The First of Long Island Corporation (Nasdaq:FLIC), the parent
company of The First National Bank of Long Island, reported
increases in net income and earnings per share for the nine and
three months ended September 30, 2013. Net income for the nine and
three months ended September 30, 2013 was $16.1 million and $5.2
million, respectively, representing increases over the same periods
last year of 5.1% and 8.2%, respectively. Earnings per share for
the nine and three months ended September 30, 2013 were $1.76 and
$.56, respectively, representing increases over the same periods
last year of 2.9% and 5.7%, respectively. Dividends per share
increased by 7.0% from $.71 for the first nine months of 2012 to
$.76 for the current nine-month period. The credit quality of the
Bank's loan portfolio remains excellent and opportunities to lend
in the Bank's marketplace continue.
ROE, ROA and Book Value Per
Share
Returns on average equity ("ROE") and average assets ("ROA")
were 10.62% and .98% for the first nine months of 2013 as compared
to 10.35% and 1.00% for the same period last year. Stockholders'
equity decreased from $205.4 million at year-end 2012 to $200.9
million at the end of the third quarter. During the same period,
book value per share decreased from $22.81 to $22.05. The decreases
in stockholders' equity and book value per share occurred because
the positive impact of retained net income was more than offset by
an after-tax decline in unrealized gains on available-for-sale
securities of $17.1 million resulting from an increase in
intermediate and long-term interest rates.
Analysis of Earnings – Nine Months Ended
September 30, 2013
Net income increased by $783,000 when comparing the first nine
months of 2013 to the same period last year. The increase is
primarily attributable to an increase in net interest income of
$1.2 million, a decrease in the provision for loan losses of $1.1
million and the inclusion in the same period last year of a net
loss of $338,000 on a deleveraging transaction. Partially
offsetting these items were increases in noninterest expense,
excluding debt extinguishment costs, of $1.3 million and income tax
expense of $614,000.
Although intermediate and long-term interest rates moved up thus
far in 2013, they remain at relatively low levels. Because of the
sustained low interest rate environment, net interest income for
the current nine-month period only increased by $1.2 million, or
2.6%, and net interest margin declined by 14 basis points despite
significant growth in the average balances of loans and
noninterest-bearing checking deposits. A low interest rate
environment negatively impacts net interest income and net interest
margin primarily because: (1) the benefit of no cost funding in the
form of noninterest-bearing checking deposits and capital is
reduced; (2) cash received from payments and prepayments of higher
yielding loans and securities is generally used to originate or
purchase lower yielding loans and securities; (3) the rates on some
loans are modified downward to dissuade borrowers from refinancing
elsewhere, while other loans prepay in full resulting in the
immediate writeoff of deferred costs; and (4) prepayment speeds on
mortgage securities are high, thereby necessitating the rapid
amortization of purchase premiums.
Average interest-earning assets increased by $134.2 million, or
6.7%, when comparing the first nine months of 2013 to the same
period last year. The increase is primarily comprised of increases
in the average balance of loans outstanding of $178.4 million, or
16.9% and nontaxable securities of $9.4 million, or 2.6%, as
partially offset by a decrease in the average balance of taxable
securities of $56.9 million, or 10.1%. From a yield perspective,
the shift from lower yielding taxable securities to better yielding
loans and nontaxable securities resulted in an improvement in the
mix of the Bank's interest-earning assets. Loan growth, to the
extent not funded by the decline in taxable securities, was funded
by growth in the average balances of noninterest-bearing checking
deposits of $95.0 million, or 20.7%, interest-bearing deposits of
$67.5 million, or 6.1%, and short-term borrowings of $25.1 million,
or 37.8%. Growth in these funding sources was also used to pay down
some of the Bank's higher cost long-term debt. The average balance
of long-term debt declined by $47.8 million, or 23.0%, when
comparing the nine-month periods. This contributed to a reduction
in the overall cost of the Bank's interest-bearing liabilities and
served to mitigate the decline in net interest margin caused by the
low interest rate environment.
The Bank's continued ability to grow loans is attributable to a
variety of factors including, among others, competitive pricing,
superior customer service, targeted solicitation efforts,
advertising campaigns, and broker relationships for both
residential and commercial mortgages. The Bank's ability to
continue to grow deposits is attributable to, among other things,
expansion of the Bank's branch distribution system, targeted
solicitation of local commercial businesses and municipalities, new
and expanded lending relationships, the Bank's positive reputation
in its marketplace and the acquisition of some local competitors by
larger financial institutions.
The $1.1 million decrease in the provision for loan losses for
the first nine months of 2013 versus the same period last year is
due to a reduction in historical losses, a change in management's
estimate of the impact of current economic conditions on the
required allowance for loan losses, and net recoveries in the
current nine month period of $95,000 versus net chargeoffs of
$915,000 in the same period last year. The impact of these
items in reducing the provision was partially offset by more loan
growth in the current nine-month period than the same period last
year and an increase during the current nine-month period in
specific reserves on loans individually deemed to be impaired of
$622,000 versus a decrease in the same period last year of
$80,000.
The $1.3 million increase in noninterest expense is comprised of
increases in salaries of $379,000, or 3.1%, employee benefits
expense of $220,000, or 5.6%, occupancy and equipment expense of
$483,000, or 9.0% and other noninterest expense of $231,000, or
3.6%. The increase in salaries is primarily due to normal
annual salary adjustments and new branch openings, as partially
offset by a decrease in stock-based compensation
expense. Stock-based compensation expense declined because of
a reduction in the estimated number of shares to be issued upon the
vesting of restricted stock units and forfeitures of some
outstanding awards. The increase in employee benefits expense
is primarily attributable to increases in incentive compensation
cost, group health insurance expense and payroll tax expense, as
partially offset by a decrease in pension expense. The
increase in occupancy and equipment expense is largely due to
increases in general maintenance and repairs expense, snow removal
costs, rent expense and the cost of servicing equipment. The
increase in other noninterest expense includes an
increase in consulting expense and growth-related increases in FDIC
insurance expense and the Bank's OCC assessment. Management
continues to maintain a strong focus on expense control measures
and enhancements in operating efficiency.
Analysis of Earnings – Third Quarter 2013
Versus Third Quarter 2012
Net income for the third quarter of 2013 was $5.2 million, an
increase of 8.2% over $4.8 million earned in the same quarter last
year. The increase in net income was primarily attributable to
increases in net interest income of $871,000 and noninterest income
of $186,000, as partially offset by increases in noninterest
expense and income tax expense of $483,000 and $259,000,
respectively. The increases in net interest income and
noninterest expense occurred for substantially the same reasons
discussed with respect to the nine month periods. The increase
in noninterest income was primarily attributable to increases in
Investment Management Division income of $107,000 and service
charges on deposit accounts of $75,000.
Asset Quality
The Bank's allowance for loan losses to total loans (reserve
coverage ratio) was 1.45% at September 30, 2013 compared to 1.62%
at year-end 2012. The $1.8 million provision for loan losses
for the first nine months of this year is primarily attributable to
the growth in the loan portfolio and an increase in reserves on
loans individually deemed to be impaired, as partially offset by
net recoveries on loans previously charged off and a decrease in
the reserve coverage ratio. The reserve coverage ratio
decreased due to a reduction in the amount of allowance deemed
necessary to properly account for historical losses and current
economic conditions. The $2.9 million provision for loan
losses for the nine months ended September 30, 2012 was mostly
attributable to loan growth and $863,000 of chargeoffs on two
loans.
The credit quality of the Bank's loan portfolio remains
excellent, with nonaccrual loans amounting to $5.4 million, or .38%
of total loans outstanding at September 30,
2013. Additionally, loans past due 30 through 89 days amounted
to only $447,000, or .03% of total loans outstanding. Troubled
debt restructurings were relatively unchanged during the first nine
months of 2013, amounting to $4.5 million at the end of the period
compared to $4.4 million at year-end 2012. Of the $4.5 million
in troubled debt restructurings outstanding at September 30, 2013,
$1.7 million are performing in accordance with their modified terms
and $2.8 million are nonaccrual and included in the aforementioned
amounts of nonaccrual loans. The credit quality of the Bank's
securities portfolio also remains excellent. The Bank's
mortgage securities are backed by mortgages underwritten on
conventional terms, with 83% of these securities being full faith
and credit obligations of the U.S. government and the balance being
obligations of U.S. government sponsored entities. The
remainder of the Bank's securities portfolio principally consists
of high quality, general obligation municipal securities rated AA
or better by major rating agencies. In selecting municipal
securities for purchase, the Bank uses credit agency ratings for
screening purposes only and then performs its own credit
analysis. On an ongoing basis, the Bank periodically assesses
the credit strength of the municipal securities in its portfolio
and makes decisions to hold or sell based on such assessments.
Capital
The Corporation's Tier 1 leverage, Tier 1 risk-based and total
risk-based capital ratios were 8.81%, 15.98% and 17.23%,
respectively, at September 30, 2013. The strength of the
Corporation's balance sheet from both a capital and asset quality
perspective positions the Corporation for continued growth in a
measured and disciplined fashion.
Key Strategic Initiatives
Key strategic initiatives will continue to include loan and
deposit growth through effective relationship management, targeted
solicitation efforts, new product offerings and continued expansion
of the Bank's branch distribution system. Additionally, with
respect to loan growth, the Bank recently established a
correspondent lending relationship and will continue to develop its
existing broker relationships. All loans originated through
correspondent and broker relationships are underwritten by Bank
personnel. In 2012, the Bank opened a full service branch in
Lindenhurst, Long Island. During 2013, the Bank opened full
service branches in Massapequa Park and Sayville, Long Island and
is continuing to pursue additional sites for future branch
expansion.
Challenges We Face
Although intermediate and long-term interest rates are higher
than they were at year-end 2012, they are still relatively low and
could remain low for the foreseeable future. In addition,
there is significant price competition for loans in the Bank's
marketplace and there is little room for the Bank to further reduce
its deposit rates. The persistence of these factors could
result in a decline in net interest margin from its current
level. If that were to occur, and management is unable to
offset the resulting negative impact by increasing the volume of
the Bank's interest-earning assets, effecting a favorable change in
the mix of the Bank's interest-earning assets or interest-bearing
liabilities, reducing expenses or the employment of other measures,
the Bank's profitability could decline.
Commercial and residential real estate values have been
negatively impacted by persistently high levels of unemployment and
underemployment, a decline in household disposable income,
foreclosures and commercial vacancies. Although economic
conditions have improved somewhat thus far this year, these factors
still present meaningful threats to the maintenance of loan
quality.
The banking industry is currently faced with an ever-increasing
number of new and complex regulatory requirements which are putting
downward pressure on revenues and upward pressure on required
capital levels and the cost of doing business.
BALANCE SHEET
INFORMATION |
(Unaudited) |
|
|
|
|
9/30/13 |
12/31/12 |
|
(in thousands, except
share |
|
and per share data) |
|
|
|
Total Assets |
$ 2,362,878 |
$ 2,108,290 |
|
|
|
Loans: |
|
|
Commercial and industrial |
63,742 |
54,339 |
Secured by real estate: |
|
|
Commercial mortgages |
687,850 |
504,368 |
Residential
mortgages |
582,486 |
502,367 |
Home equity lines |
77,034 |
81,975 |
Consumer |
6,426 |
4,335 |
|
1,417,538 |
1,147,384 |
Allowance for loan losses |
(20,554) |
(18,624) |
|
1,396,984 |
1,128,760 |
Investment Securities: |
|
|
State and municipals |
376,555 |
368,768 |
Pass-through mortgage
securities |
160,778 |
88,738 |
Collateralized mortgage
obligations |
301,982 |
404,095 |
|
839,315 |
861,601 |
Deposits: |
|
|
Checking |
590,060 |
528,940 |
Savings, NOW and money
market |
936,759 |
844,583 |
Time, $100,000 and over |
168,546 |
168,437 |
Time, other |
88,230 |
91,116 |
|
1,783,595 |
1,633,076 |
|
|
|
Borrowed Funds |
362,847 |
248,634 |
|
|
|
Stockholders' Equity |
200,918 |
205,370 |
|
|
|
Share and Per Share Data: |
|
|
Common Shares Outstanding at
Period End |
9,113,320 |
9,001,686 |
Book Value Per Share |
$22.05 |
$22.81 |
Tangible Book Value Per
Share |
$22.02 |
$22.79 |
|
CONSOLIDATED STATEMENTS
OF INCOME |
(Unaudited) |
|
|
|
|
|
|
Nine Months Ended |
Three Months Ended |
|
9/30/13 |
9/30/12 |
9/30/13 |
9/30/12 |
|
(dollars in thousands, except
per share data) |
Interest and dividend income: |
|
|
|
|
Loans |
$ 38,002 |
$ 37,133 |
$ 13,107 |
$ 12,535 |
Investment
securities: |
|
|
|
|
Taxable |
7,765 |
11,102 |
2,491 |
3,045 |
Nontaxable |
9,529 |
9,594 |
3,204 |
3,140 |
|
55,296 |
57,829 |
18,802 |
18,720 |
Interest expense: |
|
|
|
|
Savings, NOW and money
market deposits |
1,789 |
2,731 |
571 |
802 |
Time deposits |
3,729 |
4,384 |
1,226 |
1,463 |
Short-term
borrowings |
222 |
175 |
71 |
12 |
Long-term debt |
3,219 |
5,363 |
1,223 |
1,603 |
|
8,959 |
12,653 |
3,091 |
3,880 |
Net interest
income |
46,337 |
45,176 |
15,711 |
14,840 |
Provision for loan losses |
1,835 |
2,903 |
1,080 |
1,157 |
Net interest income after
provision for loan losses |
44,502 |
42,273 |
14,631 |
13,683 |
|
|
|
|
|
Noninterest income: |
|
|
|
|
Investment Management
Division income |
1,395 |
1,218 |
499 |
392 |
Service charges on
deposit accounts |
2,236 |
2,318 |
819 |
744 |
Net gains on sales of
securities |
4 |
3,613 |
-- |
-- |
Other |
1,576 |
1,393 |
521 |
517 |
|
5,211 |
8,542 |
1,839 |
1,653 |
Noninterest expense: |
|
|
|
|
Salaries |
12,492 |
12,113 |
4,326 |
4,179 |
Employee
benefits |
4,168 |
3,948 |
1,511 |
1,275 |
Occupancy and
equipment |
5,844 |
5,361 |
1,918 |
1,794 |
Debt extinguishment |
-- |
3,812 |
-- |
-- |
Other |
6,704 |
6,473 |
2,206 |
2,230 |
|
29,208 |
31,707 |
9,961 |
9,478 |
|
|
|
|
|
Income before income
taxes |
20,505 |
19,108 |
6,509 |
5,858 |
Income tax expense |
4,380 |
3,766 |
1,330 |
1,071 |
Net income |
$ 16,125 |
$ 15,342 |
$ 5,179 |
$ 4,787 |
|
|
|
|
|
Share and Per Share Data: |
|
|
|
|
Weighted Average Common
& Common Equivalent Shares |
9,151,859 |
8,977,770 |
9,195,141 |
9,030,655 |
Basic EPS |
$1.78 |
$1.73 |
$.57 |
$.54 |
Diluted EPS |
$1.76 |
$1.71 |
$.56 |
$.53 |
Cash Dividends Declared |
$.76 |
$.71 |
$.26 |
$.25 |
|
|
|
|
|
FINANCIAL
RATIOS |
(Unaudited) |
|
|
|
|
|
ROA |
0.98% |
1.00% |
0.90% |
0.94% |
ROE |
10.62% |
10.35% |
10.47% |
9.44% |
Net Interest Margin |
3.22% |
3.36% |
3.15% |
3.35% |
Dividend Payout Ratio |
43.18% |
41.52% |
46.43% |
47.17% |
|
PROBLEM AND
POTENTIAL PROBLEM LOANS AND ASSETS |
(Unaudited) |
|
|
|
|
9/30/13 |
12/31/12 |
|
(dollars in thousands) |
|
|
|
Loans, excluding troubled debt
restructurings: |
|
|
Past due 30 through 89
days |
$ 447 |
$ 678 |
Past due 90 days or more and
still accruing |
-- |
-- |
Nonaccrual |
2,633 |
1,668 |
|
3,080 |
2,346 |
Troubled debt restructurings: |
|
|
Performing according to their
modified terms |
1,710 |
1,747 |
Past due 30 through 89
days |
-- |
206 |
Past due 90 days or more and
still accruing |
-- |
-- |
Nonaccrual |
2,785 |
2,430 |
|
4,495 |
4,383 |
Total past due, nonaccrual and restructured
loans: |
|
|
Restructured and performing
according to their modified terms |
1,710 |
1,747 |
Past due 30 through 89
days |
447 |
884 |
Past due 90 days or more and
still accruing |
-- |
-- |
Nonaccrual |
5,418 |
4,098 |
|
7,575 |
6,729 |
Other real estate owned |
-- |
-- |
|
$ 7,575 |
$ 6,729 |
|
|
|
Allowance for loan losses |
$ 20,554 |
$ 18,624 |
Allowance for loan losses as a percentage of
total loans |
1.45% |
1.62% |
Allowance for loan losses as a multiple of
nonaccrual loans |
3.8 |
4.5 |
|
AVERAGE BALANCE SHEET,
INTEREST RATES AND INTEREST DIFFERENTIAL |
(Unaudited) |
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, |
|
2013 |
2012 |
|
Average |
Interest/ |
Average |
Average |
Interest/ |
Average |
|
Balance |
Dividends |
Rate |
Balance |
Dividends |
Rate |
Assets |
(dollars in thousands) |
Interest-bearing bank balances |
$ 13,187 |
$ 25 |
.25% |
$ 10,002 |
$ 15 |
.20% |
Investment Securities: |
|
|
|
|
|
|
Taxable |
505,618 |
7,740 |
2.04 |
562,527 |
11,087 |
2.63 |
Nontaxable (1) |
374,165 |
14,437 |
5.14 |
364,718 |
14,536 |
5.31 |
Loans (1) (2) |
1,231,371 |
38,018 |
4.12 |
1,052,934 |
37,155 |
4.71 |
Total interest-earning assets |
2,124,341 |
60,220 |
3.78 |
1,990,181 |
62,793 |
4.21 |
Allowance for loan losses |
(19,398) |
|
|
(17,792) |
|
|
Net interest-earning assets |
2,104,943 |
|
|
1,972,389 |
|
|
Cash and due from banks |
29,023 |
|
|
27,107 |
|
|
Premises and equipment, net |
24,468 |
|
|
22,852 |
|
|
Other assets |
35,790 |
|
|
31,185 |
|
|
|
$ 2,194,224 |
|
|
$ 2,053,533 |
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders'
Equity |
|
|
|
|
|
|
Savings, NOW & money market deposits |
$ 919,156 |
1,789 |
.26 |
$ 831,363 |
2,731 |
.44 |
Time deposits |
249,735 |
3,729 |
2.00 |
269,994 |
4,384 |
2.17 |
Total interest-bearing deposits |
1,168,891 |
5,518 |
.63 |
1,101,357 |
7,115 |
.86 |
Short-term borrowings |
91,305 |
222 |
.33 |
66,246 |
175 |
.35 |
Long-term debt |
160,136 |
3,219 |
2.69 |
207,929 |
5,363 |
3.45 |
Total interest-bearing liabilities |
1,420,332 |
8,959 |
.84 |
1,375,532 |
12,653 |
1.23 |
Checking deposits |
553,805 |
|
|
458,840 |
|
|
Other liabilities |
17,039 |
|
|
21,246 |
|
|
|
1,991,176 |
|
|
1,855,618 |
|
|
Stockholders' equity |
203,048 |
|
|
197,915 |
|
|
|
$ 2,194,224 |
|
|
$ 2,053,533 |
|
|
|
|
|
|
|
|
|
Net interest income (1) |
|
$ 51,261 |
|
|
$ 50,140 |
|
Net interest spread (1) |
|
|
2.94% |
|
|
2.98% |
Net interest margin (1) |
|
|
3.22% |
|
|
3.36% |
|
|
|
|
|
|
|
(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. |
Forward Looking Information
This earnings release contains various "forward-looking
statements" within the meaning of that term as set forth in Rule
175 of the Securities Act of 1933 and Rule 3b-6 of the Securities
Exchange Act of 1934. Such statements are generally contained
in sentences including the words "may" or "expect" or "could" or
"should" or "would" or "believe". The Corporation cautions
that these forward-looking statements are subject to numerous
assumptions, risks and uncertainties, and therefore actual results
could differ materially from those contemplated by the
forward-looking statements. In addition, the Corporation
assumes no duty to update forward-looking statements.
For more detailed financial information please see the
Corporation's quarterly report on Form 10-Q for the quarter ended
September 30, 2013. The Form 10-Q will be available through
the Bank's website at www.fnbli.com on or about November 12, 2013,
after it is electronically filed with the Securities and Exchange
Commission ("SEC"). Our SEC filings are also available on the
SEC's website at www.sec.gov. You may also read and copy any
document we file with the SEC at the SEC's public reference room at
100 F Street, N.E., Room 1580, Washington, DC 20549. You
should call 1-800-SEC-0330 for more information on the public
reference room.
CONTACT: Mark D. Curtis, EVP, CFO and Treasurer
(516) 671-4900, Ext. 556
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