The First of Long Island Corporation (Nasdaq:FLIC), the parent
company of The First National Bank of Long Island, reported net
income and earnings per share for the six months ended June 30,
2014 of $11.5 million and $1.24, representing increases over the
same period last year of 5.1% and 3.3%, respectively. For the
second quarter of 2014, net income and earnings per share were $5.5
million and $.60, representing increases over the same quarter last
year of 4.5% and 3.4%, respectively. Dividends per share increased
by 4.0% from $.50 for the first six months of 2013 to $.52 for the
current six-month period. Returns on average assets (ROA) and
average equity (ROE) for the first half of 2014 were .95% and
10.65%, respectively, versus 1.03% and 10.69%, respectively, for
the same period last year. Tangible book value per share increased
by 8.8%, or from $22.57 at year-end 2013 to $24.55 at the close of
the current quarter. The credit quality of the Bank's loan
portfolio remains excellent, and management intends to continue
taking advantage of lending and branching opportunities in the
Bank's marketplace.
Analysis of Earnings - Six Months Ended
June 30, 2014
Net income increased by $555,000 when comparing the first six
months of 2014 to the same period last year. The increase is
attributable to increases in net interest income and noninterest
income of $1.8 million, or 5.9%, and $272,000, or 8.1%,
respectively, partially offset by increases in noninterest expense
of $1.0 million, the provision for loan losses of $168,000 and
income tax expense of $328,000.
Although intermediate and long-term interest rates were higher
during the first six months of 2014 than the same period last year,
they are still relatively low. Because of the low interest rate
environment, the percentage increase in net interest income for the
six months ended June 30, 2014 of 5.9% lagged the percentage
increases in the average balances of loans and noninterest-bearing
checking deposits of 27.2% and 15.4%, respectively. Additionally,
net interest margin declined by 22 basis points from 3.26% in the
first six months of 2013 to 3.04% for the current six-month period.
A low interest rate environment exerts downward pressure on 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
often used to originate or purchase lower yielding loans and
securities; (3) some loans prepay in full resulting in the
immediate writeoff of deferred costs while the rates on other loans
are modified downward; and (4) prepayment speeds on mortgage
securities can be relatively high, thereby resulting in the faster
amortization of purchase premiums.
Average interest-earning assets increased by $277.4 million, or
13.3%, when comparing the first six months of 2014 to the same
period last year. The increase is primarily comprised of increases
in the average balances of loans of $321.3 million, or 27.2%, and
nontaxable securities of $25.7 million, or 6.8%, as partially
offset by a decrease in the average balance of taxable securities
of $72.0 million, or 14.0%. From a yield perspective, the shift
from taxable securities to loans and nontaxable securities
partially mitigated the negative impact on net interest margin of
the low interest rate environment. Growth in loans and nontaxable
securities, to the extent not funded by the decline in taxable
securities, was funded by growth in the average balances of
long-term borrowings of $148.3 million, or 102.0%, interest-bearing
deposits of $85.6 million, or 7.4%, and noninterest-bearing
checking deposits of $82.8 million, or 15.4%. The increase in
long-term borrowings together with an increase in the average
balance of time deposits of $47.3 million, or 18.9%, resulted from
management's desire to protect the Bank's future
earnings against an increase in interest rates.
The Bank's continued ability to grow loans is attributable to a
variety of factors including, among others, competitive pricing,
targeted solicitation efforts, advertising campaigns, and broker
relationships for both residential and commercial mortgages. Loans
grew by $80.0 million during the second quarter of this year
compared to $10.8 million in the first quarter. Based on the size
of the Bank's loan pipeline and an assessment of local market
conditions, management currently expects that loan growth will
continue during the remainder of 2014 at a pace not materially
different than that experienced in the second quarter. The Bank's
ongoing ability to grow deposits is attributable to, among other
things, continued expansion of the Bank's branch distribution
system, targeted solicitation of local commercial businesses and
municipalities, new and expanded lending relationships, new small
business checking and loan products, expansion of merchant sales
relationships and the Bank's positive reputation in its
marketplace.
The $272,000 increase in noninterest income for the first six
months of 2014 versus the same period last year is attributable to
increases in service charges on deposit accounts of $171,000, or
12.1%, Investment Management Division income of $125,000, or 14.0%,
and net gains on sales of securities of $114,000. Partially
offsetting these items was a decrease of $138,000 in other
noninterest income primarily due to the fact that the 2014 period
includes a $60,000 loss on the sale of loans held-for-sale and the
2013 period included a real estate tax refund of $73,000. The
increase in Investment Management Division income resulted from
appreciation in the market value of assets under management and, to
a lesser extent, new business.
The increase in noninterest expense of $1.0 million, or 5.4%, is
comprised of increases in salaries of $715,000, or 8.8%, occupancy
and equipment expense of $400,000, or 10.2%, and other noninterest
expense of $229,000, or 5.1%, partially offset by a decrease in
employee benefits expense of $306,000, or 11.5%. The increase in
salaries is primarily due to higher stock-based compensation
expense, normal annual salary adjustments, branch openings and
additions to staff in the back office. The increase in
occupancy and equipment expense is largely due to new branch
openings and increases in general maintenance and repairs expense,
snow removal costs and the cost of servicing equipment. The
increase in other noninterest expense includes an increase in
marketing expense and a growth-related increase in FDIC insurance
expense. The decrease in employee benefits expense is largely
attributable to a decrease in pension expense, partially offset by
an increase in incentive compensation cost. The decline in
pension expense resulted from favorable performance of plan assets
and an increase in long-term interest rates which reduced the
discounted value of the plan's benefit obligation.
Analysis of Earnings – Second Quarter
Versus First Quarter 2014
Net income for the second quarter of 2014 was $5.5 million
compared to $6.0 million in the first quarter. The decline in
net income occurred primarily because loan growth accelerated in
the second quarter significantly contributing to a $1,041,000
increase in the provision for loan losses from a credit of $59,000
in the first quarter to a charge of $982,000 in the current
quarter.
Analysis of Earnings – Second Quarter
2014 Versus Second Quarter 2013
The increase in net income for the second quarter of 2014 versus
the same quarter last year is largely attributable to an increase
in net interest income of $892,000, as partially offset by an
increase in salaries of $486,000. The increases in net
interest income and salaries occurred for substantially the same
reasons discussed with respect to the six-month
periods.
Asset Quality
The Bank's allowance for loan losses to total loans (reserve
coverage ratio) decreased by 6 basis points from 1.41% at year-end
2013 to 1.35% at the close of the current quarter. The
decrease is primarily due to an improvement in economic conditions
and a decrease in problem loan levels, i.e., impaired loans and
those designated watch, special mention and substandard.
The $923,000 provision for loan losses for the first half of
this year is primarily attributable to loan growth and net
chargeoffs, as partially offset by the improvement in economic
conditions and decrease in problem loan levels. The Bank
recorded chargeoffs of $635,000 during the first six months of 2014
on loans transferred to held-for-sale during the period. The
$755,000 provision for loan losses for the first half of 2013 was
primarily attributable to growth in the loan portfolio and an
increase in specific reserves on loans individually deemed to be
impaired, as partially offset by a reduction in historical loss
rates, improved economic conditions and net recoveries.
The credit quality of the Bank's loan portfolio remains
excellent. Nonaccruing loans amounted to $1.6 million, or .10%
of total loans outstanding, at June 30, 2014, compared to $4.5
million, or .30%, at December 31, 2013. Troubled debt
restructurings declined by $1.0 million during the period to $2.1
million at June 30, 2014. Of this amount, $519,000 are
performing in accordance with their modified terms and $1.6 million
are nonaccrual and included in the aforementioned amount of
nonaccrual loans. The decrease in nonaccrual loans largely
resulted from loan sales, the restoration of one loan to an
accruing status and chargeoffs. The decrease in troubled debt
restructurings largely resulted from the disposition of a loan
held-for-sale. Loans past due 30 through 89 days at June 30,
2014 amounted to $2.8 million, or .18% of total loans outstanding,
compared to $184,000, or .01% of total loans outstanding, at
December 31, 2013. Management does not believe that the
increase in these past due loans is indicative of a deterioration
in the credit quality of the Bank's loan portfolio.
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 remain strong at June 30, 2014. 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 will continue to develop its
existing broker and correspondent relationships. All loans
originated through such relationships are underwritten by Bank
personnel. The Bank opened a branch in Oceanside, Long Island in
July 2014 and is scheduled to open branches in Manhasset and
Greenlawn, Long Island within the next six months. Management
is continuing its ongoing evaluation of additional sites for future
branch expansion.
Challenges We Face
Although intermediate and long-term interest rates are higher
than they were one year ago, they are still relatively low and
could remain so for the foreseeable future. In addition, there
is significant price competition for loans in the Bank's
marketplace, little room for the Bank to further reduce its deposit
rates and an ongoing need to term-fund a portion of the Bank's loan
growth with time deposits and wholesale borrowings. In the
current rate environment, the spread between lending rates and
term-funding rates is relatively small. 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 elevated levels of unemployment and
underemployment, the erosion of household disposable income,
foreclosures and, in certain micro markets, commercial
vacancies. Although certain metrics used to measure the
strength of the economy have been improving, these factors still
present meaningful threats to the maintenance of loan quality.
The banking industry is faced with an 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.
CONSOLIDATED BALANCE
SHEETS |
(Unaudited) |
|
|
|
|
6/30/14 |
12/31/13 |
|
(in thousands) |
|
|
|
Assets: |
|
|
Cash and due from banks |
$ 44,971 |
$ 35,034 |
Temporary investments |
784 |
463 |
Cash and cash equivalents |
45,755 |
35,497 |
|
|
|
Investment securities: |
|
|
Held-to-maturity, at amortized
cost (fair value of $27,578 and $33,548) |
26,243 |
32,104 |
Available-for-sale, at fair
value |
811,325 |
784,793 |
|
837,568 |
816,897 |
|
|
|
Loans held-for-sale |
1,800 |
900 |
|
|
|
Loans: |
|
|
Commercial and industrial |
69,251 |
71,818 |
Secured by real estate: |
|
|
Commercial mortgages |
747,667 |
716,011 |
Residential mortgages |
664,197 |
605,343 |
Home equity lines |
81,128 |
77,581 |
Consumer |
6,483 |
7,184 |
|
1,568,726 |
1,477,937 |
Allowance for loan losses |
(21,140) |
(20,848) |
|
1,547,586 |
1,457,089 |
|
|
|
Restricted stock, at cost |
19,043 |
19,869 |
Bank premises and equipment,
net |
26,135 |
24,463 |
Bank-owned life insurance |
14,445 |
14,185 |
Pension plan assets, net |
18,775 |
18,532 |
Other assets |
12,571 |
12,460 |
|
$ 2,523,678 |
$ 2,399,892 |
Liabilities: |
|
|
Deposits: |
|
|
Checking |
$ 631,484 |
$ 599,114 |
Savings, NOW and money
market |
951,866 |
917,974 |
Time, $100,000 and over |
205,670 |
173,379 |
Time, other |
119,827 |
91,661 |
|
1,908,847 |
1,782,128 |
|
|
|
Short-term borrowings |
71,765 |
110,463 |
Long-term debt |
295,000 |
285,000 |
Accrued expenses and other
liabilities |
12,040 |
13,141 |
Deferred income taxes
payable |
10,098 |
2,604 |
|
2,297,750 |
2,193,336 |
Stockholders' Equity: |
|
|
Common stock, par value $.10
per share: |
|
|
Authorized, 40,000,000
shares |
|
|
Issued and outstanding,
9,194,480 and 9,141,767 shares |
919 |
914 |
Surplus |
48,988 |
46,873 |
Retained earnings |
163,831 |
157,107 |
|
213,738 |
204,894 |
Accumulated other comprehensive
income, net of tax |
12,190 |
1,662 |
|
225,928 |
206,556 |
|
$ 2,523,678 |
$ 2,399,892 |
|
|
|
|
|
|
CONSOLIDATED STATEMENTS
OF INCOME |
(Unaudited) |
|
|
|
|
|
|
Six Months Ended |
Three Months Ended |
|
6/30/14 |
6/30/13 |
6/30/14 |
6/30/13 |
|
(dollars in thousands) |
Interest and dividend income: |
|
|
|
|
Loans |
$ 28,292 |
$ 24,895 |
$ 14,233 |
$ 12,563 |
Investment securities: |
|
|
|
|
Taxable |
4,809 |
5,274 |
2,437 |
2,645 |
Nontaxable |
6,609 |
6,325 |
3,348 |
3,167 |
|
39,710 |
36,494 |
20,018 |
18,375 |
Interest expense: |
|
|
|
|
Savings, NOW and money market
deposits |
958 |
1,218 |
465 |
609 |
Time deposits |
2,932 |
2,503 |
1,515 |
1,221 |
Short-term borrowings |
74 |
151 |
24 |
84 |
Long-term debt |
3,303 |
1,996 |
1,666 |
1,005 |
|
7,267 |
5,868 |
3,670 |
2,919 |
Net interest income |
32,443 |
30,626 |
16,348 |
15,456 |
Provision for loan losses |
923 |
755 |
982 |
947 |
Net interest income after
provision for loan losses |
31,520 |
29,871 |
15,366 |
14,509 |
|
|
|
|
|
Noninterest income: |
|
|
|
|
Investment Management Division
income |
1,021 |
896 |
521 |
485 |
Service charges on deposit
accounts |
1,588 |
1,417 |
785 |
708 |
Net gains on sales of
securities |
118 |
4 |
49 |
-- |
Other |
917 |
1,055 |
442 |
505 |
|
3,644 |
3,372 |
1,797 |
1,698 |
Noninterest expense: |
|
|
|
|
Salaries |
8,881 |
8,166 |
4,451 |
3,965 |
Employee benefits |
2,351 |
2,657 |
1,138 |
1,245 |
Occupancy and equipment |
4,326 |
3,926 |
2,089 |
1,928 |
Other |
4,727 |
4,498 |
2,417 |
2,329 |
|
20,285 |
19,247 |
10,095 |
9,467 |
|
|
|
|
|
Income before income taxes |
14,879 |
13,996 |
7,068 |
6,740 |
Income tax expense |
3,378 |
3,050 |
1,524 |
1,433 |
Net Income |
$ 11,501 |
$ 10,946 |
$ 5,544 |
$ 5,307 |
|
|
|
|
|
Share and Per Share Data: |
|
|
|
|
Weighted Average Common &
Common Equivalent Shares |
9,277,268 |
9,129,859 |
9,290,878 |
9,151,146 |
Basic EPS |
$1.25 |
$1.21 |
$.60 |
$.58 |
Diluted EPS |
$1.24 |
$1.20 |
$.60 |
$.58 |
Cash Dividends Declared |
$.52 |
$.50 |
$.26 |
$.25 |
|
|
|
|
|
FINANCIAL
RATIOS |
(Unaudited) |
|
|
|
|
|
ROA |
0.95% |
1.03% |
0.90% |
0.96% |
ROE |
10.65% |
10.69% |
9.97% |
10.28% |
Net Interest Margin |
3.04% |
3.26% |
3.03% |
3.20% |
Dividend Payout Ratio |
41.94% |
41.67% |
43.33% |
43.10% |
|
|
|
|
|
|
|
|
|
|
PROBLEM AND
POTENTIAL PROBLEM LOANS AND ASSETS |
(Unaudited) |
|
|
|
|
6/30/14 |
12/31/13 |
|
(in thousands) |
|
|
|
Loans, excluding troubled debt
restructurings: |
|
|
Past due 30 through 89
days |
$ 2,799 |
$ 184 |
Past due 90 days or more and
still accruing |
-- |
-- |
Nonaccrual |
50 |
1,948 |
|
2,849 |
2,132 |
Troubled debt restructurings: |
|
|
Performing according to their
modified terms |
519 |
541 |
Past due 30 through 89
days |
-- |
-- |
Past due 90 days or more and
still accruing |
-- |
-- |
Nonaccrual (including a
$900,000 loan held-for-sale at 12/31/13) |
1,567 |
2,548 |
|
2,086 |
3,089 |
Total past due, nonaccrual and restructured
loans: |
|
|
Restructured and performing
according to their modified terms |
519 |
541 |
Past due 30 through 89
days |
2,799 |
184 |
Past due 90 days or more and
still accruing |
-- |
-- |
Nonaccrual |
1,617 |
4,496 |
|
4,935 |
5,221 |
Other real estate owned |
-- |
-- |
|
$ 4,935 |
$ 5,221 |
|
|
|
Allowance for loan losses |
$ 21,140 |
$ 20,848 |
Allowance for loan losses as a percentage of
total loans |
1.35% |
1.41% |
Allowance for loan losses as a multiple of
nonaccrual loans |
13.1x |
4.6x |
|
|
|
|
|
|
AVERAGE BALANCE SHEET,
INTEREST RATES AND INTEREST DIFFERENTIAL |
(Unaudited) |
|
|
|
|
|
|
|
|
Six Months Ended June
30, |
|
2014 |
2013 |
|
Average |
Interest/ |
Average |
Average |
Interest/ |
Average |
|
Balance |
Dividends |
Rate |
Balance |
Dividends |
Rate |
Assets |
(in thousands) |
Interest-bearing bank balances |
$ 16,240 |
$ 20 |
.25% |
$ 13,816 |
$ 15 |
.22% |
Investment Securities: |
|
|
|
|
|
|
Taxable |
440,816 |
4,789 |
2.17 |
512,842 |
5,259 |
2.05 |
Nontaxable (1) |
402,429 |
10,014 |
4.98 |
376,694 |
9,583 |
5.09 |
Loans (1) (2) |
1,500,896 |
28,300 |
3.77 |
1,179,582 |
24,905 |
4.23 |
Total interest-earning assets |
2,360,381 |
43,123 |
3.66 |
2,082,934 |
39,762 |
3.82 |
Allowance for loan losses |
(21,048) |
|
|
(19,016) |
|
|
Net interest-earning assets |
2,339,333 |
|
|
2,063,918 |
|
|
Cash and due from banks |
26,563 |
|
|
28,553 |
|
|
Premises and equipment, net |
25,496 |
|
|
24,704 |
|
|
Other assets |
43,347 |
|
|
36,189 |
|
|
|
$ 2,434,739 |
|
|
$ 2,153,364 |
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders'
Equity |
|
|
|
|
|
|
Savings, NOW & money market deposits |
$ 941,073 |
958 |
.21 |
$ 902,714 |
1,218 |
.27 |
Time deposits |
297,965 |
2,932 |
1.98 |
250,702 |
2,503 |
2.01 |
Total interest-bearing deposits |
1,239,038 |
3,890 |
.63 |
1,153,416 |
3,721 |
.65 |
Short-term borrowings |
46,463 |
74 |
.32 |
91,351 |
151 |
.34 |
Long-term debt |
293,757 |
3,303 |
2.27 |
145,431 |
1,996 |
2.77 |
Total interest-bearing liabilities |
1,579,258 |
7,267 |
.93 |
1,390,198 |
5,868 |
.85 |
Checking deposits |
619,340 |
|
|
536,505 |
|
|
Other liabilities |
18,307 |
|
|
20,131 |
|
|
|
2,216,905 |
|
|
1,946,834 |
|
|
Stockholders' equity |
217,834 |
|
|
206,530 |
|
|
|
$ 2,434,739 |
|
|
$ 2,153,364 |
|
|
|
|
|
|
|
|
|
Net interest income (1) |
|
$ 35,856 |
|
|
$ 33,894 |
|
Net interest spread (1) |
|
|
2.73% |
|
|
2.97% |
Net interest margin (1) |
|
|
3.04% |
|
|
3.26% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 that could cause actual
results to differ materially from those contemplated by the
forward-looking statements. Factors that could cause future
results to vary from current management expectations include, but
are not limited to, changing economic conditions; legislative and
regulatory changes; monetary and fiscal policies of the federal
government; changes in interest rates; deposit flows and the cost
of funds; demands for loan products; competition; changes in
management's business strategies; changes in accounting principles,
policies or guidelines; changes in real estate values; and other
factors discussed in the "risk factors" sections of Corporation's
filings with the Securities and Exchange Commission. The
forward-looking statements are made as of the date of this report,
and the Corporation assumes no obligation to update the
forward-looking statements or to update the reasons why actual
results could differ from those projected in the forward-looking
statements.
For more detailed financial information please see the
Corporation's quarterly report on Form 10-Q for the quarter ended
June 30, 2014. The Form 10-Q will be available through the
Bank's website at www.fnbli.com on or about August 11, 2014, 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: For More Information Contact:
Mark D. Curtis, EVP, CFO and Treasurer
(516) 671-4900, Ext. 556
First of Long Island (NASDAQ:FLIC)
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