The First of Long Island Corporation Reports Earnings for the Second Quarter of 2023
The First of Long Island Corporation reported earnings for the six months ended June 30, 2023. Net income decreased by $11.2 million compared to the same period last year, primarily due to a decline in net interest income and a loss on sale of securities. The Bank's net interest margin also decreased. The provision for credit losses decreased by $2.2 million. Noninterest income declined, while noninterest expense increased slightly. Liquidity remained strong, and the Bank continues to focus on commercial, relationship-based business.
Positive
Net income for the first six months of 2023 decreased by $11.2 million compared to the same period last year.
Net interest income declined due to the significant rise in interest rates.
The provision for credit losses decreased by $2.2 million.
Noninterest income declined, while noninterest expense increased slightly.
Liquidity remained strong, and the Bank continues to focus on commercial, relationship-based business.
07/27/2023 - 05:00 PM
MELVILLE, N.Y., July 27, 2023 (GLOBE NEWSWIRE) -- The First of Long Island Corporation (Nasdaq: FLIC or the “Company”), the parent of The First National Bank of Long Island (the “Bank”), reported earnings for the three and six months ended June 30, 2023.
Analysis of Earnings – Six Months Ended June 30, 2023
President and Chief Executive Officer Chris Becker commented on the Company’s earnings: “Our earnings continue to be significantly impacted by actions taken by the Federal Reserve to combat rising inflation. The increase in the upper limit of the Fed’s target range for the federal funds rate from 0.25% in March 2022 to the current 5.50% , as well as other monetary and industry conditions, has resulted in a significant increase in our cost of funds that has not been matched by the increase in our yield on earning assets. We continue to take proactive steps to manage our business in the current interest rate environment, which includes continuing to execute on shifting our focus to commercial, relationship-based business as part of our strategic plan.”
Net income for the first six months of 2023 was $13.4 million , representing a decrease of $11.2 million from the same period last year. The primary drivers of the decrease were a decline in net interest income of $12.2 million and a loss on sale of securities of $3.5 million , partially offset by a decrease in income tax expense of $4.5 million .
Net interest income declined due to the significant rise in interest rates, which 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 $22.5 million was only partially offset by a $10.2 million increase in interest income. The cost of interest-bearing liabilities increased 170 basis points while the yield on interest-earning assets increased 42 basis points when comparing the first six months of 2023 and 2022. Also contributing to the decline in net interest income was a shift in the mix of funding as average noninterest-bearing deposits decreased $200.8 million while average interest-bearing liabilities increased $263.5 million . The $300 million interest rate swap entered into during the first quarter of 2023 increased interest income for the first six months of 2023 by $912,000. Net interest margin for the first six months of 2023 was 2.25% compared to 2.93% for the same period of 2022. The Bank expects that net interest margin will remain under pressure throughout 2023 and into 2024 unless the Federal Reserve Bank reduces short-term rates and the yield curve steepens.
During the second quarter of 2023 we originated $76 million in loans at a weighted average rate of approximately 5.97% as compared to $38 million at a weighted average rate of approximately 6.05% during the first quarter of 2023. The Bank’s total loan pipeline was $135 million at the end of the current quarter. The origination volume and current loan pipeline reflect low demand for loans in the marketplace and high interest rates.
The provision for credit losses decreased $2.2 million when comparing the six-month periods from a charge of $1.2 million in 2022 to a credit of $1.1 million in 2023. The credit provision for the current six-month period was mainly due to an improvement in historical loss rates and declines in outstanding loans and average growth rates, partially offset by deteriorating economic conditions and net chargeoffs of $409,000.
Noninterest income, excluding the loss on sale of securities of $3.5 million in 2023, declined $1.3 million when comparing the six-month periods. The decline was mainly due to 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. Partially offsetting these items was a gain of $240,000 in the second quarter of 2023 from the sale of our last building in Glen Head. Recurring components of noninterest income including bank-owned life insurance (“BOLI”) and service charges on deposit accounts had increases of 5.6% and 2.3% , respectively.
The increase in noninterest expense of $890,000 includes higher rent expense and FDIC insurance expense attributable to higher assessment rates. Salaries and benefits expense was down slightly when comparing the six-month periods mainly due to declines in incentive compensation and group health insurance expense offset by annual base salary increases and lower deferred compensation costs for loan originations.
Income tax expense decreased $4.5 million and the effective tax rate declined from 20.2% to 11.6% when comparing the six-month 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 and BOLI. The decrease in income tax expense reflects the lower effective tax rate and a decline in pre-tax income.
Analysis of Earnings – Second Quarter 2023 Versus Second Quarter 2022
Net income for the second quarter of 2023 decreased $5.6 million as compared to the second quarter of last year. The decrease is mainly attributable to a $7.9 million decline in net interest income for substantially the same reasons discussed above with respect to the six-month periods. Partially offsetting this was a decrease in the provision for credit losses of $726,000 and a decline in income tax expense of $2.0 million for substantially the same reasons previously discussed.
Analysis of Earnings – Second Quarter Versus First Quarter 2023
Net income for the second quarter of this year increased $418,000 as compared to the first quarter. The increase was mainly due to the loss on sale of securities of $3.5 million in the first quarter partially offset by a decline in net interest income of $1.8 million for the same reasons previously discussed and a credit provision of $1.1 million in the first quarter. The $300 million interest rate swap increased interest income by $765,000 during the quarter. Non-interest expense was $16.5 million in the first and second quarter of 2023, respectively.
Liquidity
Mr. Becker commented on the Bank’s liquidity position: “We continue to have ample liquidity despite the disruptions that occurred in the banking industry beginning in the first quarter of this year. Through the end of the second quarter, deposits have only declined by $12 million since December 31, 2022, which is the result of proactive management and a testament to the strength of our deposit franchise. Reflecting current trends in the industry, our mix of deposits has shifted. Even with a move of approximately $100 million of deposits out of noninterest-bearing checking accounts into time deposits, noninterest-bearing deposits make up 35% of total deposits. During the first six months of 2023, brokered time deposits remained steady, representing approximately 5% of total deposits, and we reduced our long-term Federal Home Loan Bank advances by $28.5 million , or 6.9% . As of June 30, 2023, we had no short-term borrowings.”
Mr. Becker continued: “In terms of other sources of readily available liquidity, we maintain $1.4 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 have $173 million in unencumbered cash and securities that can be pledged if needed to secure additional liquidity. In total, we have approximately $1.6 billion of available liquidity, compared to an aggregate of uninsured and uncollateralized deposits of $1.3 billion . Uninsured and uncollateralized deposits represent 38% of our total deposits. While we have taken appropriate steps to ensure that we have ready access to the FRB’s Term Funding Program, we have not utilized that program and do not anticipate doing so in the immediate future.”
Moving the Bank Forward
As part of our comprehensive branch optimization strategy that has resulted in a net decrease of eleven branches since 2020, the Bank celebrated the grand opening of three legacy branch relocations in Bohemia, Hauppauge and Port Jefferson during the second quarter. Each of these branches highlight our new branding, offer new service conveniences and maintain the same knowledgeable teams with a proven successful history of catering to businesses operating in these markets.
The Bank continues to focus on expanding its business development activities by opportunistically hiring relationship bankers and promoting leaders from our existing staff. Our focus is building upon our commercial relationship business franchise.
In addition, the Bank is diligently working on technology upgrades to customer facing technology including new business online banking and branch systems designed to enhance the customer experience. Completion is scheduled for October 2023.
Finally, the Bank sold the remaining building in Glen Head, completing the sale of all of the buildings that constituted the Company’s former headquarters location. Our corporate space in Melville continues fostering internal collaboration as well as promoting corporate initiatives to increase brand recognition and prominence.
Asset Quality
The Bank’s allowance for credit losses to total loans (reserve coverage ratio) was .92% on June 30, 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 on June 30, 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 10.1% on June 30, 2023. Book value per share was $16.22 on June 30, 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 have not repurchased any shares in 2023 and the Bank declared its quarterly cash dividend of $0.21 per share on June 29, 2023. The Board and management 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 higher 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 pace of deposit rate increases slowed during the second quarter, the Corporation’s earnings and key financial metrics will continue to face significant challenges in the near term. In this difficult economic environment, our deposit franchise has remained steady, asset quality has remained strong and the Corporation is closely monitoring its capital and liquidity positions which remain strong. We continue to 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 June 30, 2023. The Form 10-Q will be available through the Bank’s website at www.fnbli.com on or about August 2, 2023, when it is electronically filed with the SEC. Our SEC filings are also available on the SEC’s website at www.sec.gov .
(Unaudited) 6/30/2023 12/31/2022 (dollars in thousands) Assets: Cash and cash equivalents $ 77,538 $ 74,178 Investment securities available-for-sale, at fair value 666,184 673,413 Loans: Commercial and industrial 119,379 108,493 Secured by real estate: Commercial mortgages 1,898,886 1,916,493 Residential mortgages 1,200,640 1,240,144 Home equity lines 45,293 45,213 Consumer and other 1,700 1,390 3,265,898 3,311,733 Allowance for credit losses (29,967 ) (31,432 ) 3,235,931 3,280,301 Restricted stock, at cost 25,380 26,363 Bank premises and equipment, net 32,382 31,660 Right-of-use asset - operating leases 23,672 23,952 Bank-owned life insurance 112,422 110,848 Pension plan assets, net 10,812 11,049 Deferred income tax benefit 32,718 31,124 Other assets 23,656 18,623 $ 4,240,695 $ 4,281,511 Liabilities: Deposits: Checking $ 1,219,027 $ 1,324,141 Savings, NOW and money market 1,663,551 1,661,512 Time 570,137 478,981 3,452,715 3,464,634 Short-term borrowings — — Long-term debt 382,500 411,000 Operating lease liability 26,068 25,896 Accrued expenses and other liabilities 13,478 15,445 3,874,761 3,916,975 Stockholders' Equity: Common stock, par value $0.10 per share: Authorized, 80,000,000 shares; Issued and outstanding, 22,556,996 and 22,443,380 shares 2,256 2,244 Surplus 79,264 78,462 Retained earnings 352,512 348,597 434,032 429,303 Accumulated other comprehensive loss, net of tax (68,098 ) (64,767 ) 365,934 364,536 $ 4,240,695 $ 4,281,511
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Six Months Ended Three Months Ended 6/30/2023 6/30/2022 6/30/2023 6/30/2022 (dollars in thousands) Interest and dividend income: Loans $ 61,888 $ 56,149 $ 31,483 $ 28,763 Investment securities: Taxable 9,283 3,805 5,614 2,137 Nontaxable 2,972 3,962 1,027 1,994 74,143 63,916 38,124 32,894 Interest expense: Savings, NOW and money market deposits 13,386 1,564 7,611 801 Time deposits 7,301 2,100 4,232 1,155 Short-term borrowings 546 684 438 243 Long-term debt 7,435 1,868 4,002 1,000 28,668 6,216 16,283 3,199 Net interest income 45,475 57,700 21,841 29,695 Provision (credit) for credit losses (1,056 ) 1,159 — 726 Net interest income after provision (credit) for credit losses 46,531 56,541 21,841 28,969 Noninterest income: Bank-owned life insurance 1,574 1,490 794 748 Service charges on deposit accounts 1,540 1,506 753 780 Net loss on sales of securities (3,489 ) — — — Other 2,070 3,452 1,135 1,496 1,695 6,448 2,682 3,024 Noninterest expense: Salaries and employee benefits 19,619 19,736 9,854 9,981 Occupancy and equipment 6,721 6,307 3,396 3,356 Other 6,748 6,155 3,267 3,092 33,088 32,198 16,517 16,429 Income before income taxes 15,138 30,791 8,006 15,564 Income tax expense 1,758 6,227 1,107 3,083 Net income $ 13,380 $ 24,564 $ 6,899 $ 12,481 Share and Per Share Data: Weighted Average Common Shares 22,522,663 23,088,542 22,551,568 22,999,598 Dilutive restricted stock units 59,910 85,043 33,309 71,028 22,582,573 23,173,585 22,584,877 23,070,626 Basic EPS $ 0.59 $ 1.06 $ 0.31 $ 0.54 Diluted EPS 0.59 1.06 0.31 0.54 Cash Dividends Declared per share 0.42 0.40 0.21 0.20 ROA 0.64 % 1.18 % 0.66 % 1.18 % ROE 7.27 12.43 7.44 12.94 Net Interest Margin 2.25 2.93 2.17 2.97 Dividend Payout Ratio 71.19 37.74 67.74 37.04 Efficiency Ratio 64.31 49.38 66.61 49.41
PROBLEM AND POTENTIAL PROBLEM LOANS AND ASSETS (Unaudited) 6/30/2023 12/31/2022 (dollars in thousands) Loans including modifications to borrowers experiencing financial difficulty: Modified and performing according to their modified terms $ 435 $ 480 Past due 30 through 89 days 887 750 Past due 90 days or more and still accruing — — Nonaccrual — — 1,322 1,230 Other real estate owned — — $ 1,322 $ 1,230 Allowance for credit losses $ 29,967 $ 31,432 Allowance for credit losses as a percentage of total loans 0.92 % 0.95 % Allowance for credit losses as a multiple of nonaccrual loans — —
AVERAGE BALANCE SHEET, INTEREST RATES AND INTEREST DIFFERENTIAL (Unaudited) Six Months Ended June 30, 2023 2022 Average Interest/ Average Average Interest/ Average (dollars in thousands) Balance Dividends Rate Balance Dividends Rate Assets: Interest-earning bank balances $ 44,889 $ 1,067 4.79 % $ 33,674 $ 97 .58 % Investment securities: Taxable (1) 533,866 8,216 3.08 432,303 3,708 1.72 Nontaxable (1) (2) 234,036 3,762 3.21 315,418 5,015 3.18 Loans (1) (2) 3,270,722 61,890 3.78 3,220,953 56,151 3.49 Total interest-earning assets 4,083,513 74,935 3.67 4,002,348 64,971 3.25 Allowance for credit losses (30,811 ) (30,059 ) Net interest-earning assets 4,052,702 3,972,289 Cash and due from banks 30,388 33,106 Premises and equipment, net 32,024 37,942 Other assets 116,229 144,329 $ 4,231,343 $ 4,187,666 Liabilities and Stockholders' Equity: Savings, NOW & money market deposits $ 1,675,355 13,386 1.61 $ 1,713,883 1,564 .18 Time deposits 510,461 7,301 2.88 319,206 2,100 1.33 Total interest-bearing deposits 2,185,816 20,687 1.91 2,033,089 3,664 .36 Short-term borrowings 20,845 546 5.28 88,091 684 1.57 Long-term debt 374,285 7,435 4.01 196,268 1,868 1.92 Total interest-bearing liabilities 2,580,946 28,668 2.24 2,317,448 6,216 .54 Checking deposits 1,241,566 1,442,398 Other liabilities 37,541 29,342 3,860,053 3,789,188 Stockholders' equity 371,290 398,478 $ 4,231,343 $ 4,187,666 Net interest income (2) $ 46,267 $ 58,755 Net interest spread (2) 1.43 % 2.71 % Net interest margin (2) 2.25 % 2.93 % $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 June 30, 2023 2022 Average Interest/ Average Average Interest/ Average (dollars in thousands) Balance Dividends Rate Balance Dividends Rate Assets: Interest-earning bank balances $ 40,668 $ 520 5.13 % $ 39,607 $ 83 .84 % Investment securities: Taxable (1) 599,558 5,094 3.40 431,740 2,054 1.90 Nontaxable (1) (2) 165,559 1,300 3.14 316,166 2,524 3.19 Loans (1) (2) 3,253,952 31,483 3.87 3,281,178 28,764 3.51 Total interest-earning assets 4,059,737 38,397 3.78 4,068,691 33,425 3.29 Allowance for credit losses (30,204 ) (30,266 ) Net interest-earning assets 4,029,533 4,038,425 Cash and due from banks 29,768 33,723 Premises and equipment, net 32,263 38,002 Other assets 117,288 137,582 $ 4,208,852 $ 4,247,732 Liabilities and Stockholders' Equity: Savings, NOW & money market deposits $ 1,673,101 7,611 1.82 $ 1,739,429 801 .18 Time deposits 513,414 4,232 3.31 360,289 1,155 1.29 Total interest-bearing deposits 2,186,515 11,843 2.17 2,099,718 1,956 .37 Short-term borrowings 32,747 438 5.36 52,247 243 1.87 Long-term debt 378,654 4,002 4.24 206,105 1,000 1.95 Total interest-bearing liabilities 2,597,916 16,283 2.51 2,358,070 3,199 .54 Checking deposits 1,201,585 1,468,285 Other liabilities 37,391 34,593 3,836,892 3,860,948 Stockholders' equity 371,960 386,784 $ 4,208,852 $ 4,247,732 Net interest income (2) $ 22,114 $ 30,226 Net interest spread (2) 1.27 % 2.75 % Net interest margin (2) 2.17 % 2.97 % $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:
What was the net income for the first six months of 2023?
What were the primary drivers of the decrease in net income?
A decline in net interest income and a loss on sale of securities.
What was the decrease in net interest income attributed to?
The significant rise in interest rates.
What was the decrease in the provision for credit losses?
What happened to noninterest income and noninterest expense?
Noninterest income declined, while noninterest expense increased slightly.
What is the Bank's focus?
The Bank continues to focus on commercial, relationship-based business.
