The First of Long Island Corporation (Nasdaq: FLIC), the parent
company of The First National Bank of Long Island, reported results
for the three months ended March 31, 2023.
Liquidity
Our customers have remained loyal during these
challenging times. Total deposits were only $66 million, or 1.9%,
lower than December 31, 2022. The decline is mainly attributable to
regular deposit flows with no noticeable impact from the disruption
that occurred in the banking industry in March of this year.
Noninterest-bearing checking deposits of $1.2 billion represent 35%
of total deposits. Brokered time deposits remained at the same
level as December 31, 2022, totaling $176 million, or 5%, of total
deposits. The Bank was able to reduce its long-term FHLB advances
by $28.5 million, or 6.9%, during the quarter.
The Bank had $1.5 billion in collateralized
borrowing lines with the Federal Home Loan Bank of New York
(FHLBNY) and the Federal Reserve Bank (FRB) at March 31, 2023. The
Bank also has a $20 million unsecured line of credit with a
correspondent bank. In addition, we had $143.4 million in cash and
unencumbered securities available to be pledged. The $1.7 billion
in liquidity substantially exceeds the uninsured and
uncollateralized deposit balance of $1.3 billion, which represents
38% of total deposits. The FRB’s Term Funding Program has not been
utilized and such borrowings are not currently anticipated.
Interest Rate Sensitivity
Management is proactively making decisions in
the best long-term interest of the Company. The Bank completed two
balance sheet repositioning transactions during the first quarter
of 2023. The purpose of the transactions was to help reduce the
Bank’s liability sensitive position. On March 16, 2023, the Bank
entered into an interest rate swap to convert $300 million of fixed
rate residential mortgage loans to floating rate for 3 years. The
Bank will pay a fixed rate of 3.82% and receive a floating rate
based on the SOFR overnight rate. This transaction is immediately
accretive and should increase annual interest income by
approximately $2.9 million based on the SOFR overnight rate as of
March 31, 2023. In addition, the Bank sold $149 million of fixed
rate municipal securities earning a tax equivalent yield of 3.32%
and purchased $135 million of floating rate SBA securities
projected to yield 5.38% at the current prime rate. The Bank
recognized a loss on the sale of securities of $3.5 million ($2.4
million after-tax) which the Bank expects will be earned-back in
just 1.2 years. This transaction is also immediately accretive and
as of March 31, 2023 increases annual interest income by $2.8
million. The interest rate swap and securities repositioning
transactions result in loans and securities repricing or maturing
within one year nearly doubling during the quarter to $813 million,
or 20.8% of total loans and securities, at March 31, 2023. The
first quarter results do not reflect a full quarter’s benefit of
these transactions since they were executed close to
quarter-end.
Analysis of First Quarter
Earnings
Net income for the first quarter of 2023 was
$6.5 million a decrease of $5.6 million from the same quarter last
year. The primary drivers of the decrease were a loss on sale of
securities of $3.5 million and a decline in net interest income of
$4.4 million, partially offset by a decrease in income tax expense
of $2.5 million.
Net interest income declined as rising market
interest rates resulted in the cost of deposits and long-term debt
increasing at a faster pace than the yields on interest-earning
assets. An increase in interest expense of $9.4 million was only
partially offset by a $5.0 million increase in interest
income. The cost of interest-bearing liabilities was
1.96% in the current quarter, an increase of 142 basis points when
compared to the first quarter of 2022. The yield on
interest-earning assets increased 35 basis points to 3.56% in the
current quarter. Also contributing to the decline in net interest
income was an unfavorable shift in the mix of funding as average
noninterest-bearing deposits decreased $134.2 million while average
interest-bearing liabilities increased $287.4 million. Net interest
margin for the first quarter of 2023 was 2.34% compared to 2.74%
and 2.90% for the fourth and first quarters of 2022, respectively.
The Bank expects that net interest margin will remain under
pressure throughout 2023 unless the Federal Reserve Bank reduces
short-term rates.
During the first quarter of 2023 we originated
$38 million in mortgage loans at a weighted average rate of
approximately 6.05%. The Bank’s loan pipeline was $96 million at
the end of the quarter. The decline in origination volume and the
current loan pipeline reflect lower demand for loans in the
marketplace and higher interest rates.
The provision for credit losses decreased $1.5
million when comparing the first quarter periods from a charge of
$433,000 in the 2022 quarter to a credit of $1.1 million in the
current quarter. The credit provision for the current quarter was
mainly due to an improvement in historical loss rates and declines
in outstanding loans, average growth rates and concentrations of
credit, partially offset by deteriorating economic conditions.
Noninterest income, excluding the loss on the
sale of securities of $3.5 million, declined $922,000 when
comparing the first quarter periods. The decline was comprised of
the nonservice cost component of the Bank’s defined benefit pension
plan and a first quarter of 2022 payment received for the
conversion of the Bank’s retail broker and advisory accounts.
Recurring components of noninterest income including BOLI and
service charges on deposit accounts had increases of 5.1% and 8.4%,
respectively.
The increase in noninterest expense of $802,000
was primarily due to an increase in rent expense relating to the
Bank’s new corporate headquarters facility and higher FDIC
insurance expense attributable to higher assessment rates. Salaries
and benefits expense is largely flat when comparing the quarterly
periods as competitive annual salary increases were largely offset
by a decline in incentive and stock-based compensation expense
reflecting the lower net income and related performance
metrics.
Income tax expense decreased $2.5 million and
the effective tax rate declined from 20.6% to 9.1% when comparing
the first quarter periods. The decline in the effective tax rate is
mainly due to an increase in the percentage of pre-tax income
derived from the Bank’s real estate investment trust, municipal
securities portfolio and BOLI. The decrease in income tax expense
reflects the lower effective tax rate and a decline in pre-tax
income.
Analysis of Earnings – First Quarter 2023
Versus Fourth Quarter 2022
Net income for the first quarter of 2023
decreased $3.4 million from the fourth quarter of last year. The
decrease is mainly attributable to a $4.1 million decline in net
interest income for substantially the same reasons discussed above
with respect to the first quarter periods and the loss on sale of
securities in the first quarter of 2023. Partially offsetting these
items was the credit provision for loan losses, lower incentive and
stock-based compensation expense and a decline in income tax
expense for substantially the same reasons previously
discussed.
Asset Quality
The Bank’s allowance for credit losses to total
loans (reserve coverage ratio) was .93% at March 31, 2023 as
compared to .95% at December 31, 2022. The decrease in
the reserve coverage ratio was mainly due to an improvement in
historical loss rates and declines in average growth rates and
concentrations of credit, partially offset by deteriorating
economic conditions. Nonaccrual loans were zero at March 31, 2023.
Modified loans and loans past due 30 through 89 days remain at low
levels.
Capital
The Corporation’s capital position remains
strong with a Leverage Ratio of approximately 9.94% at March 31,
2023. Book value per share increased to $16.43 at March 31, 2023
versus $16.24 at year end 2022. The accumulated other comprehensive
loss component of stockholders’ equity is mainly comprised of a net
unrealized loss in the available-for-sale securities portfolio due
to higher market interest rates. We did not repurchase any shares
during the quarter or change the quarterly dividend. The Board and
management will continue to evaluate both capital management tools
to provide the best opportunity to maximize shareholder value.
Challenges We Face
The current economic environment is
characterized by stubbornly high inflation, interest rate increases
not seen in over forty years, an inverted yield curve and lower
confidence in the banking system. These factors are causing the
Bank’s cost of funds to increase at a substantially faster rate
than the increase in asset yields resulting in declines in earnings
and profitability metrics. While the interest rate swap and
securities purchase/sale transaction are expected to benefit the
Bank by slowing these trends, they will not stop or reverse the
current trends. The Corporation’s earnings and key financial
metrics will continue to face significant challenges in the near
term. In this difficult economic environment, our customer base has
remained loyal, asset quality has remained strong and the
Corporation is closely monitoring its capital and liquidity
position. We continue to meet the needs of our customers and stay
focused on our long-term strategic initiatives.
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” or “anticipate”. 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; demand 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
(“SEC”). The forward-looking statements are made as of the date of
this press release, 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, 2023. The Form 10-Q will be available through the
Bank’s website at www.fnbli.com on or about May 3, 2023, when it is
electronically filed with the SEC. Our SEC filings are also
available on the SEC’s website at www.sec.gov.
CONSOLIDATED BALANCE
SHEETS(Unaudited)
|
|
3/31/23 |
|
12/31/22 |
|
|
(dollars in thousands) |
Assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
51,768 |
|
|
$ |
74,178 |
|
Investment securities available-for-sale, at fair value |
|
|
654,619 |
|
|
|
673,413 |
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
Commercial and industrial |
|
|
96,860 |
|
|
|
108,493 |
|
Secured by real estate: |
|
|
|
|
|
|
Commercial mortgages |
|
|
1,897,131 |
|
|
|
1,916,493 |
|
Residential mortgages |
|
|
1,218,008 |
|
|
|
1,240,144 |
|
Home equity lines |
|
|
45,660 |
|
|
|
45,213 |
|
Consumer and other |
|
|
1,160 |
|
|
|
1,390 |
|
|
|
|
3,258,819 |
|
|
|
3,311,733 |
|
Allowance for credit losses |
|
|
(30,209 |
) |
|
|
(31,432 |
) |
|
|
|
3,228,610 |
|
|
|
3,280,301 |
|
|
|
|
|
|
|
|
Restricted stock, at cost |
|
|
25,035 |
|
|
|
26,363 |
|
Bank premises and equipment, net |
|
|
31,835 |
|
|
|
31,660 |
|
Right of use asset - operating leases |
|
|
23,558 |
|
|
|
23,952 |
|
Bank-owned life insurance |
|
|
111,628 |
|
|
|
110,848 |
|
Pension plan assets, net |
|
|
10,931 |
|
|
|
11,049 |
|
Deferred income tax benefit |
|
|
29,563 |
|
|
|
31,124 |
|
Other assets |
|
|
20,233 |
|
|
|
18,623 |
|
|
|
$ |
4,187,780 |
|
|
$ |
4,281,511 |
|
Liabilities: |
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
Checking |
|
$ |
1,192,139 |
|
|
$ |
1,324,141 |
|
Savings, NOW and money market |
|
|
1,684,874 |
|
|
|
1,661,512 |
|
Time |
|
|
521,737 |
|
|
|
478,981 |
|
|
|
|
3,398,750 |
|
|
|
3,464,634 |
|
|
|
|
|
|
|
|
Short-term borrowings |
|
|
— |
|
|
|
— |
|
Long-term debt |
|
|
382,500 |
|
|
|
411,000 |
|
Operating lease liability |
|
|
25,871 |
|
|
|
25,896 |
|
Accrued expenses and other liabilities |
|
|
10,352 |
|
|
|
15,445 |
|
|
|
|
3,817,473 |
|
|
|
3,916,975 |
|
Stockholders'
Equity: |
|
|
|
|
|
|
Common stock, par value $.10 per share: |
|
|
|
|
|
|
Authorized, 80,000,000 shares; |
|
|
|
|
|
|
Issued and outstanding, 22,531,785 and 22,443,380 shares |
|
|
2,253 |
|
|
|
2,244 |
|
Surplus |
|
|
78,621 |
|
|
|
78,462 |
|
Retained earnings |
|
|
350,351 |
|
|
|
348,597 |
|
|
|
|
431,225 |
|
|
|
429,303 |
|
Accumulated other comprehensive loss, net of tax |
|
|
(60,918 |
) |
|
|
(64,767 |
) |
|
|
|
370,307 |
|
|
|
364,536 |
|
|
|
$ |
4,187,780 |
|
|
$ |
4,281,511 |
|
CONSOLIDATED STATEMENTS OF
INCOME(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
3/31/23 |
|
3/31/22 |
|
|
|
(dollars in thousands) |
Interest and dividend
income: |
|
|
|
|
|
|
|
Loans |
|
$ |
|
30,405 |
|
|
$ |
|
27,386 |
|
Investment securities: |
|
|
|
|
|
|
|
Taxable |
|
|
|
3,669 |
|
|
|
|
1,668 |
|
Nontaxable |
|
|
|
1,945 |
|
|
|
|
1,968 |
|
|
|
|
|
36,019 |
|
|
|
|
31,022 |
|
Interest expense: |
|
|
|
|
|
|
|
Savings, NOW and money market deposits |
|
|
|
5,775 |
|
|
|
|
763 |
|
Time deposits |
|
|
|
3,069 |
|
|
|
|
945 |
|
Short-term borrowings |
|
|
|
108 |
|
|
|
|
441 |
|
Long-term debt |
|
|
|
3,433 |
|
|
|
|
868 |
|
|
|
|
|
12,385 |
|
|
|
|
3,017 |
|
Net interest income |
|
|
|
23,634 |
|
|
|
|
28,005 |
|
Provision (credit) for credit
losses |
|
|
|
(1,056 |
) |
|
|
|
433 |
|
Net interest income after provision (credit) for credit losses |
|
|
|
24,690 |
|
|
|
|
27,572 |
|
|
|
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
Bank-owned life insurance |
|
|
|
780 |
|
|
|
|
742 |
|
Service charges on deposit accounts |
|
|
|
787 |
|
|
|
|
726 |
|
Net loss on sales of securities |
|
|
|
(3,489 |
) |
|
|
|
— |
|
Other |
|
|
|
935 |
|
|
|
|
1,956 |
|
|
|
|
|
(987 |
) |
|
|
|
3,424 |
|
Noninterest expense: |
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
|
9,765 |
|
|
|
|
9,755 |
|
Occupancy and equipment |
|
|
|
3,325 |
|
|
|
|
2,951 |
|
Other |
|
|
|
3,481 |
|
|
|
|
3,063 |
|
|
|
|
|
16,571 |
|
|
|
|
15,769 |
|
Income before income taxes |
|
|
|
7,132 |
|
|
|
|
15,227 |
|
Income tax expense |
|
|
|
651 |
|
|
|
|
3,144 |
|
Net income |
|
$ |
|
6,481 |
|
|
$ |
|
12,083 |
|
|
|
|
|
|
|
|
|
Share and Per Share Data: |
|
|
|
|
|
|
|
Weighted Average Common Shares |
|
|
|
22,493,437 |
|
|
|
|
23,178,475 |
|
Dilutive restricted stock units |
|
|
|
86,807 |
|
|
|
|
99,214 |
|
|
|
|
|
22,580,244 |
|
|
|
|
23,277,689 |
|
|
|
|
|
|
|
|
|
Basic EPS |
|
|
$ |
0.29 |
|
|
|
$ |
0.52 |
|
Diluted EPS |
|
|
|
0.29 |
|
|
|
|
0.52 |
|
Cash Dividends Declared per share |
|
|
|
0.21 |
|
|
|
|
0.20 |
|
|
|
|
|
|
|
|
|
FINANCIAL RATIOS |
(Unaudited) |
ROA |
|
|
|
0.62 |
% |
|
|
|
1.19 |
% |
ROE |
|
|
|
7.09 |
|
|
|
|
11.94 |
|
Net Interest Margin |
|
|
|
2.34 |
|
|
|
|
2.90 |
|
Dividend Payout Ratio |
|
|
|
72.41 |
|
|
|
|
38.46 |
|
Efficiency Ratio |
|
|
|
62.17 |
|
|
|
|
49.35 |
|
PROBLEM AND POTENTIAL PROBLEM LOANS AND
ASSETS(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
03/31/23 |
|
|
12/31/22 |
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Loans including modifications
to borrowers experiencing financial difficulty: |
|
|
|
|
|
|
|
|
Modified and performing according to their modified terms |
|
$ |
438 |
|
|
$ |
480 |
|
Past due 30 through 89 days |
|
|
1,080 |
|
|
|
750 |
|
Past due 90 days or more and still accruing |
|
|
— |
|
|
|
— |
|
Nonaccrual |
|
|
— |
|
|
|
— |
|
|
|
|
1,518 |
|
|
|
1,230 |
|
Other real estate owned |
|
|
— |
|
|
|
— |
|
|
|
$ |
1,518 |
|
|
$ |
1,230 |
|
|
|
|
|
|
|
|
|
|
Allowance for credit
losses |
|
$ |
30,209 |
|
|
$ |
31,432 |
|
Allowance for credit losses as
a percentage of total loans |
|
|
0.93 |
% |
|
|
0.95 |
% |
Allowance for credit losses as
a multiple of nonaccrual loans |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
AVERAGE BALANCE SHEET, INTEREST RATES AND
INTEREST DIFFERENTIAL(Unaudited)
|
|
Three Months Ended March 31, |
|
|
2023 |
|
2022 |
|
|
Average |
|
Interest/ |
|
Average |
|
Average |
|
Interest/ |
|
Average |
(dollars in thousands) |
|
Balance |
|
Dividends |
|
Rate |
|
Balance |
|
Dividends |
|
Rate |
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning bank balances |
|
$ |
49,156 |
|
|
$ |
547 |
|
4.51 |
% |
|
$ |
27,675 |
|
|
$ |
14 |
|
0.21 |
% |
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable (1) |
|
|
467,444 |
|
|
|
3,122 |
|
2.67 |
|
|
|
432,871 |
|
|
|
1,654 |
|
1.53 |
|
Nontaxable (1) (2) |
|
|
303,273 |
|
|
|
2,462 |
|
3.25 |
|
|
|
314,663 |
|
|
|
2,491 |
|
3.17 |
|
Loans (1) (2) |
|
|
3,287,664 |
|
|
|
30,407 |
|
3.70 |
|
|
|
3,160,058 |
|
|
|
27,387 |
|
3.47 |
|
Total interest-earning
assets |
|
|
4,107,537 |
|
|
|
36,538 |
|
3.56 |
|
|
|
3,935,267 |
|
|
|
31,546 |
|
3.21 |
|
Allowance for credit
losses |
|
|
(31,424 |
) |
|
|
|
|
|
|
|
|
(29,850 |
) |
|
|
|
|
|
|
Net interest-earning
assets |
|
|
4,076,113 |
|
|
|
|
|
|
|
|
|
3,905,417 |
|
|
|
|
|
|
|
Cash and due from banks |
|
|
31,015 |
|
|
|
|
|
|
|
|
|
32,482 |
|
|
|
|
|
|
|
Premises and equipment,
net |
|
|
31,782 |
|
|
|
|
|
|
|
|
|
37,882 |
|
|
|
|
|
|
|
Other assets |
|
|
115,173 |
|
|
|
|
|
|
|
|
|
151,151 |
|
|
|
|
|
|
|
|
|
$ |
4,254,083 |
|
|
|
|
|
|
|
|
$ |
4,126,932 |
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW & money
market deposits |
|
$ |
1,677,634 |
|
|
|
5,775 |
|
1.40 |
|
|
$ |
1,688,054 |
|
|
|
763 |
|
0.18 |
|
Time deposits |
|
|
507,475 |
|
|
|
3,069 |
|
2.45 |
|
|
|
277,667 |
|
|
|
945 |
|
1.38 |
|
Total interest-bearing
deposits |
|
|
2,185,109 |
|
|
|
8,844 |
|
1.64 |
|
|
|
1,965,721 |
|
|
|
1,708 |
|
0.35 |
|
Short-term borrowings |
|
|
8,811 |
|
|
|
108 |
|
4.97 |
|
|
|
124,333 |
|
|
|
441 |
|
1.44 |
|
Long-term debt |
|
|
369,867 |
|
|
|
3,433 |
|
3.76 |
|
|
|
186,322 |
|
|
|
868 |
|
1.89 |
|
Total interest-bearing
liabilities |
|
|
2,563,787 |
|
|
|
12,385 |
|
1.96 |
|
|
|
2,276,376 |
|
|
|
3,017 |
|
0.54 |
|
Checking deposits |
|
|
1,281,991 |
|
|
|
|
|
|
|
|
|
1,416,223 |
|
|
|
|
|
|
|
Other liabilities |
|
|
37,692 |
|
|
|
|
|
|
|
|
|
24,031 |
|
|
|
|
|
|
|
|
|
|
3,883,470 |
|
|
|
|
|
|
|
|
|
3,716,630 |
|
|
|
|
|
|
|
Stockholders' equity |
|
|
370,613 |
|
|
|
|
|
|
|
|
|
410,302 |
|
|
|
|
|
|
|
|
|
$ |
4,254,083 |
|
|
|
|
|
|
|
|
$ |
4,126,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (2) |
|
|
|
|
$ |
24,153 |
|
|
|
|
|
|
|
$ |
28,529 |
|
|
|
Net interest spread (2) |
|
|
|
|
|
|
|
1.60 |
% |
|
|
|
|
|
|
|
2.67 |
% |
Net interest margin (2) |
|
|
|
|
|
|
|
2.34 |
% |
|
|
|
|
|
|
|
2.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The average balances of loans include
nonaccrual loans. The average balances of investment securities
exclude unrealized gains and losses on AFS securities.
(2) Tax-equivalent basis. Interest income on a
tax-equivalent basis includes the additional amount of interest
income that would have been earned if the Corporation's investment
in tax-exempt loans and investment securities had been made in
loans and investment securities subject to federal income taxes
yielding the same after-tax income. The tax-equivalent amount of
$1.00 of nontaxable income was $1.27 for each period presented
using the statutory federal income tax rate of 21%.
For More Information Contact:Jay McConie, EVP and
CFO(516) 671-4900, Ext. 7404
First of Long Island (NASDAQ:FLIC)
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