other debt instruments.
At December 31, 2008 and 2007, investment securities with a carrying value of $365,134,000 and $178,925,000,
respectively, were pledged as collateral to secure public deposits and borrowed funds.
40 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
Securities With Unrealized Losses. The following table sets forth securities with unrealized losses at December 31,
2008 and 2007 presented by length of time the securities have been in a continuous unrealized loss position.
Less than
12 Months
2008
12 Months
or More
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
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..…........................
$
$
$
$
$
19,839
895
34,391
55,125
(555)
(19)
(75)
(649)
$
(in thousands)
1,769
16
9,337
11,122
$
(32)
(1)
(97)
(130)
21,608
911
43,728
66,247
(587)
(20)
(172)
(779)
$
$
$
$
$
Less than
12 Months
2007
12 Months
or More
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
$
$
$
$
5,056
6,141
6,779
18,660
11,119
47,755
(2)
(4)
(31)
(97)
(154)
(288)
(in thousands)
-
$
-
9,726
18,921
38,024
66,671
$
-
$
-
(126)
(506)
(660)
(1,292)
$
5,056
6,141
16,505
37,581
49,143
114,426
(2)
(4)
(157)
(603)
(814)
(1,580)
$
$
$
$
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:
2008
2007
(in thousands)
2006
Proceeds ...............................................................
$
36,993
$
14,578
$
28,048
Gross gains ...........................................................
Gross losses ..........................................................
Net gains (losses) ..................................................
287
(39)
248
$
17
(251)
(234)
$
-
(635)
(635)
$
The tax benefit (provision) related to these net realized losses and gains was $(98,000), $93,000 and $254,000 in
2008, 2007 and 2006, respectively.
2 0 0 8 an nUaL rePo r t
41
Maturities and Average Yields. The following table sets forth the maturities and weighted average yields of the
Bank’s investment securities at December 31, 2008.
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)
State and municipals (2) …....................
Pass-through mortgage securities ….....
Collateralized mortgage obligations ......
Held-to-Maturity Securities (Fair Value)
State and municipals (2) …....................
Pass-through mortgage securities ….....
Collateralized mortgage obligations ......
$
$
7,845
33
-
7,878
6.71%
5.85
-
6.70%
$
$
16,077
11,547
232
27,856
7.43%
3.84
4.24
5.92%
$
$
22,590
4,036
-
26,626
6.07%
4.71
-
5.86%
$
20,305
5,186
81,629
107,120
$
6.22%
5.36
4.87
5.15%
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)
$
$
7,973
33
-
8,006
6.71%
5.85
-
6.70%
$
$
16,700
11,680
233
28,613
7.43%
3.84
4.24
5.92%
$
$
23,271
4,186
-
27,457
6.07%
4.71
-
5.86%
$
20,353
5,349
82,862
108,564
$
6.22%
5.36
4.87
5.15%
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)
Available-for-Sale Securities (Fair Value)
U.S. government agencies ….................
State and municipals (2) …....................
Pass-through mortgage securities ….....
Collateralized mortgage obligations ......
-
$
6,295
-
-
6,295
$
- %
7.11
-
-
7.11%
-
$
27,434
-
-
27,434
$
- %
7.06
-
-
7.06%
$
$
33,685
17,661
20,470
-
71,816
5.24%
6.78
4.76
-
5.48%
-
$
25,251
104,300
143,677
273,228
$
- %
6.45
5.64
4.56
5.15%
(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.
42 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
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 ....................................................
Other ….................................................................................
Recoveries of loans charged off:
Other ….................................................................................
Net chargeoffs..........................................................................
Provision for loan losses …......................................................
Balance, end of year …...........................................................
Ratio of net chargeoffs
to average loans outstanding …….........................................
2008
Year ended December 31,
2007
(dollars in thousands)
2006
$
4,453
$
3,891
$
3,282
275
50
325
3
3
(322)
1,945
6,076
$
-
14
14
1
1
(13)
575
4,453
$
65
11
76
15
15
(61)
670
3,891
$
.06%
.00%
.01%
The following tables set forth information regarding individually impaired loans.
December 31,
2008
2007
(in thousands)
Impaired loans at year end:
With no allocated allowance for loan losses ........................
With an allocated allowance for loan losses ........................
$
744
1,455
2,199
$
$
397
987
1,384
$
Amount of allocated allowance for loan losses .......................
$
355
$
104
Average of individually impaired loans during year .................
Interest income recognized while impaired .............................
$
1,975
158
2008
Year ended December 31,
2007
(in thousands)
$
1,538
115
2006
$
2,327
180
All interest income recorded by the Corporation during 2008, 2007 and 2006 on loans considered to be impaired was
generally recognized using the accrual method of accounting.
Nonaccrual loans and loans past due 90 days or more and still accruing are as follows:
December 31,
2008
2007
(in thousands)
Nonaccrual loans ...................................................................
Loans past due 90 days or more and still accruing .................
$
$
112
42
154
$
$
257
95
352
Certain directors, including their immediate families and companies in which they are principal owners, and executive
officers were loan customers of the Bank during 2008 and 2007. The aggregate amount of these loans was $2,374,000
and $2,554,000 at December 31, 2008 and 2007, respectively. During 2008, $22,000 of new loans to such persons were
made and repayments totaled $202,000. There were no loans to directors or executive officers which were nonaccruing at
December 31, 2008 or 2007.
2 0 0 8 an nUaL rePo r t
43
NOTE D – PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following:
Land ..................................................................................................................
Buildings and improvements ….........................................................................
Leasehold improvements .................................................................................
Furniture and equipment ..................................................................................
Construction in process.....................................................................................
Accumulated depreciation and amortization .....................................................
December 31,
2008
2007
(in thousands)
$
$
1,650
7,741
4,654
15,265
932
30,242
(17,649)
12,593
1,650
5,439
4,264
13,741
1,646
26,740
(15,818)
10,922
$
$
A building occupied by one of the Bank’s branch offices is leased from a director of the Corporation and the Bank.
The lease expires on October 31, 2012 and provides for annual base rent of $32,983 for the year ending October 31, 2009.
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. The Corporation believes that the foregoing is comparable to the rent that would be
charged by an unrelated third party.
NOTE E – DEPOSITS
The following table sets forth the remaining maturities of the Bank’s time deposits.
Less than
$100,000
Amount
$100,000 or
More
(in thousands)
Total
2009 ...................................................................................
2010 ...................................................................................
2011 ...................................................................................
2012 ...................................................................................
2013 ...................................................................................
Thereafter ...........................................................................
$
$
$
44,080
3,975
2,543
1,522
5,877
105
58,102
123,753
2,061
1,935
1,374
4,827
100
134,050
$
$
$
167,833
6,036
4,478
2,896
10,704
205
192,152
The aggregate amount of deposit account overdrafts included in other loans on the consolidated balance sheet was
$876,000 and $1,546,000 at December 31, 2008 and 2007, respectively.
NOTE F – BORROWED FUNDS
The following table summarizes borrowed funds at December 31, 2008 and 2007.
Short-term borrowings:
Securities sold under repurchase agreements ............................................
Federal Home Loan Bank advances ...........................................................
Long-term debt:
Securities sold under repurchase agreements ............................................
December 31,
2008
2007
(in thousands)
$
18,122
106,000
124,122
127,000
251,122
$
$
12,110
-
12,110
80,000
92,110
$
Accrued interest payable on borrowed funds is included in “accrued expenses and other liabilities” in the
Consolidated Balance Sheets, and amounted to $621,000 and $356,000, respectively, at December 31, 2008 and 2007.
44 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
Securities Sold Under Repurchase Agreements. Securities sold under repurchase agreements are financing
arrangements with contractual maturities between one day and ten years that are collateralized by mortgage-backed
securities. With the exception of those repurchase agreements with embedded interest rate caps as described hereinafter,
securities sold under repurchase agreements have fixed rates of interest. 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.
2008
2007
(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.....................................................
$
$
130,010
3.89%
151,439
3.82%
$
$
31,324
4.32%
99,058
4.34%
The following table summarizes the contractual maturities and weighted average interest rates of securities sold under
repurchase agreements and the amortized cost and fair value, including accrued interest, of the securities collateralizing
the repurchase agreements at December 31, 2008.
Contractual Maturity
Borrowing
Amount
Weighted
Average
Rate
Securities Collateral
Pass-through
Mortgage Securities
Fair
Value
Amortized
Cost
(dollars in thousands)
Collateralized
Mortgage Obligations
Fair
Value
Amortized
Cost
Overnight..........................................
$
18,122
0.81%
$
-
$
-
$
18,652
$
18,905
2011 ................................................
2012 ................................................
2013 ................................................
Thereafter ........................................
12,000
50,000
10,000
55,000
127,000
2.92
4.47
4.19
4.37
4.25
77,660
79,148
70,033
69,178
$
145,122
3.82%
$
77,660
$
79,148
$
88,685
$
88,083
The repurchase agreements maturing in 2012 are callable in 2010, the repurchase agreements maturing in 2013 are
callable in 2011, and the repurchase agreements maturing after 2013 are callable beginning in 2010.
$75 million of the repurchase agreements have embedded interest rate caps with a notional amount of $120 million
and a weighted average LIBOR strike rate of 4.46%. The interest rate on the repurchase agreements will, as a result of the
embedded caps, be reduced on a quarterly basis by the excess, if any, of 3 month LIBOR at the beginning of the quarter
over the strike rate on the cap. However, the interest rate on the repurchase agreements can never go below zero. Since
the economic characteristics and risks of the embedded caps are clearly and closely related to the economic characteristics
and risks of the repurchase agreements, changes in the fair value of the caps are not recognized in earnings in the period of
change.
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. The purpose of the embedded interest rate caps is to potentially reduce the Corporation’s exposure in the event of
an increase in interest rates.
Federal Home Loan Bank Advances. At December 31, 2008, the Bank had $106,000,000 of outstanding FHLB
advances which mature in January 2009 and are collateralized by $111 million of CMOs and pass-through mortgage
securities. The following table sets forth information concerning FHLB advances.
December 31,
2008
2007
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.....................................................
(dollars in thousands)
$
1,381
4.86%
14,000
$
$
$
21,306
.93%
110,000
.44%
N/A
2 0 0 8 an nUaL rePo r t
45
Other Borrowings. The Bank had no other borrowings at December 31, 2008 or 2007. In 2008, the average balance
of other borrowings amounted to $5,959,000 with an average interest rate of 2.22%. The funds were borrowed
predominantly at the Federal Reserve Bank discount window. There were no other borrowing transactions in 2007.
NOTE G – INCOME TAXES
The Corporation, the Bank, and the Bank’s subsidiaries with the exception of the REIT, file a consolidated federal
income tax return. Income taxes charged to earnings in 2008, 2007, and 2006 had effective tax rates of 26.3%, 20.1%,
and 19.9%, 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 …...................................................................................................................
2008
34.0%
5.5
(12.6)
(0.6)
26.3%
Year Ended December 31,
2007
34.0%
1.4
(15.1)
(0.2)
20.1%
2006
34.0%
.8
(15.3)
.4
19.9%
The increase in the effective tax rate in 2008 is the result of the Corporation losing the tax benefit derived from its
REIT entity and tax-exempt income now representing a smaller percentage of income before income taxes. The loss of
the REIT tax benefit resulted from a change in New York State tax law effective January 1, 2008.
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 ................................................................................................
2008
$
3,388
1,469
4,857
(217)
(12)
(229)
4,628
$
Year Ended December 31,
2007
(in thousands)
$
2,607
288
2,895
(9)
9
-
2,895
$
2006
$
2,800
196
2,996
(188)
(23)
(211)
2,785
$
Net Deferred Tax Asset or Liability. The following table sets forth the components of the Bank’s net deferred tax
asset or liability.
Deferred tax assets:
Allowance for loan losses....................................................................................
Pension obligation................................................................................................
Stock-based compensation .................................................................................
Supplemental executive retirement expense.......................................................
Directors' retirement expense .............................................................................
Depreciation .......................................................................................................
Accrued rent expense..........................................................................................
Other....................................................................................................................
Valuation allowance ................................................................................................
Deferred tax liabilities:
Prepaid pension...................................................................................................
Unrealized gains on available-for-sale securities ................................................
Depreciation .......................................................................................................
Net deferred tax asset (liability) ..............................................................................
December 31,
2008
2007
(in thousands)
$
2,041
1,193
423
23
87
-
53
21
3,841
-
3,841
$
1,244
-
255
13
91
21
-
12
1,636
-
1,636
-
2,154
49
2,203
1,638
$
1,306
1,094
-
2,400
(764)
$
46 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
The Corporation is subject to U.S. federal income tax as well as New York State and New York City income taxes.
The Corporation is not subject to examination by taxing authorities for years before 2005 and did not have any amounts
accrued for interest and penalties due taxing authorities at December 31, 2008.
NOTE H – REGULATORY MATTERS
Minimum Regulatory Capital Requirements. The Corporation (on a consolidated basis) and the Bank are subject to
various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional discretionary actions by the regulators that, if
undertaken, could have a direct material effect on the Corporation’s and Bank’s financial statements. Under capital
adequacy guidelines and, with respect to the Bank, the regulatory framework for prompt corrective action, the Corporation
and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to
maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the
regulations) to risk weighted assets (as defined) and of Tier 1 capital to average assets (as defined).
As of December 31, 2008, the most recent notification from the Federal Deposit Insurance Corporation categorized the
Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set
forth in the following table. There are no conditions or events since the notification that management believes have
changed the Bank’s category. The Corporation’s and the Bank’s actual capital amounts and ratios at December 31, 2008
and 2007 are also presented in the table.
Total Capital to Risk Weighted Assets:
Consolidated .....................................................
Bank ..................................................................
Tier 1 Capital to Risk Weighted Assets:
Consolidated .....................................................
Bank ..................................................................
Tier 1 Capital to Average Assets:
Consolidated .....................................................
Bank ..................................................................
Actual Capital
2008
Minimum
Capital
Requirement
(dollars in thousands)
Minimum To Be Well
Capitalized Under Prompt
Corrective Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
109,990
106,748
17.79%
17.27
$
49,470
49,435
8.00%
8.00
N/A
61,794
$
N/A
10.00%
103,914
100,672
103,914
100,672
16.80
16.29
8.29
8.03
Actual Capital
24,735
24,718
50,144
50,127
4.00
4.00
4.00
4.00
2007
Minimum
Capital
Requirement
(dollars in thousands)
N/A
37,076
N/A
62,659
N/A
6.00
N/A
5.00
Minimum To Be Well
Capitalized Under Prompt
Corrective Action Provisions
Total Capital to Risk Weighted Assets:
Consolidated .....................................................
Bank ..................................................................
Tier 1 Capital to Risk Weighted Assets:
Consolidated .....................................................
Bank ..................................................................
Tier 1 Capital to Average Assets:
Consolidated .....................................................
Bank ..................................................................
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
104,918
102,850
20.79%
20.38
$
40,379
40,377
8.00%
8.00
N/A
50,471
$
N/A
10.00%
100,465
98,397
100,465
98,397
19.90
19.50
9.53
9.33
20,189
20,188
42,179
42,171
4.00
4.00
4.00
4.00
N/A
30,283
N/A
52,714
N/A
6.00
N/A
5.00
2 0 0 8 an nUaL rePo r t
47
Other Matters. The Corporation’s principal source of funds for dividend payments is dividends received from the
Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.
Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net
profits, combined with the retained net profits of the preceding two years, subject to the minimum capital requirements
described above. During 2009, the Bank could, without prior approval, declare dividends of approximately $5,872,000
plus any 2009 net profits retained to the date of the dividend declaration.
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 2008 was approximately $9,644,000.
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, 2008, the maximum amount available for
transfer from the Bank to the Corporation in the form of loans approximated $14,894,000.
NOTE I – SHAREHOLDER PROTECTION RIGHTS PLAN
On July 18, 2006, the Board of Directors of the Corporation (the “Board”) unanimously determined to renew the
Corporation’s Shareholder Protection Rights Plan and declared a distribution of one right (“Right”) for each share of the
Corporation’s common stock (the “Common Stock”) outstanding on August 1, 2006.
In the absence of an event of the type described below, the Rights will be evidenced by and trade with the Common
Stock and will not be exercisable. However, the Rights will separate from the Common Stock and become exercisable
following the earlier of (1) the tenth business day, or such later date as the Board may decide, after any person or persons
(collectively referred to as “person”) commences a tender offer that would result in such person holding a total of 20% or
more of the outstanding Common Stock, or (2) ten business days after, or such earlier or later date as the Board may
decide, the announcement by the Corporation that any person has acquired 20% or more of the outstanding Common
Stock.
When separated from the Common Stock, each Right will entitle the holder to purchase one share of Common Stock
for $75 (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 two share-based compensation plans which are described below. The Corporation’s 2006 Stock
Compensation Plan (the “2006 Plan”) was approved by its shareholders on April 18, 2006 as a successor to the 1996
Stock Option and Appreciation Rights Plan (the “1996 Plan”). The 2006 Plan permits the granting of stock options, stock
appreciation rights, restricted stock, and restricted stock units (“RSUs”) to employees and non-employee directors for up
to 600,000 shares of common stock of which 342,950 shares remain available for grant at December 31, 2008. The
number of awards that can be granted under the 2006 Plan to any one person in any one fiscal year is limited to 70,000
shares. Under the terms of the 2006 Plan, stock options and stock appreciation rights can not have an exercise price that is
less than 100% of the fair market value of one share of the underlying common stock on the date of grant. The term
and/or vesting of awards made under the 2006 Plan will be determined from time to time in accordance with rules adopted
by the Corporation’s Compensation Committee and be in compliance with the applicable provisions, if any, of the Internal
Revenue Code. Thus far, the Compensation Committee has used a five year vesting period and a ten year term for stock
options granted under the 2006 Plan and has made the ability to convert RSUs into shares of common stock and the
related conversion ratio contingent upon the financial performance of the Corporation in the third year of the three
calendar year period beginning in the year in which the RSUs were awarded. Notwithstanding anything to the contrary in
any award agreement, awards under the 2006 Plan will become immediately exercisable or will immediately vest, as the
case may be, in the event of a change in control and, in accordance with the terms of the related award agreements, all
awards granted to date under the 2006 Plan will become immediately exercisable or will immediately vest, as applicable,
in the event of retirement, total and permanent disability, or death.
48 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
The Corporation’s 1996 Plan permitted the granting of stock options, with or without stock appreciation rights
attached, and stand alone stock appreciation rights to employees and non-employee directors for up to 1,080,000 shares of
common stock. 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 50,000. 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 is subject to acceleration in the event of a change in control, retirement,
death, disability, and certain other limited circumstances.
Fair Value of Stock Option Awards. The grant date fair value of option awards is estimated on the date of grant using
the Black-Scholes option pricing model. The values of awards made in 2008, 2007 and 2006, as well as the assumptions
utilized in determining such values, are as follows:
Grant date fair value...................................
Expected volatility......................................
Expected dividends....................................
Expected term (in years)............................
Risk-free interest rate.................................
2008
$6.72
45.42%
3.24%
6.82
3.49%
2007
$6.05
25.24%
2.06%
6.70
4.53%
2006
$5.98
25.11%
2.09%
6.70
5.07%
Expected volatility was based on historical volatility for the expected term of the options. The Corporation used
historical data to estimate the expected term of options granted. The risk-free interest rate is the implied yield at the time
of grant on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the options.
Fair Value of Restricted Stock Units. The fair value of restricted stock units is based on the market price of the
shares underlying the awards on the grant date, discounted for dividends which are not paid on restricted stock units.
Compensation Expense. Compensation expense for stock options is recognized ratably over the five-year vesting
period or the period from the grant date to the participant’s eligible retirement date, whichever is shorter. Compensation
expense for RSUs is recognized over the three-year performance period and adjusted periodically throughout the period to
reflect the estimated number of shares of the Corporation’s common stock into which the RSUs will ultimately be
convertible. However, if the period between the grant date and the grantee’s eligible retirement date is less than three
years, compensation expense is recognized ratably over this shorter period. For options outstanding and not yet
exercisable, the Corporation assumes an annual forfeiture rate of 1.26% in determining compensation expense. The
Corporation’s income statement reflects compensation expense for share-based payments of $450,000, $506,000 and
$210,000 in 2008, 2007 and 2006, respectively, and related income tax benefits of $178,000, $200,000 and $68,000,
respectively.
Stock Option Activity. On January 22, 2008, the Corporation’s board of directors granted 78,451 nonqualified stock
options under the 2006 Plan. The options were granted at a price equal to the fair market value of one share of the
Corporation’s stock on the date of grant.
A summary of options outstanding under the Corporation’s stock compensation plans as of December 31, 2008 and
changes during the year then ended is presented below.
Weighted-
Average
Exercise
Price
$
$
$
18.90
18.50
14.07
20.26
19.04
18.61
Number of
Options
516,266
78,451
(37,328)
(57,107)
500,282
345,214
Weighted-
Average
Remaining
Contractual
Term (yrs.)
Aggregate
Intrinsic
Value
(in thousands)
5.84
4.73
$
$
2,364
1,783
Outstanding at January 1, 2008...............
Granted ..................................................
Exercised.................................................
Forfeited or expired................................
Outstanding at December 31, 2008.........
Exercisable at December 31, 2008..........
2 0 0 8 an nUaL rePo r t
49
The total intrinsic value of options exercised in 2008, 2007, and 2006 was $232,000, $371,000 and $233,000,
respectively. The total fair value of options vested during the years ended December 31, 2008, 2007, and 2006 was
$194,000, $251,000 and $102,000, respectively.
Restricted Stock Activity. On January 22, 2008, the Corporation’s Board of Directors granted 24,241 RSUs under the
2006 Plan. The Corporation’s financial performance for 2010 will determine the number of shares of common stock, if
any, into which the RSUs will ultimately be converted. The maximum number of shares that could be issued upon
conversion of the RSUs is reflected as granted shares in the table that follows.
Nonvested at January 1, 2008.......................
Granted..........................................................
Vested............................................................
Forfeited.........................................................
Nonvested at December 31, 2008.................
Weighted-
Average
Grant-Date
Fair Value
21.06
$
16.81
18.99
19.25
19.10
$
Number of
Shares
28,306
24,241
(1,356)
(5,121)
46,070
The total fair value of shares vested during the year ended December 31, 2008 was $26,000. No shares were vested
during the years ended December 31, 2007 or 2006.
Unrecognized Compensation Cost. As of December 31, 2008, there was $899,000 of total unrecognized
compensation cost related to nonvested equity awards. The cost is expected to be recognized over a weighted-average
period of 1.42 years.
Cash Received and Tax Benefits Realized. Cash received from option exercises in 2008, 2007, and 2006 was
$525,000, $694,000 and $402,000, respectively. The actual tax benefit realized for the tax deductions from option
exercises in 2008, 2007, and 2006 was $21,000, $76,000 and $17,000, respectively.
Other. No cash was used to settle stock options in 2008 or 2007. The Corporation uses newly issued shares to settle
stock option exercises and currently plans to use newly issued shares upon the conversion of restricted stock units.
NOTE K – RETIREMENT PLANS
The Bank has a 401(k) plan, defined benefit pension plan and supplemental executive retirement plan. Employees are
eligible to participate in the 401(k) plan 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 matching contributions to each participant's account based on
the amount of the participant's tax deferred contributions. Participants are fully vested in their elective contributions and,
after five years of participation in the 401(k) plan, are fully vested (20% vesting per year) in the matching contributions, if
any, made by the Bank. Matching contributions were $291,000, $279,000, and $179,000 for 2008, 2007, and 2006,
respectively.
The provisions of the Bank’s defined benefit pension plan (the “Pension Plan” or the “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 a table that follows. 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
method, the unit credit actuarial cost method, is consistent with the funding requirements of federal law and regulations.
Employees become fully vested after four years of participation in the Pension Plan (no vesting occurs during the four-
year period).
In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 158 “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88,
106 and 132(R).” This Statement requires that defined benefit plan assets and obligations be measured as of the date of
50 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
the employer’s fiscal year-end, starting in 2008. Through 2007, the Company utilized the early measurement date option
available under FASB Statement No. 87 “Employers’ Accounting for Pensions”, and measured the funded status of the
defined benefit plan assets and obligations as of September 30 each year. The impact of the change was not material.
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........................................................................................................
All Other Assets.......................................................................................................
Percentage of Fair Value
of Total Plan Assets at:
12/31/08
50 %
43
7
100 %
12/31/07
54 %
40
6
100 %
The Retirement System uses two investment management firms, with one firm investing approximately 70% and the
other firm investing approximately 30% of the total portfolio. The Retirement System investment objective is to exceed
the investment benchmark in each asset category. 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
managers’ 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 attributes similar to such fixed income securities.
Net Pension Cost. The following table sets forth the components of net periodic pension cost.
Service cost, net of plan participant contributions ..................................................
Interest cost ............................................................................................................
Expected return on plan assets ..............................................................................
Amortization of prior service cost ...........................................................................
Amortization of net actuarial loss ............................................................................
Net pension cost ..................................................................................................
2008
$
1,014
910
(1,368)
20
-
576
$
2007
(in thousands)
870
$
829
(1,159)
20
-
560
$
2006
$
785
743
(1,001)
20
27
574
$
The estimated prior service costs and net actuarial loss for the defined benefit pension plan that will be amortized
from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $23,000 and
$635,000, respectively.
Significant Actuarial Assumptions. The following tables set forth the significant actuarial assumptions used to
determine the benefit obligations at year-end 2008, 2007 and 2006 and the benefit cost for each of the Plan years then
ended.
Weighted average assumptions used to determine the
benefit obligation at year end
Discount rate ..........................................................................................................
Rate of increase in compensation levels ................................................................
Weighted average assumptions used to determine net pension cost
Discount rate ..........................................................................................................
Rate of increase in compensation levels ................................................................
Expected long-term rate of return on plan assets ...................................................
2008
6.00%
3.50%
2008
5.75%
5.00%
7.00%
2007
5.75%
5.00%
2007
5.75%
5.00%
7.00%
2006
5.75%
5.00%
2006
5.50%
5.00%
7.00%
2 0 0 8 an nUaL rePo r t
51
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
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 and accumulated benefit
obligation.
Change in projected benefit obligation
Projected benefit obligation at beginning of year.....................................................
Service cost before plan participant contributions...................................................
Expenses.................................................................................................................
Interest cost.............................................................................................................
Benefits paid............................................................................................................
Assumption changes...............................................................................................
Experience loss (gain) 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 participant contributions..................................................................................
Benefits paid............................................................................................................
Expenses.................................................................................................................
Fair value of plan assets at end of year..............................................................
2008
2007
(in thousands)
2006
$
16,139
1,551
(183)
1,137
(794)
428
466
18,744
19,864
(5,567)
2,427
283
(794)
(183)
16,030
$
14,727
1,053
(146)
829
(503)
-
179
16,139
16,772
2,558
1,000
183
(503)
(146)
19,864
$
13,794
941
(105)
743
(577)
-
(69)
14,727
14,501
1,710
1,087
156
(577)
(105)
16,772
Funded status at end of year...............................................................................
$
(2,714)
$
3,725
$
2,045
Accumulated Benefit Obligation..........................................................................
$
16,404
$
12,944
$
11,779
The net amount recognized in the balance sheet as of December 31, 2007 differs from the funded status in the above
table due to an accrual of three additional months of pension expense. The Bank has a minimum required contribution to
the Pension Plan for the Plan year ending September 30, 2009 of approximately $1,119,000, and its maximum tax
deductible contribution is approximately $8,765,000. The Bank expects to make a contribution within that range by
September 30, 2009, but the amount of such contribution has not yet been determined.
The net actuarial gain (loss) and prior service cost included in accumulated other comprehensive income as of
December 31 consist of the following:
2008
2007
(in thousands)
Net actuarial gain (loss) ..................................
Prior service cost ............................................
$
$
(7,953)
(132)
(8,085)
$
219
(157)
62
$
Estimated Future Benefit Payments. The following benefit payments, which reflect expected future service, as
appropriate, are expected to be made by the Plan.
Year
2009 ..........................................................................
2010 ..........................................................................
2011 ..........................................................................
2012 ..........................................................................
2013 ..........................................................................
2014-2018 .................................................................
52 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
Amount
(in thousands)
732
$
797
879
991
1,128
7,841
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 401(k)
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 401(k) plans in the absence of such Internal
Revenue Code limitations. SERP expense was $150,000, $72,000, and $113,000 in 2008, 2007, and 2006, respectively.
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 one or more of the years shown are as follows:
2008
Computer services ......................................................
Property and liability insurance ...................................
$1,229
408
NOTE M – COMMITMENTS AND CONTINGENT LIABILITIES
2007
(in thousands)
$1,171
492
2006
$1,102
633
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:
2008
2007
Fixed
Rate
Variable
Rate
Fixed
Rate
Variable
Rate
(in thousands)
Commitments to extend credit ..............................................................
Standby letters of credit ........................................................................
Commercial letters of credit ..................................................................
$
5,348
3,641
-
$
111,305
-
-
$
6,461
5,375
382
$
70,563
-
-
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 the variable rate commitments, generally expire ten 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 30 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, 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 31, 2009. 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, 2008 varied from 0% to 100%, and averaged 45%.
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 credit risk involved in issuing commercial letters of credit is the same as that discussed in the preceding
paragraph for standby letters of credit. The Bank generally obtains personal guarantees supporting these commitments.
There were no commercial letters of credit outstanding as of December 31, 2008.
2 0 0 8 an nUaL rePo r t
53
Concentrations of Credit Risk. Most of the Bank’s loans, personal and commercial, are to borrowers who are
domiciled on Long Island and in New York City, and most of the Bank's real estate loans involve mortgages on Long
Island and New York City properties. In addition, the Bank’s loan portfolio includes a significant concentration of
multifamily loans that amounted to $105,898,000 at December 31, 2008. As a result, the income of many of the Bank’s
borrowers and the value of and cash flows from collateral securing a majority of the Bank’s mortgage loans is largely
dependent on the Long Island and New York City economies.
Lease Commitments. At December 31, 2008, minimum annual rental commitments under noncancelable operating
leases are as follows:
Year
2009 ................................................................................
2010 ................................................................................
2011 ................................................................................
2012 ................................................................................
2013 ................................................................................
Thereafter .......................................................................
Amount
(in thousands)
$
1,181
1,151
1,094
1,063
731
3,754
8,974
$
The Bank has various renewal options on the above leases. Rent expense, including amounts paid for real estate taxes
and common area maintenance, was $1,204,000, $1,006,000, and $896,000 in 2008, 2007, and 2006, respectively.
Employment Contracts. Currently, 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 currently range
from one 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 one and three years. The current aggregate annual salaries provided for in these
contracts is approximately $1,640,000.
NOTE N – FAIR VALUE OF FINANCIAL INSTRUMENTS
Assets and Liabilities Measured at Fair Value. SFAS No. 157 establishes a fair value hierarchy which requires an
entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
SFAS No. 157 describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity has the
ability to access at the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active;
or inputs other than quoted prices that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions
that market participants would use in pricing an asset or liability.
The fair values of the Corporation’s investment securities designated as available-for-sale are currently determined on
a recurring basis using matrix pricing (Level 2 inputs). Matrix pricing, which is a mathematical technique widely used in
the industry to value debt securities, does not rely exclusively on quoted prices for the specific securities but rather on the
securities’ relationship to other benchmark quoted securities.
The fair values of impaired loans with specific allocations of the allowance for loan losses are generally based on real
estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including
comparable sales and the income approach. Adjustments are sometimes made in the appraisal process by the appraisers to
adjust for differences between the comparable sales and income data available.
54 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
Assets and liabilities measured at fair value on a recurring basis are summarized below.
Fair Value Measurements at December 31, 2008 Using:
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Total
Available-for-sale securities ..................................
$378,773
$ -
$378,773
$ -
Assets and liabilities measured at fair value on a nonrecurring basis are summarized below.
Fair Value Measurements at December 31, 2008 Using:
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Total
Impaired loans .......................................................
$1,644
$ -
$900
$744
Impaired loans measured at fair value had a carrying amount of $1,744,000 at December 31, 2008 with a valuation
allowance of $100,000. The amount included for these loans in the 2008 provision for loan losses was $100,000.
Estimated 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, 2008 and
2007.
Financial Assets:
Cash and due from banks ….............................................................
Federal funds sold and overnight investments..................................
Held-to-maturity securities ................................................................
Available-for-sale securities .............................................................
Loans …............................................................................................
Federal Home Loan Bank stock........................................................
Restricted stocks (included in other assets)......................................
Accrued interest receivable ..............................................................
Financial Liabilities:
Checking deposits …........................................................................
Savings and money market deposits ...............................................
Time deposits …...............................................................................
Short-term borrowings.......................................................................
Long-term debt..................................................................................
Accrued interest payable ……...........................................................
Carrying/
Contract
Amount
$
20,924
514
169,480
378,773
652,058
6,199
467
6,156
324,138
384,047
192,152
124,122
127,000
1,051
2008
2007
Fair Value
Carrying/
Contract
Amount
(in thousands)
$
20,924
514
172,640
378,773
655,193
6,199
467
6,156
324,138
384,047
193,330
124,122
142,224
1,051
$
25,729
21,768
193,234
273,080
521,086
1,184
467
5,472
318,322
302,158
248,558
12,110
80,000
1,466
Fair Value
$
25,729
21,768
193,890
273,080
528,482
1,184
467
5,472
318,322
302,158
248,867
12,110
82,537
1,466
2 0 0 8 an nUaL rePo r t
55
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 …................................................................
Prepaid income taxes.................................................................................................
Deferred income tax benefits .....................................................................................
Other assets ..............................................................................................................
December 31,
2008
2007
(in thousands)
$
$
3,975
99,290
137
423
2
103,827
2,775
100,317
160
255
2
103,509
$
$
Liabilities:
Cash dividends payable .............................................................................................
$
1,295
$
1,125
Stockholders' equity:
Common stock ….......................................................................................................
Surplus .......................................................................................................................
Retained earnings ......................................................................................................
Accumulated other comprehensive income (loss) net of tax .....................................
CONDENSED STATEMENTS OF INCOME
Income:
Dividends from subsidiary bank .................................................................................
Interest on deposits with subsidiary bank ..................................................................
Other ..........................................................................................................................
Expenses:
Salaries ......................................................................................................................
Other operating expenses .........................................................................................
Income before income taxes ......................................................................................
Income tax benefit .........................................................................................................
Income before undistributed earnings of
719
1,354
102,061
104,134
(1,602)
102,532
103,827
$
745
96
99,844
100,685
1,699
102,384
103,509
$
2008
$
11,100
43
1
11,144
Year ended December 31,
2007
(in thousands)
$
8,300
118
5
8,423
2006
$
5,590
26
3
5,619
450
278
728
10,416
(272)
506
303
809
7,614
(271)
210
236
446
5,173
(151)
subsidiary bank .......................................................................................................
Equity in undistributed earnings ....................................................................................
Net income …............................................................................................................
10,688
2,274
12,962
$
7,885
3,597
11,482
$
5,324
5,903
11,227
$
56 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
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 ..........................................................
Deferred income tax credit ..................................................................................
Stock-based compensation expense ..................................................................
Decrease (increase) in prepaid income taxes .....................................................
Increase 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 ...................................................................
Tax benefit 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:
2008
$
12,962
Year ended December 31,
2007
(in thousands)
$
11,482
2006
$
11,227
(2,274)
(168)
450
23
-
10,993
(5,764)
525
21
(4,575)
(9,793)
1,200
2,775
3,975
$
(3,597)
(187)
506
(61)
(2)
8,141
(3,719)
694
76
(5,342)
(8,291)
(150)
2,925
2,775
$
(5,903)
(68)
210
196
-
5,662
(2,927)
402
17
(3,450)
(5,958)
(296)
3,221
2,925
$
Cash dividends payable .............................................................................................
$
1,295
$
1,125
$
2,087
*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)
2008
Interest income ...................................................................
Interest expense .................................................................
Net interest income ….........................................................
Provision for loan losses………….......................................
Noninterest income before net securities gains..................
Net gains on sales of securities….......................................
Noninterest expense ….......................................................
Income before income taxes .............................................
Income taxes ......................................................................
Net income ……..................................................................
Earnings per share:
Basic….............................................................................
Diluted .............................................................................
Comprehensive income......................................................
2007
Interest income ...................................................................
Interest expense .................................................................
Net interest income ….........................................................
Provision for loan losses………….......................................
Noninterest income before net securities gains (losses)….
Net gains (losses) on sales of securities….........................
Noninterest expense ….......................................................
Income before income taxes .............................................
Income taxes ......................................................................
Net income ……..................................................................
Earnings per share:
Basic….............................................................................
Diluted .............................................................................
Comprehensive income......................................................
First
Quarter
$
14,161
4,584
9,577
164
1,437
91
7,336
3,605
748
2,857
Second
Quarter
Third
Quarter
(in thousands, except per share data)
$
$
Fourth
Quarter
$
14,662
4,107
10,555
261
1,503
9
7,263
4,543
1,236
3,307
15,061
4,016
11,045
462
1,563
109
7,237
5,018
1,450
3,568
Total
$
59,686
16,743
42,943
1,945
6,033
248
29,689
17,590
4,628
12,962
15,802
4,036
11,766
1,058
1,530
39
7,853
4,424
1,194
3,230
.39
.39
3,775
.46
.45
37
.50
.49
4,539
.45
.44
1,310
1.79
1.78
9,661
$
12,647
3,849
8,798
122
1,442
17
6,921
3,214
586
2,628
$
12,846
3,758
9,088
81
1,461
-
6,912
3,556
716
2,840
$
13,298
4,069
9,229
173
1,454
-
6,792
3,718
742
2,976
$
14,232
4,593
9,639
199
1,459
(251)
6,759
3,889
851
3,038
$
53,023
16,269
36,754
575
5,816
(234)
27,384
14,377
2,895
11,482
.35
.34
2,835
.37
.37
1,470
.40
.39
4,355
.40
.40
4,986
1.52
1.51
13,646
2 0 0 8 an nUaL rePo r t
57
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 and regulatory 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, 2008, 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, 2008, the Corporation’s internal control over financial
reporting is effective. Crowe Horwath LLP, an independent registered public accounting firm, has expressed an opinion
of the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2008 in their report
which appears on page 59.
/s/ MICHAEL N. VITTORIO
Michael N. Vittorio
President & Chief Executive Officer
/s/ MARK D. CURTIS
Mark D. Curtis
Senior Vice President & Treasurer
58 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The First of Long Island Corporation
Glen Head, New York
We have audited the accompanying consolidated balance sheets of The First of Long Island Corporation as of December
31, 2008 and 2007, and the related statements of income, changes in stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 2008. We also have audited The First of Long Island Corporation’s
internal control over financial reporting as of December 31, 2008, 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, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on these consolidated financial statements and an opinion on 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
consolidated financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the consolidated 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, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included 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 consolidated
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In
addition, 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.
In our opinion, the consolidated 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, 2008 and 2007, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America. Also in our opinion, The First of Long Island Corporation
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).
Livingston, New Jersey
February 20, 2009
Crowe Horwath LLP
2 0 0 8 an nUaL rePo r t
59
f
f
a
t
S
l
a
i
c
fi
f
O
&
s
r
e
c
fi
f
O
Officers – The First of Long Island Corporation
Michael n. Vittorio
President & Chief Executive Officer
John Grasso
Senior Vice President
sallyanne K. ballweg
Senior Vice President & Secretary
brian J. Keeney
Senior Vice President
Richard Kick
Senior Vice President
Donald l. Manfredonia
Senior Vice President
Wayne b. Drake
Assistant Treasurer
Kitty W. craig
Chief Auditor
Mark D. curtis
Senior Vice President & Treasurer
Official Staff – The First National Bank of Long Island
aDMInIstRatIon
Michael n. Vittorio
President & Chief Executive Officer
sallyanne K. ballweg
Senior Executive Vice President
aUDItInG
Kitty W. craig
Vice President and Chief Auditor
bRancH aDMInIstRatIon
John Grasso
Executive Vice President
nassaU coUntY ReGIonal offIce
(coMMeRcIal banKInG)
albert arena
Vice President
Dante D. Mancini
Vice President
Jane f. Reed
Vice President
sUffolK coUntY ReGIonal offIce
(coMMeRcIal banKInG)
Margaret M. curran-Rusch
Vice President
stephen Durso
Vice President
Richard b. smith
Vice President
coMMeRcIal lenDInG
Donald l. Manfredonia
Executive Vice President
Paul J. Daley
Senior Vice President
Ivan G. nunez
Vice President
John J. Reilly
Vice President
Kevin J. talty
Vice President
coMPlIance anD PRoceDURes
louis a. antoniello
Vice President
James clavell
Senior Vice President
Richard P. Perro
Senior Vice President
linda cutter
Vice President
coMMeRcIal banKInG
James P. Johnis
Senior Vice President
Janine chaisty
Vice President
Patricia a. DeMasi
Vice President
albert t. Ghelarducci
Vice President
Robert a. Pizza
Vice President
alessandro scichilone
Vice President
coUnsel
schupbach, Williams & Pavone llP
InDePenDent aUDItoRs
crowe Horwath llP
cReDIt DePaRtMent
anne Marie stefanucci
Vice President
Data PRocessInG
Jose Diaz
Vice President
DePosIt oPeRatIons
carmela lalonde
Assistant Cashier
fInance
Mark D. curtis
Executive Vice President
Wayne b. Drake
Senior Vice President
Howard f. Hoeberlein
Senior Vice President
Matthew J. Mankowski
Vice President
GeneRal seRVIces
Daniel sapanara
Vice President
HUMan ResoURces
Debbie l. Ryan
Senior Vice President
susan J. Hempton
Vice President
InfoRMatIon tecHnoloGY
seRVIces
conrad lissade
Assistant Vice President
InVestMent ManaGeMent
DIVIsIon
brian J. Keeney
Executive Vice President
Josephine buckley
Vice President
Jane carmody
Vice President
sharon e. Pazienza
Vice President
loan centeR
Robert b. Jacobs
Vice President
MaRKetInG
laura c. Ierulli
Vice President
oPeRatIons aDMInIstRatIon
Richard Kick
Executive Vice President
betsy Gustafson
Senior Vice President
ResIDentIal MoRtGaGe
frederick t. Hughes
Vice President
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 monday, april 20, 2009 at 3:30 P.m.
annUal RePoRt on foRM 10-K
a copy of the corporation’s annual report on form 10-k for 2008, 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.
60 tHe fI Rs t o f l o nG Is l a nD c oR PoRa tIo n
Howard annenberg
President & ceo
shannen Promotions, inc.
nicola arena
chairman & ceo
mediterranean shipping co.
(Usa), inc.
Richard arote sr.
President
a.d.e. systems, inc./air
distribution enterprises, inc.
beverly J. bell, esq.
humes & wagner, LLP
thomas burke
chief executive officer
ophthalmic consultants of
Long island
emil V. cianciulli, esq.
Partner
cianciulli, meng & Panos, P.c.
Michael DeVivo
Vice President
mrZ trucking corporation
thomas n. Dufek, cPa
President
dufek & associates
bernard esquenet
chief executive officer
the ruhof corp.
Robert Giambalvo, cPa
President
giambalvo, giammarese
& stalzer, cPas, P.c.
Kevin J. Harding, esq.
Partner
harding and harding
Herbert Kotler, esq.
Melvin f. lazar, cPa
founder
Lazar Levine & felix LLP
Wallace leinheardt, esq.
Jaspan schlesinger LLP
linda levy, cPa
tax consultant
James lynch, esq.
John I. Martinelli
Principal
owen Petersen & co., LLP
christopher t. McGrath, esq.
Partner
sullivan, Papain, block,
mcgrath & cannavo, P.c.
susan Hirschfeld Mohr
President
J. w. hirschfeld agency, inc.
James Panos, esq.
Partner
cianciulli, meng & Panos, P.c.
John G. Passarelli, M.D., f.a.a.o.
medical director
Long island eye surgery center
Long island eye surgical
care, P.c.
Jay Pitti
President
merrick house & gardens
stephen Ruchman
ruchman associates
scott sammis
President
Usi sammis, inc.
Melvin schreiber, cPa
moses & schreiber
arthur c. schupbach, esq.
Partner
schupbach, williams &
Pavone, LLP
frank shahery
director of marketing
convermat corporation
owen t. smith
milleridge inn
former chief deputy county
executive, nassau county
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 a. Wilkie, esq.
wilkie & wilkie
Mark Wurzel
President
calico cottage, inc.
B
u
s
i
n
e
s
s
A
d
v
i
s
o
r
y
B
o
a
r
d
61
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-eight 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.
Long i sL a nd (5 1 6 ) 6 7 1- 49 0 0
ma n hat ta n (2 1 2) 5 6 6 -1 50 0
www.f nb l i. c om