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 three months ended March 31,
2015. In the highlights that follow, all comparisons are of the
current three-month period to the same period last year.
FIRST QUARTER 2015
HIGHLIGHTS
- Net Income increased 8.9% to $6.5 million
- Earnings Per Share increased 7.0% to $.46
- Cash Dividends Per Share increased to
$.19
- 8.7% increase in Book Value Per Share to $17.19 at
3/31/15
- 24.6% growth in the average balance of
Loans
- 11.3% growth in the average balance of Total
Deposits
- 6.8% growth in the average balance of
Noninterest-Bearing Checking Deposits
- The Credit Quality of the Bank's loan and securities
portfolios remains excellent
Analysis of First Quarter
Earnings
Net income for the first quarter of 2015 was $6.5 million, an
increase of $528,000, or 8.9%, over the same quarter last year. The
increase is primarily attributable to increases in net interest
income of $1.7 million, or 10.6%, and noninterest income before
securities gains of $178,000, or 10.0%, and a decrease in income
tax expense of $135,000. The positive impact of these items on
earnings was partially offset by increases in noninterest expense
of $957,000, or 9.4%, and in the provision for loan losses of
$470,000.
The increase in net interest income was driven by growth in
average interest-earning assets of $347.5 million, or 14.9%. The
growth in average interest-earning assets is primarily comprised of
growth in the average balances of loans of $364.7 million, or
24.6%, and nontaxable securities of $43.9 million, or 11.2%,
partially offset by a decrease in the average balance of taxable
securities of $61.4 million, or 14.0%. The shift from taxable
securities to better yielding loans and nontaxable securities
partially mitigated the negative impact on net interest income of a
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
noninterest-bearing checking deposits of $41.6 million, or 6.8%,
interest-bearing deposits of $165.2 million, or 13.6%, long-term
debt of $85.4 million, or 29.2%, and short-term borrowings of $41.6
million, or 71.6%. The increase in long-term debt together with an
increase in the average balance of time deposits of $44.3 million,
or 15.7%, resulted from management's desire to reduce the impact
that an eventual increase in interest rates could have on the
Bank's earnings.
Intermediate and long-term interest rates remain low and
volatile. Continuing to lend and invest in a low interest rate
environment has caused yields on the Bank's loan and securities
portfolios to trend down. Portfolio yields have also come down
because some loans have prepaid in full resulting in the immediate
writeoff of deferred costs, the rates on other loans have been
modified downward and prepayment speeds on mortgage securities have
been elevated resulting in the faster amortization of purchase
premiums. In the low interest rate environment, the benefit of no
cost funding in the form of noninterest-bearing checking deposits
and capital is less and there is little room left for the Bank to
further reduce its deposit rates. These factors are primarily
responsible for a 14 basis point decline in net interest margin and
an 11 basis point decline in net interest spread when comparing the
current quarter to the same quarter last year. These factors also
explain why strong growth in the average balance of loans of 24.6%
was accompanied by lesser growth of 10.6% in net interest
income.
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, broker and
correspondent relationships for residential and commercial
mortgages and new credit scored loan products for small business.
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 and
the expansion of merchant sales relationships. In addition,
management believes that the Bank's positive reputation and growing
recognition in its marketplace has contributed to both loan and
deposit growth.
The $178,000 increase in noninterest income before securities
gains is primarily attributable to real estate and sales tax
refunds in the first quarter of 2015 of $116,000 and $91,000,
respectively, and a $100,000 increase in cash value accretion on
bank-owned life insurance. The positive impact of these items was
partially offset by a decrease in service charges on deposit
accounts of $147,000. Cash value accretion increased due to a
fourth quarter 2014 purchase of bank owned life insurance with an
initial cash value of $16.9 million. Also contributing to the
increase in noninterest income was the successful deployment by
management in recent years of a variety of noninterest income
initiatives which resulted in growth in charge card fees, income
from the sale of mutual funds and annuities, wire transfer service
charges and debit card interchange fees.
The $957,000 increase in noninterest expense is comprised of
increases in salaries of $622,000, or 14.0%, occupancy and
equipment expense of $221,000, or 9.9%, and employee benefits
expense of $150,000, or 12.4%. The impact of these items was
partially offset by a $100,000 expense credit from reducing an
accrual for litigation. The increase in salaries is primarily due
to branch openings, additions to staff in the back office, normal
annual salary adjustments and higher stock-based compensation
expense. The increase in occupancy and equipment expense is largely
due to branch openings, increases in general maintenance and
repairs expense and the cost of servicing equipment. The increase
in employee benefits expense is largely due to additions to staff
and resulting increases in payroll tax expense and the cost of
group health insurance coverage.
Income tax expense decreased by $135,000 despite an increase in
income before income taxes of $393,000 primarily because of changes
in New York State tax law that became effective January 1,
2015.
Analysis of Earnings – First Quarter 2015
Versus Fourth Quarter 2014
Net income for the first quarter of 2015 increased $1.0 million,
or 18.8%, over the $5.5 million earned in the fourth quarter of
2014. The increase is primarily attributable to increases in net
interest income and noninterest income of $563,000 and $227,000,
respectively, and decreases in the provision for loan losses and
noninterest expense of $634,000 and $452,000. The positive impact
of these items on earnings was partially offset by an increase in
income tax expense of $850,000.
The increase in net interest income occurred for substantially
the same reasons discussed above with respect to the first quarter
periods. The increase in noninterest income was primarily
attributable to the aforementioned tax refunds and increase in cash
value accretion. The most significant reason for the decrease in
the provision for loan losses was lower loan growth in the current
quarter than the fourth quarter of last year. The decrease in
noninterest expense was primarily attributable to a decrease in
salaries of $351,000 and a decrease in other noninterest expense of
$210,000. Salaries decreased despite normal annual salary increases
because of decreases in stock-based compensation and commission
expense of $178,000 and $91,000, respectively, and inclusion in the
fourth quarter of discretionary bonuses and retroactive salary
increases of $88,000 and $61,000, respectively. Stock-based
compensation expense decreased despite the fact that the value of
annual equity grants has trended up in recent years because the
fourth quarter included a special grant with immediate vesting
valued at $358,000. The most significant reason for the reduction
in other noninterest expense is the aforementioned reduction in an
accrual for litigation. In the first quarter of this year the
Corporation benefited from changes in New York State tax law that
became effective January 1, 2015. Nonetheless, income tax expense
was higher in the current quarter than the fourth quarter of last
year because income before income taxes was higher and, more
importantly, the fourth quarter included a reduction in deferred
income taxes payable resulting from the aforementioned changes in
New York State tax law.
Asset Quality
The Bank's allowance for loan losses to total loans (reserve
coverage ratio) decreased by 4 basis points from 1.29% at year-end
2014 to 1.25% at March 31, 2015. The decrease in the reserve
coverage ratio is primarily due to a continued improvement in
economic conditions.
The $411,000 provision for loan losses in the first quarter of
2015 is primarily attributable to loan growth as partially offset
by a continued improvement in economic conditions. The $59,000
credit provision for loan losses in the first quarter of 2014 was
primarily attributable to an improvement in economic conditions and
a decrease in specific reserves on loans individually deemed to be
impaired. The impact of these items in reducing the provision was
partially offset by net chargeoffs and growth in the loan
portfolio.
The credit quality of the Bank's loan portfolio remains
excellent. Nonaccrual loans amounted to $1.6 million, or .08% of
total loans outstanding, at March 31, 2015, compared to $1.7
million, or .09%, at December 31, 2014. Troubled debt
restructurings remained relatively unchanged from year-end 2014
totaling $2.0 million as of March 31, 2015. Of this amount,
$694,000 are performing in accordance with their modified terms and
$1.3 million are nonaccrual and included in the aforementioned
amount of nonaccrual loans. Loans past due 30 through 89 days
amounted to $3.5 million, or .18% of total loans outstanding, at
March 31, 2015, compared to $2.2 million, or .12%, at December 31,
2014. Management does not believe that the increase in these past
due loans is indicative of a deterioration in the overall 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 82% 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, Common Equity Tier 1
risk-based, Tier 1 risk-based and Total risk-based capital ratios
were approximately 8.3%, 13.9%, 13.9% and 15.1%, respectively, at
March 31, 2015. Implementation of the Basel III regulatory capital
standards on January 1, 2015 did not have a material impact on the
Corporation's regulatory capital position, lines of business or
profitability. 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 and
diversify its existing broker and correspondent relationships. All
loans originated through such relationships are underwritten by
Bank personnel. The Bank recently opened a new branch in Patchogue,
Long Island bringing the Bank's total branch count to 41 and
relocated an existing branch to Melville, Long Island. Management
anticipates opening up to four new branches over the next twelve to
fifteen months and is continuing to evaluate sites for further
branch expansion.
Challenges We Face
Intermediate and long-term interest rates are low and volatile
and impacted by both national and global forces. Such rates could
remain low for the foreseeable future and thereby cause both
investing and lending rates to be suboptimal. There is significant
price competition for loans in the Bank's marketplace and little
room for the Bank to further reduce its deposit rates. Higher
yielding loans continue to prepay and be replaced with lower
yielding loans and there is an ongoing need, from an interest rate
risk perspective, to term-fund a portion of the Bank's loan growth
with time deposits and wholesale borrowings. In the current
interest rate environment, the spread between lending rates and
term-funding rates is relatively small. These factors could result
in a decline in net interest margin from its current level and will
continue to inhibit earnings growth for the foreseeable future.
The banking industry continues to be faced with new and complex
regulatory requirements and enhanced supervisory oversight. These
factors are exerting downward pressure on revenues and upward
pressure on required capital levels and the cost of doing
business.
CONSOLIDATED BALANCE
SHEETS |
(Unaudited) |
|
|
3/31/15 |
12/31/14 |
|
(in thousands) |
|
|
Assets: |
|
|
Cash and due from banks |
$ 40,307 |
$ 32,209 |
Temporary investments |
765 |
735 |
Cash and cash equivalents |
41,072 |
32,944 |
|
|
|
Investment securities: |
|
|
Held-to-maturity, at amortized
cost (fair value of $21,894 and $22,870) |
20,863 |
21,833 |
Available-for-sale, at fair
value |
760,244 |
774,145 |
|
781,107 |
795,978 |
|
|
|
Loans: |
|
|
Commercial and industrial |
83,819 |
77,140 |
Secured by real estate: |
|
|
Commercial mortgages |
879,966 |
858,975 |
Residential mortgages |
830,447 |
779,994 |
Home equity lines |
83,461 |
83,109 |
Consumer and other |
5,680 |
5,601 |
|
1,883,373 |
1,804,819 |
Allowance for loan losses |
(23,607) |
(23,221) |
|
1,859,766 |
1,781,598 |
|
|
|
Restricted stock, at cost |
19,579 |
23,304 |
Bank premises and equipment,
net |
28,337 |
27,854 |
Bank-owned life insurance |
31,798 |
31,568 |
Pension plan assets, net |
16,543 |
16,421 |
Other assets |
11,914 |
11,827 |
|
$ 2,790,116 |
$ 2,721,494 |
|
|
|
Liabilities: |
|
|
Deposits: |
|
|
Checking |
$ 729,574 |
$ 655,753 |
Savings, NOW and money
market |
1,076,704 |
1,000,325 |
Time, $100,000 and over |
203,197 |
208,745 |
Time, other |
122,247 |
120,202 |
|
2,131,722 |
1,985,025 |
|
|
|
Short-term borrowings |
9,178 |
136,486 |
Long-term debt |
387,225 |
345,000 |
Accrued expenses and other
liabilities |
12,399 |
13,247 |
Deferred income taxes
payable |
9,658 |
8,433 |
|
2,550,182 |
2,488,191 |
Stockholders' Equity: |
|
|
Common stock, par value $.10
per share: |
|
|
Authorized, 40,000,000 shares;
Issued and outstanding, 13,958,914 and 13,887,134 shares |
1,396 |
1,389 |
Surplus |
52,191 |
51,009 |
Retained earnings |
173,955 |
170,120 |
|
227,542 |
222,518 |
Accumulated other comprehensive
income, net of tax |
12,392 |
10,785 |
|
239,934 |
233,303 |
|
$ 2,790,116 |
$ 2,721,494 |
|
|
|
|
CONSOLIDATED STATEMENTS
OF INCOME |
(Unaudited) |
|
|
Three Months Ended |
|
3/31/15 |
3/31/14 |
|
(dollars in thousands) |
|
|
Interest and dividend income: |
|
|
Loans |
$ 16,551 |
$ 14,059 |
Investment securities: |
|
|
Taxable |
2,118 |
2,372 |
Nontaxable |
3,389 |
3,261 |
|
22,058 |
19,692 |
Interest expense: |
|
|
Savings, NOW and money market
deposits |
545 |
493 |
Time deposits |
1,581 |
1,417 |
Short-term borrowings |
81 |
50 |
Long-term debt |
2,045 |
1,637 |
|
4,252 |
3,597 |
Net interest income |
17,806 |
16,095 |
Provision for loan losses (credit) |
411 |
(59) |
Net interest income after
provision for loan losses (credit) |
17,395 |
16,154 |
|
|
|
Noninterest income: |
|
|
Investment Management Division
income |
507 |
500 |
Service charges on deposit
accounts |
656 |
803 |
Net gains on sales of
securities |
-- |
69 |
Other |
793 |
475 |
|
1,956 |
1,847 |
Noninterest expense: |
|
|
Salaries |
5,052 |
4,430 |
Employee benefits |
1,363 |
1,213 |
Occupancy and equipment |
2,458 |
2,237 |
Other |
2,274 |
2,310 |
|
11,147 |
10,190 |
|
|
|
Income before income taxes |
8,204 |
7,811 |
Income tax expense |
1,719 |
1,854 |
Net Income |
$ 6,485 |
$ 5,957 |
|
|
|
Share and Per Share Data: |
|
|
Weighted Average Common &
Common Equivalent Shares |
14,074,981 |
13,895,259 |
Basic EPS |
$.47 |
$.43 |
Diluted EPS |
$.46 |
$.43 |
Cash Dividends Declared |
$.19 |
$.17 |
|
|
|
FINANCIAL
RATIOS |
(Unaudited) |
|
|
|
ROA |
.95% |
1.01% |
ROE |
11.15% |
11.36% |
Net Interest Margin |
2.91% |
3.05% |
Dividend Payout Ratio |
41.30% |
39.53% |
|
PROBLEM AND
POTENTIAL PROBLEM LOANS AND ASSETS |
(Unaudited) |
|
|
3/31/15 |
12/31/14 |
|
(in thousands) |
|
|
|
Loans, excluding troubled debt
restructurings: |
|
|
Past due 30 through 89
days |
$ 3,467 |
$ 2,186 |
Past due 90 days or more and
still accruing |
-- |
-- |
Nonaccrual |
328 |
424 |
|
3,795 |
2,610 |
Troubled debt restructurings: |
|
|
Performing according to their
modified terms |
694 |
704 |
Past due 30 through 89
days |
-- |
-- |
Past due 90 days or more and
still accruing |
-- |
-- |
Nonaccrual |
1,260 |
1,280 |
|
1,954 |
1,984 |
Total past due, nonaccrual and restructured
loans: |
|
|
Restructured and performing
according to their modified terms |
694 |
704 |
Past due 30 through 89
days |
3,467 |
2,186 |
Past due 90 days or more and
still accruing |
-- |
-- |
Nonaccrual |
1,588 |
1,704 |
|
5,749 |
4,594 |
Other real estate owned |
-- |
-- |
|
$ 5,749 |
$ 4,594 |
|
|
|
Allowance for loan losses |
$ 23,607 |
$ 23,221 |
Allowance for loan losses as a percentage of
total loans |
1.25% |
1.29% |
Allowance for loan losses as a multiple of
nonaccrual loans |
14.9x |
13.6x |
|
AVERAGE BALANCE SHEET,
INTEREST RATES AND INTEREST DIFFERENTIAL |
(Unaudited) |
|
|
Three Months Ended March
31, |
|
2015 |
2014 |
|
Average |
Interest/ |
Average |
Average |
Interest/ |
Average |
|
Balance |
Dividends |
Rate |
Balance |
Dividends |
Rate |
Assets: |
(in thousands) |
Interest-bearing bank balances |
$ 16,610 |
$ 8 |
.20% |
$ 16,338 |
$ 8 |
.20% |
Investment Securities: |
|
|
|
|
|
|
Taxable |
378,773 |
2,110 |
2.23 |
440,186 |
2,364 |
2.15 |
Nontaxable (1) |
434,846 |
5,135 |
4.72 |
390,913 |
4,941 |
5.06 |
Loans (1) |
1,845,809 |
16,555 |
3.59 |
1,481,098 |
14,063 |
3.80 |
Total interest-earning assets |
2,676,038 |
23,808 |
3.56 |
2,328,535 |
21,376 |
3.67 |
Allowance for loan losses |
(23,518) |
|
|
(21,197) |
|
|
Net interest-earning assets |
2,652,520 |
|
|
2,307,338 |
|
|
Cash and due from banks |
26,946 |
|
|
26,885 |
|
|
Premises and equipment, net |
28,466 |
|
|
25,098 |
|
|
Other assets |
57,409 |
|
|
42,746 |
|
|
|
$ 2,765,341 |
|
|
$ 2,402,067 |
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity: |
|
|
|
|
|
|
Savings, NOW & money market deposits |
$ 1,052,291 |
545 |
.21 |
$ 931,416 |
493 |
.21 |
Time deposits |
326,701 |
1,581 |
1.96 |
282,362 |
1,417 |
2.04 |
Total interest-bearing deposits |
1,378,992 |
2,126 |
.63 |
1,213,778 |
1,910 |
.64 |
Short-term borrowings |
99,766 |
81 |
.33 |
58,129 |
50 |
.35 |
Long-term debt |
377,798 |
2,045 |
2.20 |
292,444 |
1,637 |
2.27 |
Total interest-bearing liabilities |
1,856,556 |
4,252 |
.93 |
1,564,351 |
3,597 |
.93 |
Checking deposits |
649,692 |
|
|
608,138 |
|
|
Other liabilities |
23,114 |
|
|
16,929 |
|
|
|
2,529,362 |
|
|
2,189,418 |
|
|
Stockholders' equity |
235,979 |
|
|
212,649 |
|
|
|
$ 2,765,341 |
|
|
$ 2,402,067 |
|
|
|
|
|
|
|
|
|
Net interest income (1) |
|
$ 19,556 |
|
|
$ 17,779 |
|
Net interest spread (1) |
|
|
2.63% |
|
|
2.74% |
Net interest margin (1) |
|
|
2.91% |
|
|
3.05% |
(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%.
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" section of the
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
March 31, 2015. The Form 10-Q will be available through the
Bank's website at www.fnbli.com on or about May 11, 2015, 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. 585
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