balance + momentum
2010annual report table of contents
2-3
PRESIDENT & CEO MESSAGE
4
5
6
7
BOARD OF DIRECTORS & EXECUTIVE OFFICERS
FINANCIAL STRENGTH
LOAN GROWTH & ASSET QUALITY
BRANCH EXPANSION
8-9
NEW BRANCHES
10-11 BRANCH LOCATION MAP
12
13
14
DISASTER RECOVERY CENTER
COMMUNITY OUTREACH
SELECTED FINANCIAL DATA
15-65 FINANCIALS
66
67
OFFICERS & OFFICIAL STAFF
BUSINESS ADVISORY BOARD
2010 Financial Highlights
• Net Income was $18.4 million, up 37%,
or $4.9 million versus 2009
• Earnings per share were $2.30, up 25%,
or $.46 per share versus 2009
On an average balance basis:
• Total Assets were $1.66 billion, up 17%,
or $244 million versus 2009
• Loans were $864 million, up 21%,
or $148 million versus 2009
• Deposits were $1.3 billion, up 19%,
or $209 million versus 2009
• Residential Mortgages were $291 million,
up 30%, or $66 million versus 2009
• Commercial Mortgages were $409 million,
up 29%, or $92 million versus 2009
merrick
A Message From The President & CEO
Dear Shareholder:
It gives me great pride to report to you that as of year end 2010, The First
National Bank of Long Island was the largest independent commercial bank
headquartered on Long Island. On an average balance basis, the Bank’s total
assets grew $244 million, or 17.2%, during 2010. Profits were at a historic
high of $18.4 million, an increase of almost 37% over 2009. On a per share
basis, we were up 46 cents, or 25%. We improved our returns on average
assets and average equity, which were 1.11% and 12.94%, respectively,
in 2010 compared to .95% and 12.15%, respectively, for last year. More
importantly, this was the third year in a row our stock price appreciated.
Using year end measurement dates, the compounded annual growth rate of
our stock price over the last three years was 15.74%. In 2010, our dividend
increased by 8 cents per share, or 10.5%. We continued to increase our
dividend at a double digit rate because of the confidence we have in our
earnings power. Our positioning within the market is gaining momentum
and our future remains bright. We are proud of the many accomplishments
of our organization.
There are many reasons for the Bank’s positive performance, the most
significant being our corporate culture of balance and discipline. The growth
of the institution over the last five years has been built upon the foundation
of meticulous attention to the risks associated with the business, namely
liquidity, interest rate and, most of all, credit risk. Regardless of the
temptation for instant gratification, we have remained measured and
disciplined with our underwriting standards, our loan review process, and the
selection of investment securities; and after we have checked it twice, we do
not hesitate to check it again. Our securities portfolio of over $700 million
remains our first line of defense as a liquidity cushion. This cushion is backed
by the placement of loans and securities at the Federal Reserve Bank and the
Federal Home Loan Bank of New York that gives us a borrowing capacity of
approximately $700 million. We have, by all accounts, tremendous funding
capacity if needed. We have used this capacity sparingly as the Management
Team has been able to organically grow deposits at a comfortable double digit
rate. In 2010, on an average balance basis, our deposits grew $209 million, or
19%, which funded the growth of our balance sheet. More importantly, our
average Checking Deposits grew by $39.3 million, or 11.7%. Growth in
Checking Deposits was primarily driven by our market share penetration
associated with small business and middle market customers, a valuable and
lucrative market segment. We remain dedicated to growing the institution
organically, and building the franchise stone by stone.
The First National Bank of Long Island is becoming a unique banking
organization that is developing its brand and reputation based on
unparalleled customer service. What differentiates us is a culture dedicated
to personalizing our service quality approach. We believe the only long-term
sustainable competitive advantage we have in the marketplace is the level of
service we deliver. This is the overriding fulcrum of our success.
Our history dates back to 1927 and 2011 will be our 84th year of serving
the Long Island marketplace. Over the last seven years we have built 14
new branches and converted two commercial banking units into full service
branches. This growth represents an increase of 70% to the branch
distribution system. With each and every new branch location, we have
been able to hire individuals dedicated to the principle of service quality and
personalization. With each and every hire of a new commercial banker or new
commercial lender, we have attracted a high degree of professional talent
as well as an individual who can fit into the culture we are building. As we
expand into new markets on Long Island, each newly hired individual and
each new branch location work to enhance our reputation and recognition of
our brand of banking within the geography. We pride ourselves in knowing
every one of our customers, both from a business and personal perspective.
That is why we call ourselves the Bank “Where Everyone Knows Your Name.”
The Bank is gaining momentum as a recognizable Long Island institution,
attracting many new customers, and significantly increasing our market share
within one of the most affluent geographies in the country. We will open our
35th branch by this summer.
As we continue to build talent and add branches, our franchise value grows,
benefitting our shareholders. The case in point is that over the last two years
our Bank has been able to establish relationships with over 100 upper-end small
businesses and middle market customers. This increase of market share is a
significant part of our deposit growth and exactly the kind of business we want
to attract to enhance the future prospects of our stock price. Our momentum is
building and has not been interrupted by credit quality concerns.
Our credit quality remains excellent, not only with our loans, but also with our
securities. At December 31, 2010, we had only four nonaccruing loans which
represent .44% of our total loans. Net chargeoffs in 2010 were four basis points
of average loans. We have no more than a handful of delinquencies, almost
all of which are 30-day items. Although no one can predict what the future
holds, the balance sheet of The First National Bank of Long Island remains
among the strongest in the country. We are determined to continue our
measured and disciplined approach in booking new earning assets.
In the short term, we do not have plans to redirect tactics. Our strategic
initiatives remain the same. We continue to change the composition of our
earning assets from securities to loans to enhance our earnings prospects. We
are confident loan growth will drive our deposit balances and corresponding
franchise value. Our target markets remain consistent: lower middle market
companies, small businesses, professionals, and service conscious affluent
consumers. We will keep building branch locations in micro-markets we
presently do not service, which inevitably will add to the enhancement and
recognition of our reputation and brand of banking. Commensurate with our
good fortune and success, we have been receiving more calls and interest
2
THE FIRST OF LONG ISLAND CORPORATION
from the marketplace, both in terms of new business prospects who
desire real relationship banking and individual bankers who want to
associate themselves with a growing and well disciplined organization.
It is our intent to choose the best from both of these categories, and in
the process, create additional value.
Regardless of our performance to date, I want to assure you the
Management Team feels we can not in any way let down our guard. It is
hard not to notice record foreclosures, bankruptcies, and an unemployment
rate that remains stubbornly high. We remain cautiously optimistic that
with our focus on booking loan products we consider to be of a lower risk,
we will maintain the quality of our loan portfolio. You may have noticed
on our balance sheet that as of December 31, 2010 our Bank had no
construction loans in its portfolio. Evergreen and unsecured loans to
individuals also remain loan products of which we are wary. We remain
strictly “cash flow” lenders who structure our credits carefully with
guarantees and collateral as secondary and tertiary sources of repayment.
In closing, I would be remiss if I did not mention the efforts of our employees
who certainly are among the most important factors associated with our
success. I am extremely proud of our Senior Management Team and our
employees at The First National Bank of Long Island. They are, in aggregate,
a great group of people and are the secret behind the franchise value we are
creating. I would also like to express my appreciation to all of my fellow
stockholders for your investment in our company. I can assure you the
Executive Team of The First National Bank of Long Island will continue to work
diligently with a long-term view towards increasing shareholder value. That
objective is what our job is all about; and each and every day, we do not take
our eye off that ball. It is our hope our track record and potential for future
success will continue to attract an ever-growing number of additional
stockholders, and we are confident over the long term our company will
continue to meet your expectations as investors. Although we have been
around for almost 85 years, it was only a few years ago that most of
Long Island did not seem to recognize The First National Bank of Long Island
name. Today, in ever-growing numbers, the marketplace is recognizing our
expanding franchise and our reputation for a high quality service culture.
Our people are committed. Our energy level is high. Our work ethic is strong.
We are not distracted from building our momentum with capital constraints,
credit quality problems or the lack of products to service our desired targeted
market segments. Our technology investments have been significant and
integrate well into our growth strategy. We have capacity, timely information
and processing efficiency. Despite challenges, my expectations are that
we will continue to grow and prosper in terms of household share, size,
profitability and reputation. More and more customers, more and more
people will continue to hear about The First National Bank of Long Island,
the Bank “Where Everyone Knows Your Name.”
“We have taken a
measured and
disciplined approach
in growing the Bank’s
franchise value.”
michael n. Vittorio
President and Chief Executive Officer
2010 ANNUAL REPORT
3
Board of Directors & Executive Officers
board of Directors | The First of Long Island Corporation
allen e. busching
J. Douglas maxwell Jr.
Walter c. teagle III
Principal
B&B Capital
Chief Financial Officer
Non-executive Chairman
NIRx Medical Technologies LLC
President
(consulting and private investment)
(medical instrumentation)
Paul t. canarick
President & Principal
Paul Todd, Inc.
(construction company)
Stephen V. murphy
President
S.V. Murphy & Co., Inc.
(investment banking)
alexander l. cover
milbrey Rennie taylor
Management Consultant
Strategic and Media Consultant
Teagle Management, Inc.
(private investment company)
Chairman
Teagle Foundation, Inc.
michael n. Vittorio
President & Chief Executive Officer
Self Employed
(financial consulting)
Howard thomas Hogan Jr., esq.
Director
Hogan & Hogan
(attorney at law)
John t. lane
Retired Managing Director
J.P. Morgan & Co.
From left to right (Standing): Allen E. Busching, Stephen V. Murphy, Milbrey Rennie Taylor, Howard Thomas Hogan Jr., Esq.
and Paul T. Canarick. From left to right (Sitting): J. Douglas Maxwell Jr., Michael N. Vittorio, Walter C. Teagle III,
Alexander L. Cover and John T. Lane.
executive officers | The First National Bank of Long Island
michael n. Vittorio
Richard Kick
President & Chief Executive Officer
Executive Vice President
Sallyanne K. ballweg
Senior Executive Vice President
Donald l. manfredonia
Senior Operations Officer
Executive Vice President
Senior Lending Officer
mark D. curtis
Executive Vice President
Chief Financial Officer & Cashier
brian J. Keeney
Executive Vice President
Executive Trust Officer
4
THE FIRST OF LONG ISLAND CORPORATION
From left to right: Sallyanne K. Ballweg, Brian J. Keeney, Michael N. Vittorio,
Mark D. Curtis, Richard Kick and Donald L. Manfredonia.
Financial Strength
2010 was a year of steady growth for the Bank. We maintained our financial strength by closely managing our
credit quality and balance sheet. Plus, we were consistent with our values of personalizing our banking approach
with customers.
In June of 2010, Bank Intelligence Solutions, a banking research company, identified 61 banks in the nation as
“top performing banks.” Within the State of New York, only two banks were identified. One bank out of Ithaca,
New York and ourselves, The First National Bank of Long Island. We are very proud of this achievement and look
forward to building momentum as one of the strongest Regional Banks in the country.
capital Raise
In July 2010, we bolstered our capital position through the sale of 1.4 million shares of common stock at a price
of $24 per share. The net proceeds of the offering, after underwriting discount and expenses, were $32.4 million.
The purpose of the capital raise was to enable the Corporation to continue to grow in a measured and disciplined
manner and meet current regulatory expectations as to what constitutes an appropriate level of capital. The
offering was very well received and resulted in the Bank adding a number of high quality institutional investors
such as Wellington Management, Putnam Investments, Goldman Sachs Asset Management and JP Morgan Asset
Management. Institutional ownership now represents 35% of total shares outstanding.
“We look forward to
building momentum
as one of the strongest
Regional Banks in
the country.”
mark D. curtis
Executive Vice President
Chief Financial Officer & Cashier
2010 ANNUAL REPORT
5
Loan Growth & Asset Quality
During 2010, the Bank continued its success of growing its
products we became more conservative. For example, we
loan portfolio while maintaining exceptional asset quality.
totally eliminated our exposure to construction loans. In
On an average balance basis, loans grew in 2010 by 21%,
addition, in the multifamily product category we elected
or $148 million.
not to underwrite transactions where there were limited
residential units, and in the residential mortgage category
Our loan originators were able to find attractive loan
we increased our required FICO score minimums.
opportunities that met our underwriting standards
despite the challenging economic conditions on
The credit quality of the Bank’s loan portfolio remains
Long Island. Growth was generated in two primary loan
excellent, as evidenced by a very low level of delinquent and
categories – residential mortgages and commercial
nonperforming loans. During the year, we built our reserve
mortgages. A significant portion of our growth is
for loan losses in light of current economic conditions.
attributed to refinance activity.
Toward the latter half of 2009 and the beginning of last year,
We were able to grow our loans and maintain asset quality.
we embarked upon a comprehensive review of our credit
We believe credit risk is the most critical risk we manage
policies in order to insure that our underwriting standards
for the benefit of our shareholders.
Our approach toward risk management has served us well.
reflected the current economic climate. With certain loan
“We believe credit risk is
the most critical risk we
manage for the benefit
of our shareholders.”
Sallyanne K. ballweg
Senior Executive Vice President
6
THE FIRST OF LONG ISLAND CORPORATION
Branch Expansion
At The First National Bank of Long Island, we continue to
Our branch expansion strategy has proven to be successful
build momentum by opening new branch locations and
as demonstrated by our deposit growth. On an average
delivering more service to our customers including small
balance basis our deposits grew by 19% or, $209 million,
businesses, professionals, middle market companies and
in 2010. Ours is a relationship management strategy, not a
service-conscious consumers.
pricing strategy. We want to know our customers and
we want them to know us. Over the long term, we are
confident that building the Bank’s franchise through the
growth of deposits will enhance shareholder value.
Our momentum will continue in 2011. The outlook for
the Bank is promising. We opened our 34th branch in
February in Point Lookout and we are currently scheduled
to open a new full service branch in Massapequa, New York
later this year. As of today, we have tentative plans to
open two more branches in 2012. Our Bank continues
to grow because of the dedication and hard work of
our employees who contribute to our everyday success.
Our employees are the strength behind our balance sheet.
cold Spring Harbor
east meadow
“Our employees are
the strength behind
our balance sheet.”
Richard P. Perro
Senior Vice President
2010 ANNUAL REPORT
7
N e w B r a n c h e s
Sea cliff
cold Spring Harbor
8
THE FIRST OF LONG ISLAND CORPORATION
N e w B r a n c h e s
2010 was a very busy year for the Bank as we
opened four new branches on Long Island in Sea Cliff,
Cold Spring Harbor, Bellmore and East Meadow.
Each branch is richly decorated and designed to create
a welcoming, friendly atmosphere with a living room
style. The beauty of our branches speaks for itself and
our banking professionals are dedicated towards
delivering unparalleled service to their customers.
These new locations were instrumental in developing
household share with the commercial segment and
individual consumers. They are all in key markets that
will add to our organization’s franchise value in the
years that lie ahead.
bellmore
east meadow
2010 ANNUAL REPORT
9
Branch Locations
33
31
32
Full Service Offices
2
10
19
7
15
9
4
14
13
21
28
5
12
3
26
34
18
29
20
8
6
17
16
25
24
23
11
1
1
2
3
4
5
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
LOCUST VALLEY
108 Forest Avenue
Locust Valley, NY 11560
(516) 671-2299
Elizabeth A. Materia
VP & Branch Market Manager
MASSAPEQUA
COMING SOON!
6
7
8
9
10
COMING
SOON!
11
BABYLON
42 Deer Park Avenue
Babylon, NY 11702
(631) 422-1700
Colleen A. Vogelsberg
Vice President & Branch Manager
BAYVILLE
282 Bayville Avenue
Bayville, NY 11709
(516) 628-1288
Keith DeCuir
Vice President & Branch Manager
Elizabeth A. Materia
VP & Branch Market Manager
BELLMORE
408 Bedford Avenue
Bellmore, NY 11710
(516) 679-6200
Julie Freund
Assistant Vice President &
Branch Manager
Cathy C. O’Malley
VP & Branch Market Manager
COLD SPRING HARBOR
147 Main Street
Cold Spring Harbor, NY 11724
(631) 367-3600
Colleen De Stefano
Vice President & Branch Manager
Allison Stansfield
VP & Branch Market Manager
EAST MEADOW
1975 Hempstead Turnpike
East Meadow, NY 11554
(516) 357-7200
Larry McGovern
Assistant Vice President &
Branch Manager
Cathy C. O’Malley
VP & Branch Market Manager
12
13
14
15
16
17
10
THE FIRST OF LONG ISLAND CORPORATION
MERRICK
1810 Merrick Avenue
Merrick, NY 11566
(516) 771-6000
Cathy C. O’Malley
VP & Branch Market Manager
NORTHPORT
711 Fort Salonga Road
Northport, NY 11768
(631) 261-4000
Mary T. Sullivan
VP & Branch Market Manager
NORTHPORT VILLAGE
105 Main Street
Northport, NY 11768
(631) 261-0331
Vincent P. Bartilucci
Vice President & Branch Manager
Mary T. Sullivan
VP & Branch Market Manager
OLD BROOKVILLE
209 Glen Head Road
Old Brookville, NY 11545
(516) 759-9002
Henry C. Suhr
Vice President & Branch Manager
POINT LOOKOUT
26A Lido Boulevard
P.O. Box 173
Point Lookout, NY 11569
(516) 431-3144
Linda A. Rowse
Assistant Vice President & Branch Manager
Cathy C. O’Malley
VP & Branch Market Manager
ROCKVILLE CENTRE
310 Merrick Road
Rockville Centre, NY 11570
(516) 763-5533
Linda Roldan
Vice President & Branch Manager
30
35
22
27
18
19
20
21
ROSLYN HEIGHTS
130 Mineola Avenue
Roslyn Heights, NY 11577
(516) 621-1900
Lorraine Russo
Vice President & Branch Manager
SEA CLIFF
299 Sea Cliff Avenue
Sea Cliff, NY 11579
(516) 671-7868
Kirk B. Thomas
Vice President & Branch Manager
VALLEY STREAM
127 East Merrick Road
Valley Stream, NY 11580
(516) 825-0202
Toni Valente
Vice President & Branch Manager
WOODBURY
800 Woodbury Road, Suite M
Woodbury, NY 11797
(516) 364-3434
Allison Stansfield
VP & Branch Market Manager
Commercial Banking Offices
22
23
Assistant Vice President & Branch Manager
Cathy C. O’Malley
VP & Branch Market Manager
ROCKVILLE CENTRE
310 Merrick Road
Rockville Centre, NY 11570
(516) 763-5533
Linda Roldan
Vice President & Branch Manager
BOHEMIA
30 Orville Drive
Bohemia, NY 11716
(631) 218-2500
Kathleen M. Crowe
Vice President & Branch Manager
DEER PARK
60 East Industry Court
Deer Park, NY 11729
(631) 243-2600
Joanne Maiorana-Davis
Vice President & Branch Manager
MERRICK
1810 Merrick Avenue
Merrick, NY 11566
(516) 771-6000
Cathy C. O’Malley
VP & Branch Market Manager
NORTHPORT
711 Fort Salonga Road
Northport, NY 11768
(631) 261-4000
Mary T. Sullivan
VP & Branch Market Manager
NORTHPORT VILLAGE
105 Main Street
Northport, NY 11768
(631) 261-0331
Vincent P. Bartilucci
Vice President & Branch Manager
Mary T. Sullivan
VP & Branch Market Manager
OLD BROOKVILLE
209 Glen Head Road
Old Brookville, NY 11545
(516) 759-9002
Henry C. Suhr
Vice President & Branch Manager
POINT LOOKOUT
26A Lido Boulevard
P.O. Box 173
Point Lookout, NY 11569
(516) 431-3144
Linda A. Rowse
24
25
26
27
28
29
FARMINGDALE
22 Allen Boulevard
Farmingdale, NY 11735
(631) 753-8888
Sandy F. Buttacy
Vice President & Branch Manager
FARMINGDALE
2091 New Highway
Farmingdale, NY 11735
(631) 454-2022
Robert A. Pizza
Vice President & Branch Manager
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
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
Susan Costabile
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
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
30
31
32
33
Select Service Banking Centers
34
35
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
2010 ANNUAL REPORT 11
Disaster Recovery Center
Our detailed Technology Plan supports our
business goals, optimizes business investment,
and manages the technology related risks and
opportunities for the Bank. In order to help drive
shareholder value and deliver more effective and
convenient services to our customers, we use
technology as a tool to increase our business
capacity and create expense efficiencies. Plus, it
allows us to be the provider of choice within the
markets that we service.
In 2010, the Bank built a new Data Center,
which serves as the IT Department’s base of
operations, as well as our Disaster Recovery Facility.
This state-of-the-art facility was built to the
highest technological and engineering standards
and employs best practices.
“The security and protection
of our customers’ financial
assets are a priority to us.”
This includes a Server Room with the appropriate
technology, equipment and security to enable
substantial future growth of the Bank and ensure we
have the appropriate backup capability to manage
in the event of a disaster.
We are very proud of the technological investment
we made in 2010. The security and protection of our
customers’ financial assets are a priority to us.
Richard Kick
Executive Vice President
Senior Operations Officer
12
THE FIRST OF LONG ISLAND CORPORATION
Community Outreach
The First National Bank of Long Island made significant
In order to continue our momentum, the Bank organized
charitable donations in 2010 to support local organizations and
a community service committee to help identify future
activities in the communities we serve. Many of our employees
community involvement programs. We look forward to
have volunteered their time to support those in need and we
establishing more community initiatives and events in the
thank each and every individual for contributing to the success
years to come.
we have achieved with our community service initiatives.
Some of our initiatives are listed below:
• toys for tots – The Bank was proud to participate in the Young CPAs
Committee of the NYSSCPA Suffolk Chapter’s 16th Annual Holiday
Toy Drive. Hundreds of toys were collected in the Bank’s branches to
benefit the U.S. Marine Corps’ Toys for Tots Program. The event was
the single largest pickup in all of Suffolk County.
• toys of Hope coat Drive – We sponsored a drive for the not-for-profit
organization named Toys of Hope located in Huntington Station,
New York. Numerous coats, toys and clothing were collected for
Long Island homeless children and families.
• the Inn (Interfaith nutrition network) – The Bank held an Employee
Food Drive and collected 700 pounds of food and monetary donations
for the INN in Hempstead, Long Island. The organization helps
homeless people and families overcome the challenge of hunger.
• teach Kids to Save Program – The Bank continues to work with local
schools on Long Island to promote financial literacy to elementary
school students. “Banking Days” are held at the schools and a local
Branch Manager makes a presentation to students. In 2010, more
than ten schools participated in our program and hundreds of
students learned about the importance of saving money and
developing good banking habits.
• long Island cares Inc., the Harry chapin Food bank – We collected
618 pounds of food in our branches to help feed Long Island children
and families.
• operation Warmth – The Bank participated in Northport’s Chamber
of Commerce “Operation Warmth” donation drive. We collected over
100 coats, jackets, hats, scarves and gloves that were delivered to
those in need on Long Island.
toys for tots
toys of Hope coat Drive
teach Kids to Save Program
2010 ANNUAL REPORT 13
Selected Financial Data
S E L E C T E D F I N A N C I A L D A T A
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.
2010
2009
2008
2007
2006
INCOME STATEMENT DATA:
Interest Income …...................................................
Interest Expense ….................................................
Net Interest Income ................................................
Provision for Loan Losses.......................................
Net Income .............................................................
$
72,369,000
16,774,000
55,595,000
3,973,000
18,392,000
$
66,274,000
18,334,000
47,940,000
4,285,000
13,463,000
$
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
PER SHARE DATA:
Basic Earnings........................................................
Diluted Earnings .....................................................
Cash Dividends Declared .......................................
Dividend Payout Ratio ............................................
Stock Splits/Dividends Declared.............................
Book Value .............................................................
Tangible Book Value ..............................................
BALANCE SHEET DATA AT YEAR END:
$2.33
2.30
.84
36.52%
-
$17.99
17.97
$1.87
1.84
.76
41.30%
-
$16.15
16.12
$1.79
1.78
.66
37.08%
-
$14.25
14.22
$1.52
1.51
.58
38.41%
2-for-1
$13.73
13.71
$1.47
1.45
.50
34.48%
-
$12.60
12.57
Total Assets ...........................................................
Loans......................................................................
Allowance for Loan Losses.....................................
Deposits …..............................................................
Borrowed Funds......................................................
Stockholders' Equity ...............................................
$
1,711,023,000
902,959,000
14,014,000
1,292,938,000
253,590,000
156,694,000
1,675,169,000
$
827,666,000
10,346,000
1,277,550,000
273,407,000
116,462,000
1,261,609,000
$
658,134,000
6,076,000
900,337,000
251,122,000
102,532,000
1,069,019,000
$
525,539,000
4,453,000
869,038,000
92,110,000
102,384,000
$
954,166,000
449,465,000
3,891,000
824,797,000
28,143,000
95,561,000
AVERAGE BALANCE SHEET DATA:
Total Assets ...........................................................
Loans …..................................................................
Allowance for Loan Losses ….................................
Deposits …..............................................................
Borrowed Funds......................................................
Stockholders' Equity ...............................................
$
1,657,396,000
864,163,000
11,954,000
1,310,507,000
193,823,000
142,140,000
1,413,632,000
$
716,569,000
6,357,000
1,101,828,000
194,129,000
110,767,000
1,181,655,000
$
572,356,000
4,947,000
919,490,000
157,275,000
100,710,000
1,003,240,000
$
480,166,000
4,167,000
868,421,000
32,705,000
98,402,000
$
977,232,000
418,746,000
3,609,000
842,399,000
37,989,000
93,064,000
FINANCIAL RATIOS:
Return on Average Assets (ROA) ….......................
Return on Average Stockholders' Equity (ROE) .....
Average Equity to Average Assets .........................
1.11%
12.94%
8.58%
0.95%
12.15%
7.84%
1.10%
12.87%
8.52%
1.14%
11.67%
9.81%
1.15%
12.06%
9.52%
S T O C K P R I C E S
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, 2010 and 2009.
Quarter
First
Second
Third
Fourth
2010
2009
High
$ 25.97
28.08
27.00
29.24
Low
$ 22.46
23.62
24.01
24.55
High
$ 23.75
26.25
30.00
28.50
Low
$ 19.34
19.75
22.25
22.75
At December 31, 2010, there were 559 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.
14
THE FIRST OF LONG ISLAND CORPORATION
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 (the “Bank”), and subsidiaries wholly-owned by the Bank, either directly or indirectly, The First of Long Island
Agency, Inc., FNY Service Corp. (“FNY”), and The First of Long Island REIT, Inc. (“REIT”). 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 New York City branches in the future.
Overview
Overview – 2010 Versus 2009. The Corporation earned $18.4 million in 2010. This is an increase of 36.6% over
2009 earnings of $13.5 million. On a per share basis, earnings for 2010 were $2.30. This is $.46 better than $1.84 per
share earned in 2009. Returns on average assets and equity were 1.11% and 12.94%, respectively, for 2010 compared to
.95% and 12.15%, respectively, for 2009. Cash dividends per share grew by 8 cents, or 10.5%, from 76 cents per share in
2009 to 84 cents this year. In July 2010 the Corporation bolstered its capital position through the sale of 1.4 million
shares of common stock at a price of $24 per share. The resulting net proceeds of the offering after underwriting discount
and expenses was $32.4 million.
Earnings for the fourth quarter of 2010 were $.46 per share, representing an increase of $.16 per share, or 53.3% over
$.30 per share earned in the same quarter last year. The improvement was primarily due to the fact that the provision for
loan losses was $2.1 million higher in the fourth quarter of 2009, which impacted earnings by approximately $.17 per
share. When comparing fourth quarter to third quarter 2010 results, earnings are down $.09 per share, or 16.4%, primarily
as a result of an increase in the provision for loan losses of $725,000, the establishment of a $300,000 valuation allowance
on one loan held for sale and the full quarter dilutive impact of the common stock offering. The increase in the provision
for loan losses was driven by the establishment of an impairment reserve of $870,000 on one nonaccrual loan.
The large drivers of earnings per share growth in 2010 were growth in the average balances of loans and tax-exempt
municipal securities and decreases in the rates paid on various categories of deposits. The positive impact of these items
was partially offset by decreases in overall yield on the Bank’s loan and taxable securities portfolios, expense increases
attributable to the Bank’s branch growth initiative and general inflation in the cost of goods and services, and the dilutive
impact of the 2010 common stock offering which is estimated to be approximately $.16 per share.
On an average balance basis, loans grew by $147.6 million, or 20.6% when comparing 2010 to 2009. Almost all of
the growth occurred in commercial and residential mortgages, the average balances of which were up $92.4 million, or
29.2%, and $66.3 million, or 29.5%, respectively. A significant portion of the growth in the average balance of residential
mortgages was attributable to loans originated during 2010, with the remainder attributable to loans originated in 2009.
By contrast, almost all of the growth in the average balance of commercial mortgages was attributable to loans originated
in 2009, with the remainder attributable to loans originated this year. The large reduction in commercial mortgage
originations in 2010 was the result of a variety of factors including, but not limited to, a deliberate reduction in
originations during the first half of 2010 in order to build the Bank’s Tier 1 leverage capital ratio, a softening in loan
demand during the latter half of 2010 and a reduction in multifamily loan originations throughout 2010 in an effort to
diversify the Bank’s commercial mortgage portfolio.
The overall yield earned on the Bank’s loan portfolio declined by 26 basis points in 2010 and the overall yield on the
Bank’s taxable securities portfolio declined by 70 basis points. The decline in yield on the loan portfolio was primarily
attributable to a decline in general interest rates and competitive conditions in the local marketplace. The decline in yield
on the taxable securities portfolio was also attributable to a decline in general interest rates and, additionally, a significant
increase in the size of the short-term mortgage securities portfolio relative to the total taxable securities portfolio. Short-
term mortgage securities, which the Bank generally defines as those having an estimated average life of 2.5 years or less
at the date of purchase, represented 38.8% of the average balance of the total taxable securities portfolio in 2010 as
compared to 18.2% last year. Management grew this segment of the taxable securities portfolio as a hedge against
potential future increases in interest rates, to balance the duration of the overall securities portfolio in light of the
increased size of the longer-term municipal securities portfolio, and because the incremental yield that could be earned on
longer average life mortgage securities was relatively small. In addition, management temporarily invested a significant
2010 ANNUAL REPORT 15
portion of the proceeds of the 2010 common stock offering in short-term mortgage securities with the intention of
reinvesting the monthly paydowns on such securities in better yielding loans.
The credit quality of the Bank’s loan portfolio remains excellent as evidenced by, among other things, low levels of
past due, nonaccrual and impaired loans. In an attempt to maintain credit quality, management continues to focus its loan
portfolio growth efforts on what it considers lower risk loan categories (i.e., owner occupied commercial mortgages,
multifamily loans, and first lien residential mortgages having terms generally between ten and fifteen years) and continues
to avoid growing what it considers higher risk loan categories (i.e., construction loans and unsecured loans to individuals).
The credit quality of the Bank’s securities portfolio also remains excellent. All of the Bank’s mortgage securities are
backed by mortgages underwritten on conventional terms, and almost all of these securities are full faith and credit
obligations of the U.S. government. The remainder of the Bank’s securities portfolio consists principally of municipal
securities rated AA or better by major rating agencies.
Looking forward to 2011, challenges for the Bank and our industry as a whole will likely include, among others, the
maintenance of net interest margin and the cost of complying with the abundance of recently enacted laws and regulations
impacting the financial services industry. With respect to net interest margin, the general level of interest rates and
competition could cause the yields available on securities and loans to remain relatively low, while at the same time the
Bank may have limited opportunity to further reduce its deposit rates. Furthermore, earnings per share in 2011 will
include the dilutive impact of the July 2010 common stock offering for a full year. Notwithstanding these challenges, the
Bank enters 2011 with a record of steady earnings growth, excellent credit quality, sufficient capital to provide for growth
and a corporate philosophy that remains focused on maintaining the strength and quality of the Bank’s balance sheet and
creating long-term shareholder value.
Key strategic initiatives for 2011 and beyond include continued loan growth, maintenance of asset quality,
maintenance of capital strength and expansion of the Bank’s branch distribution system both on Long Island and in New
York City. During 2010 the Bank opened four full service branches on Long Island in Sea Cliff, Cold Spring Harbor,
East Meadow and Bellmore. Thus far in 2011, the Bank opened a full service branch in Point Lookout, Long Island and
plans to open a full service branch in Massapequa, Long Island later in the year.
Overview – 2009 Versus 2008. The Corporation earned $1.84 per share in 2009, an increase of 6 cents, or 3.4%, over
$1.78 earned in 2008. Cash dividends per share grew by 10 cents, or 15.2%, from 66 cents per share in 2008 to 76 cents
in 2009.
The Bank’s core business of gathering deposits and making loans was strong in 2009. Total deposits grew by $377.2
million, or 41.9%, and gross loans grew by $169.5 million, or 25.8%. Two thirds of the overall deposit growth came from
savings and money market products, with most of the remaining growth occurring in time deposits. Contributing to
deposit growth were new branch openings and expansion of existing branches, competitively priced deposit products, a
high level of customer service and deposit rate promotions. In addition, management believed that uncertainty in the
equity markets and the negative publicity surrounding money center banks also played a role.
Loan growth, the primary driver of earnings growth in 2009, principally occurred in what management considers to be
lower risk loan categories including multifamily loans, owner occupied commercial mortgages, and first lien residential
mortgages with ten to fifteen year terms. By contrast, management considers construction and land development loans to
be high risk and had purposely not grown this category. Construction and land development loans amounted to only $3.1
million, or .4% of gross loans, at year-end 2009. Loan growth occurred in 2009 as part of management’s continued
efforts to improve the Bank’s earnings prospects by making loans a larger portion of the overall balance sheet.
National and local economic conditions remained unfavorable throughout 2009. Furthermore, management believed
that economic conditions would not improve considerably in 2010, and any improvement beyond 2010 would occur
slowly over an extended period of time. In addition the Bank grew its loan portfolio at a compound annual growth rate of
19% over the five year period ended December 31, 2009 and its loan portfolio was primarily comprised of commercial
and residential real estate loans concentrated on Long Island and in New York City. Based on these and other factors, and
despite the fact that the Bank had a very low level of identified problem loans, in closing the fourth quarter of 2009
management decided to increase the Bank’s allowance for loan losses relative to gross loans. The Bank’s allowance for
loan losses at year-end 2009 was $10.3 million, or 1.25% of gross loans, compared to $6.1 million, or .92% of gross loans,
at year-end 2008.
The Bank’s capital ratios trended down in 2009 due to overall balance sheet growth and growth in the Bank’s loan
portfolio, but at year-end 2009 still exceeded the regulatory criteria for a well-capitalized bank. Total stockholders’ equity
before accumulated other comprehensive income or loss grew by $8.7 million in 2009 versus $3.4 million in 2008. The
16
THE FIRST OF LONG ISLAND CORPORATION
larger growth in 2009 was primarily attributable to the fact that the Corporation significantly reduced its share repurchases
in order to preserve and build capital in light of the unfavorable economic climate.
Net interest margin declined in 2009 because the rates available for investments in loans and securities declined, and
rapid deposit growth resulted in the need to temporarily invest excess cash in low yielding balances with correspondent
banks until better yielding loans and securities could be originated or purchased. Margin also declined because
management shortened the average duration of the Bank’s taxable securities portfolio as a prudent measure to, among
other things, protect the Bank’s net interest income in the event of an increase in interest rates. Noninterest income
increased by $1.5 million, or 23.6%, in 2009 because of increases in service charge income and gains on sales of
securities of $518,000 and $1.2 million, respectively. FDIC insurance expense increased by $1,630,000, or from
$558,000 in 2008 to $2,188,000 in 2009. The increase was caused by failures in the industry and their adverse impact on
the deposit insurance fund (“DIF”). Pension plan expense increased by $1,041,000, or from $576,000 in 2008 to
$1,617,000 in 2009. The increase resulted from a decline in long-term interest rates and the poor performance of the
equity markets in 2008.
The Corporation’s effective tax rate, or income tax expense as a percentage of book income, declined from 26.3% in
2008 to 18.8% in 2009. The decline was attributable to a restructuring of the ownership of the Corporation’s REIT entity
in December 2008 and a significant increase during 2009 in the size of the Bank’s tax-exempt municipal securities
portfolio. The REIT restructuring, which reduced the Corporation’s 2009 income tax burden by approximately $700,000,
was done in response to a change in New York State tax law in 2008. The law change deprived the Corporation in 2008
of the tax benefit that had traditionally been derived from its REIT entity and the restructuring restored that benefit. The
Bank significantly increased the size of its tax-exempt municipal securities portfolio in 2009 in response to provisions of
the American Recovery and Reinvestment Act of 2009 which enabled the Bank to buy certain tax-exempt securities at
what it believed to be attractive yields without the usual limitations imposed by the federal alternative minimum tax.
In the first quarter of 2009, the Bank opened a commercial banking office in Port Jefferson Station, Long Island.
Subsequently in 2009, a full service branch was opened in Bayville, Long Island and the Valley Stream commercial
banking office was converted to a full service branch.
2010 ANNUAL REPORT 17
Net Interest Income
Average Balance Sheet; Interest Rates and Interest Differential. The following table sets forth the average daily
balances for each major category of assets, liabilities and stockholders’ equity as well as the amounts and average rates
earned or paid on each major category of interest-earning assets and interest-bearing liabilities.
!""#$"%
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(1) Tax-equivalent basis. Interest income on a tax-equivalent basis includes the additional amount of interest income that would have
been earned if the Corporation's investment in tax-exempt loans and investment securities had been made in loans and investment
securities subject to Federal income taxes yielding the same after-tax income. The tax-equivalent amount of $1.00 of nontaxable
income was $1.52 in each period presented, based on a Federal income tax rate of 34%.
(2) For the purpose of these computations, nonaccruing loans are included in the daily average loan amounts outstanding.
18
THE FIRST OF LONG ISLAND CORPORATION
Rate/Volume Analysis. The following table sets forth the effect of changes in volumes, rates, and rate/volume on tax-
equivalent interest income, interest expense and net interest income.
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(1) Represents the change not solely attributable to change in rate or change in volume but a combination of these two factors. The
rate/volume variance could be allocated between the volume and rate variances shown in the table based on the absolute value of
each to the total for both.
Net Interest Income – 2010 Versus 2009
Net interest income on a tax-equivalent basis increased by $8.8 million, or from $51.9 million in 2009 to $60.7
million this year. The most significant reasons for the increase in net interest income were growth in the Bank’s loan and
tax-exempt securities portfolios and decreases in the rates paid on various categories of deposits. On an average balance
basis, loans grew by $147.6 million, or 20.6%, and tax-exempt securities grew by $61.7 million, or 34.1%. Growth in
these asset categories was funded by an increase in interest-bearing deposits, which on an average balance basis grew by
$169.4 million, or 22.1%, and an increase in checking deposits, which on an average balance basis grew by $39.3 million,
or 11.7%. The positive impact of loan and securities growth and decreases in deposit rates was partially offset by
decreases in the overall yield on the Bank’s loan and taxable securities portfolios.
Net interest spread, or the difference between the overall yield on interest-earning assets and the overall cost of
interest-bearing liabilities, increased by 11 basis points in 2010. This occurred primarily because management, through a
steady reduction in the Bank’s deposit rates throughout 2010, was able to lower the Bank’s cost of deposits by 46 basis
points while at the same time the overall yield on the Bank’s interest-earning assets declined by only 32 basis points. The
spread increase, when applied to those interest-earning assets funded by interest-bearing liabilities, positively impacted
both net interest income and net interest margin. On the other hand, for those interest-earning assets funded by
noninterest-bearing checking deposits and capital, the 32 basis point decline in asset yield had a more than offsetting
negative impact on net interest income and net interest margin and thereby caused net interest margin to decline. The 32
basis point decline in overall asset yield was primarily attributable to a decline in general interest rates, competitive loan
pricing in the Bank’s marketplace, and a significant increase, for reasons previously discussed, in the Bank’s short-term
mortgage securities portfolio.
2010 ANNUAL REPORT 19
Net Interest Income – 2009 Versus 2008
Net interest income on a tax-equivalent basis increased by $5,720,000 or from $46,160,000 in 2008 to $51,880,000 in
2009. The most significant reason for the increase was growth in the Bank’s loan portfolio, which, on an average balance
basis, grew by $144.2 million, or 25.2%. Loan growth was funded by an increase in interest-bearing deposits, which, on
an average balance basis, grew by $165.5 million, or 27.5%. Deposit growth in excess of that needed to grow loans was
mostly invested in a combination of taxable and nontaxable securities. Also contributing to the growth in net interest
income was a 30 basis point reduction in the overall cost of deposits and borrowings in 2009 resulting from the steady
decline in market interest rates in 2008 and the Bank’s ability to lower its deposit rates throughout 2009 in response to
more rational pricing in its marketplace.
The positive impact of loan growth and lower deposit and borrowing costs was partially offset by a decline in rates
available for investments in loans and securities. Other offsetting factors were management shortened the average
duration of the Bank’s taxable securities portfolio as a prudent measure to, among other things, protect the Bank’s net
interest income in the event of an increase in interest rates, and the Bank’s need to temporarily invest excess cash resulting
from rapid deposit growth in low yielding balances with correspondent banks until better yielding loans and securities
could be originated or purchased. These offsetting factors are the principal causes of the 38 basis point reduction in the
overall yield on interest-earning assets in 2009.
While net interest income increased in 2009, net interest spread declined by 8 basis points as the yield on interest-
earning assets declined more than the cost of deposits and borrowings. Net interest margin declined even more than net
interest spread, or by 38 basis points, because a significant portion of the Corporation’s interest-earning assets are funded
by noninterest-bearing liabilities and capital. For these assets, a reduction in yield has no offsetting reduction in interest
cost and therefore results in a corresponding reduction in net interest margin. Also negatively impacting net interest
margin were deposit rate promotions associated with new branch openings, expansion of existing branches and
management’s desire to grow certain categories of deposits.
Noninterest Income, Noninterest Expense, and Income Taxes
Noninterest income includes service charges on deposit accounts, Investment Management Division income, gains or
losses on sales of securities, and all other items of income, other than interest, resulting from the business activities of the
Corporation. Noninterest income was $8.0 million and $7.8 million in 2010 and 2009, respectively, representing
increases over prior year amounts of $201,000, or 2.6%, and $1.5 million, or 23.6%.
The increase in noninterest income in 2010 is almost entirely due to a $291,000 increase in net gains on sales of
available-for-sale securities, as partially offset by small decreases in the other categories of noninterest income. The gains
on sales of securities resulted from the sale of approximately $77 million of available-for-sale securities. The proceeds of
the sales were used to limit the growth of the balance sheet by paying down short-term borrowings and thereby preserving
the Bank’s Tier I leverage capital ratio.
The increase in noninterest income in 2009 was almost entirely due to a $1.2 million increase in net gains on sales of
available-for-sale securities and a $518,000 increase in service charge income, as partially offset by a $219,000 decrease
in Investment Management Division income. The gains on sales of securities resulted from the sale of approximately $49
million of available-for-sale securities. The proceeds of the sale were generally reinvested in securities having a longer
duration and average yield slightly higher than the securities sold. Service charge income increased primarily as a result
of an increase in return check charges. Investment Management Division income was down primarily as a result of a
market related decrease in the value of assets under management.
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
$35.8 million and $34.8 million in 2010 and 2009, respectively, representing increases over prior year amounts of
$986,000, or 2.8%, and $5.2 million, or 17.3%.
The increase in noninterest expense in 2010 is comprised of increases in salaries of $589,000, or 4.0%, occupancy and
equipment expense of $461,000, or 7.7%, and other operating expenses of $460,000, or 5.7%, as partially offset by a
decrease in employee benefits of $524,000, or 9.0%. The increase in salaries expense is primarily due to normal annual
salary adjustments and additions to staff related to the opening of four full service branches during 2010. Occupancy and
equipment expense increased primarily due to branch expansion, technology upgrades and the creation of a state-of-the-
art disaster recovery center for both information technology and back office functions. The increase in other operating
expenses is the result of a $221,000 increase in data processing expense and a number of other small increases, as partially
offset by a $279,000 decrease in FDIC deposit insurance expense from $2.2 million in 2009 to $1.9 million this year. The
20
THE FIRST OF LONG ISLAND CORPORATION
decline in deposit insurance expense occurred because 2009 was burdened with a $647,000 FDIC special assessment. In
February 2011, the FDIC approved a final rule which implements changes to the deposit insurance assessment system
effective April 1, 2011. These changes include, among other things, basing deposit insurance assessments on average
total assets less average tangible capital (rather than total deposits) and changing the assessment rate applicable to each
risk category defined by the FDIC. Based on the Bank’s total asset and tangible capital levels at year end 2010 and,
assuming that the Bank’s current FDIC risk category remains the same, the changes to the deposit insurance assessment
system would reduce the Bank’s FDIC premiums by approximately $900,000 on an annual basis. However, management
is concerned about the high level of bank failures that have occurred in the last two years and the resulting depletion of the
FDIC deposit insurance fund. Management believes that continued bank failures could make it necessary for the FDIC to
raise its assessment rates, impose additional special assessments or both.
The 2010 decrease in employee benefits expense is primarily the result of a decrease in retirement plan expense, as
partially offset by increases in group health insurance. Retirement plan expense decreased due to additional funding of
the Bank’s defined benefit pension plan and improved market performance of plan assets in 2009.
The increase in noninterest expense for 2009 was comprised of increases in other operating expenses of $2.1 million,
or 33.8%, employee benefits expense of $1.2 million, or 26.7%, occupancy and equipment expense of $1.0 million, or
20.8%, and salaries of $832,000, or 5.9%. The increase in other operating expenses is largely attributable to a $1.6
million increase in FDIC deposit insurance expense caused by failures in the banking industry. Such failures resulted in
an increase in the FDIC’s base assessment rates for 2009 and an industry wide special assessment of 5 basis points on
total assets minus Tier 1 capital as of June 30, 2009. The special assessment cost the Bank approximately $647,000.
The increase in employee benefits expense for 2009 was largely the result of a $1.0 million increase in pension plan
expense. The increase resulted from the poor performance of the equity markets in 2008. Occupancy and equipment
expense increased primarily due to branch expansion, technology upgrades and maintenance of facilities. The increase in
salaries expense is primarily due to normal annual salary adjustments and additions to staff related to branch expansion.
Income tax expense as a percentage of book income (“effective tax rate”) was 22.6% in 2010, 18.8% in 2009 and
26.3% in 2008. The effective tax rate was elevated in 2008 because the Corporation lost the tax benefit derived from its
REIT entity. 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 an increase in tax-exempt income, caused the effective tax
rate to decrease in 2009. The effective tax rate increased in 2010 because tax-exempt income as a percentage of income
before income taxes declined. Also contributing to the increase in the effective tax rate was the fact that the tax benefit
derived from the Corporation’s FNY and REIT entities decreased somewhat in 2010 while income before income taxes
increased significantly.
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 Management Loan Committee, which is chaired by the Senior Lending Officer, meets on a quarterly basis
and is responsible for determining the allowance for loan losses after considering, among other things, the results of credit
reviews performed by the Bank’s loan review officer. In addition, and in consultation with the Bank’s Chief Financial
Officer, the Management Loan 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 reviewed by the Loan
Committee of the Board of Directors and 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
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
2010 ANNUAL REPORT 21
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 and trends. 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 on a quarterly basis management 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, loan
risk ratings, national and local economic conditions and trends, environmental risks, trends in volume and terms of loans,
concentrations of credit, changes in lending policies and procedures, changes in the quality of the Bank’s loan review
function, 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:
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22
THE FIRST OF LONG ISLAND CORPORATION
Allowance and Provision for Loan Losses
The allowance for loan losses increased by $3.7 million during 2010, amounting to $14.0 million, or 1.55% of total
loans, at December 31, 2010 as compared to $10.3 million, or 1.25% of total loans, at December 31, 2009. During 2010,
the Bank had loan chargeoffs and recoveries of $377,000 and $72,000, respectively, and recorded a $4.0 million provision
for loan losses. Although the provision for loan losses decreased by $312,000 when comparing 2010 to 2009, the
provision in both years was elevated versus prior years. The elevated provisioning in 2010 was primarily attributable to:
(1) management’s decision to increase the Bank’s allowance for loan losses relative to gross loans in recognition of,
among other things, unfavorable economic conditions and the large concentration of real estate loans in the Bank’s
portfolio; (2) the establishment of an $870,000 impairment reserve on one nonaccruing loan; and (3) a $300,000 chargeoff
upon the transfer of one nonaccruing loan to the held-for-sale category. The elevated provisioning in 2009 was also
primarily attributable to unfavorable economic conditions and the Bank’s large real estate loan concentration and,
additionally, robust loan growth.
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. 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.
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2010 ANNUAL REPORT 23
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 95% of the Bank’s total loans outstanding at December 31, 2010. Most of these loans were
made to borrowers domiciled on Long Island and in New York City. In the last few years general economic conditions
have been unfavorable as characterized by high levels of unemployment, declines in commercial and residential real estate
values, and increases in commercial real estate vacancies. These conditions have caused some of the Bank’s borrowers to
be unable to make the required contractual payments on their loans and could cause the Bank to be unable to realize the
full carrying value of such loans through foreclosure or other collection efforts.
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, 2010 are summarized
in the table that follows. Unused home equity lines comprise a substantial portion of the amount shown for commitments
to extend credit. Since some of the commitments to extend credit and letters of credit are expected to expire without
being drawn upon and, with respect to unused home equity lines, can be frozen, reduced or terminated by the Bank based
on the financial condition of the borrower, the total commitment amounts shown in the table do not necessarily represent
future cash requirements. The amounts shown for long-term debt are based on the contractual maturities of such
borrowings and include scheduled principal and interest payments. The interest payments do not reflect any reduction in
payments that the Bank could get from interest rate caps embedded in certain repurchase agreements. Some of these
repurchase agreements can be terminated by the purchaser prior to contractual maturity (see Note F to the Corporation’s
2010 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, 2010
pursuant to off-balance sheet arrangements and contractual obligations.
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Commitments to extend credit and letters of credit arise in the normal course of the Bank’s business of meeting the
financing needs of its customers and involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the consolidated balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the other party to financial instruments for
commitments to extend credit, standby letters of credit, and commercial letters of credit is represented by the contractual
notional amount of these instruments. The Bank uses the same credit policies in making commitments to extend credit
and generally uses the same credit policies for letters of credit as it does for on-balance-sheet instruments.
Commitments to extend credit are legally binding agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Home equity lines 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
24
THE FIRST OF LONG ISLAND CORPORATION
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
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 2011 are not presently known and are
therefore not included in the table. For the Plan year ending September 30, 2011, the Bank has no minimum required
pension contribution and a maximum tax deductible contribution of $4.2 million. The Bank expects to make a
contribution within that range by September 30, 2011, 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
21.82%, 20.56% and 9.38%, respectively, at December 31, 2010 exceed the requirements for a well-capitalized bank and,
based on management’s belief, are adequate in the current regulatory and economic environment. The Corporation (on a
consolidated basis) is subject to minimum risk-based and leverage capital requirements, which the Corporation exceeds as
of December 31, 2010.
Total stockholders' equity increased by $40.2 million, from $116.5 million at December 31, 2009 to $156.7 million at
December 31, 2010. The most significant reason for the increase was the sale of 1,437,500 shares of common stock
through an underwritten public offering at a price of $24 per share. The net proceeds of the offering after the underwriting
discount and offering expenses paid by the Corporation were $32.4 million. The offering was undertaken to position the
Bank for future growth and to meet current regulatory expectations as to what constitutes an appropriate level of capital.
A significant portion of the proceeds of the offering were temporarily invested in short-term mortgage securities with the
intention of reinvesting the monthly paydowns on such securities in better yielding loans. The other primary reason for
the increase in stockholders’ equity was net income of $18.4 million, as partially offset by $6.7 million in cash dividends
declared and unrealized losses on available-for-sale securities of $4.7 million.
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. The
Corporation’s market transactions are generally intended to comply with the manner, timing, price and volume conditions
set forth in SEC Rule 10b-18 and therefore, with respect to such transactions, provide the Corporation with safe harbor
from liability for market manipulation under section 9(a)(2) and Rule 10b-5 of the Securities Exchange Act of 1934.
Under a plan approved by the Board of Directors in 2008, the Corporation can purchase 76,568 shares in the future.
The Corporation periodically reevaluates whether it wants to continue purchasing shares of its own common stock in
open market transactions under Rule 10b-18 or otherwise. The Corporation significantly reduced its open market share
repurchases in 2009 and eliminated them in 2010 in order to preserve and build capital in an uncertain economic climate.
Russell 3000 and 2000 Indexes. The Corporation’s common stock is included in the Russell 3000 and Russell 2000
Indices, which were reconstituted in June 2010. Upon reconstitution, the average market capitalization of companies in
the Russell 2000 Index was $987 million, the median market capitalization was $448 million, the capitalization of the
largest company in the index was $2.3 billion, and the capitalization of the smallest company in the index was $112
million. The Corporation’s market capitalization on December 31, 2010 was approximately $250 million.
The Corporation believes that inclusion in the Russell indices positively affects the price, trading volume and liquidity
of its common stock. Conversely, if the Corporation’s market capitalization falls below the minimum necessary to be
included in the indices at any future reconstitution date, the opposite could occur.
2010 ANNUAL REPORT 25
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.
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COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
THE FIRST OF LONG ISLAND CORPORATION,
NASDAQ BANK STOCKS INDEX AND NASDAQ MARKET INDEX
Assumes $100 Invested on January 1, 2006
Assumes Dividends Reinvested
Cash Flows and Liquidity
Cash Flows. The Corporation’s primary sources of cash are deposit growth, maturities and amortization of loans and
investment securities, operations and borrowings. The Corporation uses cash from these and other sources to fund loan
growth, purchase investment securities, repay borrowings, expand and improve its physical facilities and pay cash
dividends. During 2010, the Corporation’s cash and cash equivalent position decreased by $14.9 million. The decrease
occurred primarily because cash used to grow the loan portfolio, repay short-term borrowings, pay cash dividends and
improve physical facilities exceeded the cash provided by deposit growth, the securities portfolio, the common stock
offering, additional long-term borrowings and operations.
Liquidity. The Bank’s Board of Directors has approved a Liquidity Policy and Liquidity Contingency Plan which are
intended to insure that the Bank has sufficient liquidity at all times to meet the ongoing needs of its customers in terms of
credit and deposit outflows, take advantage of earnings enhancement opportunities and respond to liquidity stress
conditions as they arise.
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, 2010, the Bank had approximately $414 million in unencumbered available-for-sale securities.
The Bank is a member of the Federal Reserve Bank of New York (“FRB”) and the Federal Home Loan Bank of New
York (“FHLB”), has repurchase agreements in place with a number of brokerage firms and commercial banks and has
federal funds lines with several commercial banks. In addition to customer deposits, the Bank’s primary external sources
of liquidity are secured borrowings from the FRB, FHLB and repurchase agreement counterparties. In addition, the Bank
can purchase overnight federal funds under its existing lines. However, the Bank’s FRB membership, FHLB
membership, repurchase agreements and federal funds lines do not represent legal commitments to extend credit to the
Bank. The amount that the Bank can potentially borrow is currently dependent on, among other things, the amount of
26
THE FIRST OF LONG ISLAND CORPORATION
unencumbered eligible securities and loans that the Bank can use as collateral and the collateral margins required by the
lenders. Based on the collateral in place at the FRB and FHLB at December 31, 2010, the Bank had a total borrowing
capacity of approximately $700 million.
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
in general and having assets and liabilities that have different maturity, repricing and prepayment/withdrawal
characteristics. The Bank defines interest rate risk as the risk that the Bank's earnings and/or net portfolio value (present
value of expected future cash flows from assets less the present value of expected future cash flows from liabilities) will
change when interest rates change. The principal objective of the Bank’s asset/liability management activities is to
maximize net interest income while at the same time maintain acceptable levels of interest rate and liquidity risk and
facilitate the funding needs of the Bank.
Because the Bank’s loans and investment securities generally reprice slower than its interest-bearing liabilities, an
immediate increase in interest rates uniformly across the yield curve should initially have a negative effect on net interest
income. However, if the Bank does not increase the rates paid on its deposit accounts as quickly or in the same amount as
increases in market interest rates 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
loans at higher yields, the impact of an increase in interest rates should be positive. This occurs primarily because with
the passage of time more loans and investment securities will reprice at the higher rates and there will be no offsetting
increase in interest expense for those loans and investment securities funded by noninterest-bearing checking deposits and
capital.
Conversely, a decrease in interest rates uniformly across the yield curve should initially have a positive impact on the
Bank’s net interest income. 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.
If interest rates decline, or have declined, and are sustained at the lower levels and, as a result, the Bank purchases
securities at lower yields and loans are originated or repriced at lower yields, the impact on net interest income should be
negative because a significant 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 assets and interest-bearing liabilities by
repricing periods and then computing the difference, or gap, between the assets and liabilities which are estimated to
reprice during each time period and cumulatively through the end of each time period.
Both interest rate sensitivity modeling and gap analysis involve a variety of significant estimates and assumptions and
are done at a specific point in time. Interest rate sensitivity modeling requires, among other things, estimates of: (1) how
much and when yields and costs on individual categories of interest-earning assets and interest-bearing liabilities will
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
and assumes that assets and liabilities assigned to the same repricing period will reprice at the same time and in the same
amount. Like sensitivity modeling, gap analysis does not fully take into account the fact that the repricing of some assets
and liabilities is discretionary and subject to competitive and other pressures.
2010 ANNUAL REPORT 27
Changes in the estimates and assumptions made for interest rate sensitivity modeling and gap analysis could have a
significant impact on projected results and conclusions. Therefore, these techniques may not accurately reflect the actual
impact of changes in the interest rate environment on the Bank’s net interest income or net portfolio value.
The table that follows summarizes the Corporation's cumulative interest rate sensitivity gap at December 31, 2010
based upon significant estimates and assumptions that the Corporation believes to be reasonable. The table arranges
interest-earning assets and interest-bearing liabilities according to the period in which they contractually mature or, if
earlier, are estimated to repay or reprice. Repayment and repricing estimates are based on internal data and management’s
assumptions about factors that are inherently uncertain. These factors include, among others, prepayment speeds, changes
in market interest rates and the Bank’s response thereto, early withdrawal of deposits and competition. 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, 2010 are the interest rate caps disclosed in
Note F to the Corporation’s December 31, 2010 consolidated financial statements.
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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, 2010 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 as quickly or in the same amount as
decreases in market interest rates, the magnitude of the positive impact will decline and the impact could even be
negative.
28
THE FIRST OF LONG ISLAND CORPORATION
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 (“SEC”). The information provided in the table is based on significant
estimates and assumptions and constitutes, like certain other statements included herein, a forward-looking statement.
The base case information in the table shows (1) an estimate of the Corporation’s net portfolio value at December 31,
2010 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, 2011 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, 2010 and net interest income on a tax-equivalent basis for the year ending December 31, 2011 assuming
rate changes of plus 100 and 200 basis points and minus 100 and 200 basis points. The changes in net portfolio value from
the base case have not been tax affected. In addition, cash flows for nonmaturity deposits are based on a decay or runoff
rate of six years. Also, rate changes are assumed to be shock or immediate changes and occur uniformly across the yield
curve regardless of the duration to maturity or repricing of specific assets and liabilities. In projecting future net interest
income under the indicated rate change scenarios, activity is simulated by replacing maturing balances with new balances
of the same type, in the same amount, but at the assumed rate level and adjusting repricing balances to the assumed rate
level.
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 decline in interest rates of 100 or 200 basis points is currently
constrained by the fact that the annual percentage yields on many of the Bank’s deposit products are below 1%.
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