FLIC First of Long Island Corporation

The First of Long Island Corporation (Nasdaq: FLIC, the “Company” or the “Corporation”), the parent of The First National Bank of Long Island (the “Bank”), reported net income and earnings per share for the quarter and year ended December 31, 2023.

Analysis of 2023 Earnings

President and Chief Executive Officer Chris Becker commented on the Company’s financial position: “The leveling of quarterly earnings during the final three quarters of 2023 was encouraging as we believe the decline in the net interest margin is nearing a turning point. We enter 2024 with an enthusiastic focus on our core business of commercial relationship banking. Our balance sheet is well positioned to take advantage of a more favorable rate environment.”

Net income and earnings per share for 2023 were $26.2 million and $1.16, respectively, compared to $46.9 million and $2.04, respectively, in 2022. The principal drivers of the decreases were declines in net interest income of $28.8 million, or 24.9%, and a loss on sale of securities of $3.5 million. These items were partially offset by a decrease in income tax expense of $8.1 million and a decrease in the provision for credit losses of $2.7 million. The decline in net interest income primarily resulted from the current rate environment’s impact on the Bank’s liability sensitive balance sheet. Reductions in net income negatively impacted key financial ratios for the year as compared to historical results. For the year ended December 31, 2023, the return on average assets was 0.62%, the return on average equity was 7.14%, the net interest margin was 2.16%, and the efficiency ratio was 65.52%.

Over the second half of 2023, the pace of the decline in the net interest margin slowed considerably. After a 57 basis point reduction in the margin during the first two quarters of 2023, over the final two quarters of 2023 the margin decreased 17 basis points. The slowing downward trend in the net interest margin largely resulted from a large portion of the wholesale funding and time deposits repricing to market rates by mid-2023 and the completion of two balance sheet repositioning transactions in the first quarter of 2023 that helped reduce the Bank’s liability sensitive position. Additionally, as the federal funds rate held steady in the second half of the year, the demand for higher rates from depositors slowed.        

For the year ended December 31, 2023, net interest income declined due to an increase in interest expense of $50.1 million that was only partially offset by a $21.3 million increase in interest income. Year over year, the cost of interest-bearing liabilities increased 186 basis points while the yield on interest-earning assets increased 48 basis points. Also contributing to the decline in net interest income was a shift in the mix of funding as average noninterest-bearing deposits decreased $217.9 million while average interest-bearing liabilities increased $221.6 million as depositors took advantage of interest rates not seen in over a decade.

Noninterest income declined $2.8 million year over year excluding the net gains and losses on sales of securities and the disposition of premises and fixed assets. The primary factor reducing noninterest income for the current year was a $2.3 million decline in the net pension credit, excluding service costs. The remaining difference was related to a payment received in 2022 for the conversion of the Bank’s retail broker and advisory accounts to LPL.

Noninterest expense declined $3.0 million, or 4.4%, for the year ended December 31, 2023, as compared to the prior year. Reductions in salaries and employee benefits of $3.7 million primarily drove the decline as short-term incentive and stock-based compensation costs were substantially lower than 2022 based on the Company falling short of established performance metrics for 2023. The primary offset to the lower salaries and employee benefits was a $782,000 increase in FDIC insurance expense due to higher assessment rates.

The Bank recorded a credit loan loss provision of $326,000 during 2023. Changes in the loan loss reserve were driven largely by adjustments for economic conditions offset by net chargeoffs of $2.1 million, or 6 basis points of average loans. The reserve coverage ratio at year end 2023 was 0.89% of total loans as compared to 0.95% of total loans at December 31, 2022. Past due loans and nonaccrual loans were modest at $3.1 million and $1.1 million, respectively, at December 31, 2023. During the fourth quarter of 2023, the Bank partially charged off a previously identified substandard commercial and industrial loan relationship in the amount of $1.4 million. The remaining outstanding balance of $632,000 is fully reserved and represents the majority of outstanding nonaccrual loans. Overall credit quality in the loan and investment portfolios remains strong.

Income tax expense decreased $8.1 million, and the effective tax rate declined from 19.4% in 2022 to 11.0% in 2023. 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 and bank-owned life insurance. The decrease in income tax expense reflects the lower effective tax rate and a decline in pre-tax income.

Analysis of Earnings – Fourth Quarter 2023 Versus Fourth Quarter 2022

Net income for the fourth quarter of 2023 decreased $3.8 million as compared to the fourth quarter of 2022. The decrease is mainly attributable to a $7.8 million decline in net interest income and an increase in the provision for credit losses of $818,000, partially offset by declines in salaries and employee benefits of $2.7 million and income tax expense of $1.7 million for substantially the same reasons discussed above with respect to the year over year changes.

Analysis of Earnings – Fourth Quarter Versus Third Quarter 2023

Net income for the fourth quarter of 2023 declined $741,000 compared to the third quarter. The decrease was mainly due to a decrease in net interest income of $1.5 million, primarily due to higher cost of funds on total interest-bearing liabilities, and an increase in the provision for credit losses of $1.1 million. These negative impacts on quarterly earnings were partially offset by lower salaries and employee benefits and lower income tax expense for substantially the same reasons already discussed above.

Liquidity

Total average deposits declined by $104.7 million, or 3.0%, comparing 2023 to 2022, reflecting current trends in the industry. Competition for funding remained fierce throughout 2023 with demand for higher deposit rates from both consumer and commercial depositors as well as increased pressure from the local government investment pool alternatives that can offer higher yields to local municipalities. At December 31, 2023, short term borrowings were up $70 million from the prior year end. Long-term borrowings increased $61.5 million to $472.5 million year over year.

The Bank had $1.1 billion in collateralized borrowing lines with the Federal Home Loan Bank of New York and the Federal Reserve Bank, as well as a $20 million unsecured line of credit with a correspondent bank. We also had $386 million in unencumbered cash and securities. In total, we had approximately $1.5 billion of available liquidity, compared to an aggregate of uninsured and uncollateralized deposits of approximately $1.3 billion. Uninsured and uncollateralized deposits represented 38% of our total deposits at December 31, 2023.

Capital

The Corporation’s capital position remains strong with a Leverage Ratio of approximately 10.1% at December 31, 2023. Book value per share was $16.83 at December 31, 2023 versus $16.24 at December 31, 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 in 2023 and the Bank declared its quarterly cash dividend of $0.21 per share each quarter throughout 2023. The Board and management continue to evaluate both capital management tools to provide the best opportunity to maximize shareholder value.

Looking Forward to 2024

Management is encouraged by recent declines in inflation figures that may lead to reductions in short-term rates in 2024. Our liability-sensitive balance sheet should perform well in a falling rate environment. Current expectations are for our net interest margin to remain under pressure during the first half of 2024 before improving in the second half of the year based on falling rate assumptions and an improving yield curve.

Management continues to pursue ways to reduce noninterest expense as a tactic to offset the impact of the decline in net interest income, yet remains cognizant of preventing short term expense reductions that could have longer term negative impacts on shareholder value. We are investing in upgrades to the Bank’s core system, business online banking, branch systems and other ancillary systems that will be completed in the first quarter of 2024. Both customer facing technology and back-office operations will see benefits. We anticipate a lower run rate of noninterest expenses in 2024 including the cost associated with making these technology upgrades.

We believe the stress on deposits is beginning to ease and the anticipated lower market rates will improve loan activity. We are optimistic about returning to growth in deposits and loans in 2024. With our capital levels strong and our bankers eager to service customers, we are prepared for increases in demand.

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 annual report on Form 10-K for the year ended December 31, 2023. The Form 10-K will be available through the Bank’s website at www.fnbli.com on or about March 8, 2024, when it is anticipated to be electronically filed with the SEC. Our SEC filings are also available on the SEC’s website at www.sec.gov. 

CONSOLIDATED BALANCE SHEETS(Unaudited)
		12/31/2023				12/31/2022
		(dollars in thousands)
Assets:
Cash and cash equivalents		$	60,887			$	74,178
Investment securities available-for-sale, at fair value			695,877				673,413
Loans:
Commercial and industrial			116,163				108,493
Secured by real estate:
Commercial mortgages			1,919,714				1,916,493
Residential mortgages			1,166,887				1,240,144
Home equity lines			44,070				45,213
Consumer and other			1,230				1,390
			3,248,064				3,311,733
Allowance for credit losses			(28,992	)			(31,432	)
			3,219,072				3,280,301
Restricted stock, at cost			32,659				26,363
Bank premises and equipment, net			31,414				31,660
Right-of-use asset - operating leases			22,588				23,952
Bank-owned life insurance			114,045				110,848
Pension plan assets, net			10,740				11,049
Deferred income tax benefit			28,996				31,124
Other assets			19,622				18,623
		$	4,235,900			$	4,281,511
Liabilities:
Deposits:
Checking		$	1,133,184			$	1,324,141
Savings, NOW and money market			1,546,369				1,661,512
Time			591,433				478,981
			3,270,986				3,464,634
Short-term borrowings			70,000				—
Long-term debt			472,500				411,000
Operating lease liability			24,940				25,896
Accrued expenses and other liabilities			17,328				15,445
			3,855,754				3,916,975
Stockholders' Equity:
Common stock, par value $0.10 per share:
Authorized, 80,000,000 shares;
Issued and outstanding, 22,590,942 and 22,443,380 shares			2,259				2,244
Surplus			79,728				78,462
Retained earnings			355,887				348,597
			437,874				429,303
Accumulated other comprehensive loss, net of tax			(57,728	)			(64,767	)
			380,146				364,536
		$	4,235,900			$	4,281,511

CONSOLIDATED STATEMENTS OF INCOME(Unaudited)
		Year Ended								Three Months Ended
		12/31/2023				12/31/2022				12/31/2023				12/31/2022
		(dollars in thousands)
Interest and dividend income:
Loans		$	127,866			$	116,352			$	33,160			$	30,171
Investment securities:
Taxable			22,663				9,795				6,786				3,239
Nontaxable			4,954				8,063				978				2,050
			155,483				134,210				40,924				35,460
Interest expense:
Savings, NOW and money market deposits			32,164				7,180				9,976				3,917
Time deposits			19,267				5,296				6,181				1,822
Short-term borrowings			950				1,207				354				432
Long-term debt			16,237				4,814				4,455				1,534
			68,618				18,497				20,966				7,705
Net interest income			86,865				115,713				19,958				27,755
Provision (credit) for credit losses			(326	)			2,331				901				83
Net interest income after provision (credit) for credit losses			87,191				113,382				19,057				27,672
Noninterest income:
Bank-owned life insurance			3,197				3,017				814				764
Service charges on deposit accounts			3,034				3,157				791				811
Net loss on sales of securities			(3,489	)			—				—				—
Gain (loss) on disposition of premises and fixed assets			240				(553	)			—				(553	)
Other			3,354				6,242				792				1,346
			6,336				11,863				2,397				2,368
Noninterest expense:
Salaries and employee benefits			37,373				41,096				8,105				10,832
Occupancy and equipment			13,140				13,407				3,166				3,705
Other			13,546				12,523				3,536				3,277
			64,059				67,026				14,807				17,814
Income before income taxes			29,468				58,219				6,647				12,226
Income tax expense			3,229				11,287				588				2,322
Net income		$	26,239			$	46,932			$	6,059			$	9,904
Share and Per Share Data:
Weighted Average Common Shares			22,550,562				22,868,658				22,586,296				22,558,414
Dilutive stock options and restricted stock units			82,609				99,895				122,961				129,803
			22,633,171				22,968,553				22,709,257				22,688,217
Basic EPS		$	1.16			$	2.05			$	0.27			$	0.44
Diluted EPS			1.16				2.04				0.27				0.44
Cash Dividends Declared per share			0.84				0.82				0.21				0.21
FINANCIAL RATIOS
(Unaudited)
ROA			0.62	%			1.11	%			0.57	%			0.92	%
ROE			7.14				12.13				6.68				10.74
Net Interest Margin			2.16				2.89				2.00				2.74
Dividend Payout Ratio			72.41				40.20				77.78				47.73
Efficiency Ratio			65.52				51.45				65.47				57.06

PROBLEM AND POTENTIAL PROBLEM LOANS AND ASSETS(Unaudited)
		12/31/2023				12/31/2022
		(dollars in thousands)
Loans including modifications to borrowers experiencing financial difficulty:
Modified and performing according to their modified terms		$	431			$	480
Past due 30 through 89 days			3,086				750
Past due 90 days or more and still accruing			—				—
Nonaccrual			1,053				—
			4,570				1,230
Other real estate owned			—				—
		$	4,570			$	1,230
Allowance for credit losses		$	28,992			$	31,432
Allowance for credit losses as a percentage of total loans			0.89	%			0.95	%
Allowance for credit losses as a multiple of nonaccrual loans			27.5x				—

AVERAGE BALANCE SHEET, INTEREST RATES AND INTEREST DIFFERENTIAL(Unaudited)
		Year Ended December 31,
		2023												2022
		Average				Interest/				Average				Average				Interest/				Average
(dollars in thousands)		Balance				Dividends				Rate				Balance				Dividends				Rate
Assets:
Interest-earning bank balances		$	48,879			$	2,508				5.13	%		$	35,733			$	674				1.89	%
Investment securities:
Taxable (1)			584,450				20,155				3.45				442,758				9,121				2.06
Nontaxable (1) (2)			196,341				6,271				3.19				318,836				10,206				3.20
Loans (1) (2)			3,260,903				127,868				3.92				3,276,589				116,357				3.55
Total interest-earning assets			4,090,573				156,802				3.83				4,073,916				136,358				3.35
Allowance for credit losses			(30,291	)											(30,604	)
Net interest-earning assets			4,060,282												4,043,312
Cash and due from banks			30,847												33,471
Premises and equipment, net			32,027												37,376
Other assets			112,833												132,893
		$	4,235,989											$	4,247,052
Liabilities and Stockholders' Equity:
Savings, NOW & money market deposits		$	1,657,947				32,164				1.94			$	1,728,897				7,180				0.42
Time deposits			553,096				19,267				3.48				368,922				5,296				1.44
Total interest-bearing deposits			2,211,043				51,431				2.33				2,097,819				12,476				0.59
Short-term borrowings			17,529				950				5.42				57,119				1,207				2.11
Long-term debt			380,399				16,237				4.27				232,465				4,814				2.07
Total interest-bearing liabilities			2,608,971				68,618				2.63				2,387,403				18,497				0.77
Checking deposits			1,220,947												1,438,890
Other liabilities			38,575												33,920
			3,868,493												3,860,213
Stockholders' equity			367,496												386,839
		$	4,235,989											$	4,247,052
Net interest income (2)						$	88,184											$	117,861
Net interest spread (2)											1.20	%											2.58	%
Net interest margin (2)											2.16	%											2.89	%

(1) The average balances of loans include nonaccrual loans. The average balances of investment securities exclude unrealized gains and losses on available-for-sale 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%.

AVERAGE BALANCE SHEET, INTEREST RATES AND INTEREST DIFFERENTIAL(Unaudited)
		Three Months Ended December 31,
		2023												2022
		Average				Interest/				Average				Average				Interest/				Average
(dollars in thousands)		Balance				Dividends				Rate				Balance				Dividends				Rate
Assets:
Interest-earning bank balances		$	39,134			$	539				5.46	%		$	36,804			$	360				3.88	%
Investment securities:
Taxable (1)			642,590				6,247				3.89				455,468				2,879				2.53
Nontaxable (1) (2)			157,098				1,238				3.15				321,903				2,595				3.22
Loans (1) (2)			3,245,232				33,160				4.09				3,321,303				30,172				3.63
Total interest-earning assets			4,084,054				41,184				4.03				4,135,478				36,006				3.48
Allowance for credit losses			(29,577	)											(31,412	)
Net interest-earning assets			4,054,477												4,104,066
Cash and due from banks			29,175												31,778
Premises and equipment, net			31,792												35,620
Other assets			105,902												111,466
		$	4,221,346											$	4,282,930
Liabilities and Stockholders' Equity:
Savings, NOW & money market deposits		$	1,626,615				9,976				2.43			$	1,734,863				3,917				0.90
Time deposits			602,256				6,181				4.07				438,058				1,822				1.65
Total interest-bearing deposits			2,228,871				16,157				2.88				2,172,921				5,739				1.05
Short-term borrowings			25,055				354				5.61				40,152				432				4.27
Long-term debt			390,326				4,455				4.53				263,849				1,534				2.31
Total interest-bearing liabilities			2,644,252				20,966				3.15				2,476,922				7,705				1.23
Checking deposits			1,176,276												1,400,095
Other liabilities			41,063												40,132
			3,861,591												3,917,149
Stockholders' equity			359,755												365,781
		$	4,221,346											$	4,282,930
Net interest income (2)						$	20,218											$	28,301
Net interest spread (2)											0.88	%											2.25	%
Net interest margin (2)											2.00	%											2.74	%

(1) The average balances of loans include nonaccrual loans. The average balances of investment securities exclude unrealized gains and losses on available-for-sale 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:Janet Verneuille, SEVP and CFO (516) 671-4900, Ext. 7462