10-Q: First of Long Island Corp Reports Lower Q1 Earnings Due to Net Interest Income Decline

First of Long Island Corporation's first quarter earnings decreased compared to the same period last year, primarily due to a decline in net interest income.

Summary

• First of Long Island Corporation reported a net income of $4.4 million for the first quarter of 2024, a decrease from $6.5 million in the same quarter of 2023.
• Diluted earnings per share were $0.20, down from $0.29 in the first quarter of 2023.
• The primary drivers for the lower earnings were a $5.5 million decline in net interest income and a $1.1 million credit provision for credit losses.
• Net interest income decreased due to a $11.0 million increase in interest expense, partially offset by a $5.5 million increase in interest income.
• The cost of interest-bearing liabilities increased by 151 basis points, while the yield on interest-earning assets increased by 52 basis points.
• Average noninterest-bearing deposits decreased by $155.4 million, while average interest-bearing liabilities increased by $137.3 million.
• Noninterest income, excluding a loss on sales of securities, increased by $272,000.
• Noninterest expense decreased by $365,000, primarily due to reductions in legal fees, occupancy and equipment expenses, and director fees.
• The bank did not record a provision for credit losses in the first quarter of 2024, compared to a reversal of $1.1 million in the first quarter of 2023.
• The allowance for credit losses to total loans was 0.88% at March 31, 2024, compared to 0.89% at December 31, 2023.
• The effective tax rate declined from 9.1% in the first quarter of 2023 to 6.2% in the current quarter.
• Total average deposits declined by $162.6 million compared to the first quarter of 2023.
• The company repurchased 167,526 shares in the first quarter of 2024 at a cost of $2.0 million.
• The company declared a quarterly cash dividend of $0.21 per share.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some positive aspects like cost control and deposit growth, but the overall tone is negative due to the decline in net interest income and earnings. The company is facing challenges in the current interest rate environment.

Positives

• Noninterest income, excluding the loss on sales of securities, increased by $272,000.
• Recurring components of noninterest income, such as bank-owned life insurance and service charges on deposit accounts, saw increases.
• Noninterest expense decreased by $365,000 due to reductions in legal fees, occupancy and equipment expenses, and director fees.
• Past due loans and nonaccrual loans were modest at $292,000 and $1.2 million, respectively, at March 31, 2024.
• Overall credit quality in the loan and investment portfolios remains strong.
• Total deposits were $55.5 million higher at March 31, 2024, than at December 31, 2023.

Negatives

• Net interest income decreased by $5.5 million due to increased interest expenses.
• The cost of interest-bearing liabilities increased by 151 basis points.
• The yield on interest-earning assets increased by only 52 basis points.
• Average noninterest-bearing deposits decreased by $155.4 million.
• The company did not record a provision for credit losses in Q1 2024, compared to a reversal of $1.1 million in Q1 2023.
• The company experienced a net loss on sales of securities of $3.489 million.

Risks

• The company's net interest income is sensitive to changes in interest rates.
• The company's loan portfolio is concentrated in Long Island and New York City, making it vulnerable to local economic conditions.
• The company's loan portfolio is heavily weighted towards real estate, which is subject to market fluctuations.
• Inflation, increasing interest rates, and government regulation pose economic challenges.
• Environmental impairment of properties securing the bank's mortgage loans could affect future provisions and chargeoffs.
• A possible future downgrade of securities and loans pledged as collateral could impact the amount of available funding.
• Regulatory or strategic changes affecting the access to and availability of funding from the FHLB and FRB could adversely impact the Bank's liquidity.

Future Outlook

The company expects deposit stabilization and repricing of wholesale funding to stabilize the margin in the coming quarter, with improvement dependent on an improving yield curve in the second half of 2024.

Management Comments

• The principal drivers of the lower earnings were declines in net interest income of $5.5 million and the provision for credit losses of $1.1 million.
• The decline in net interest income primarily resulted from the current rate environments impact on the Banks liability sensitive balance sheet.
• The combination of deposit stabilization since year-end 2023s seasonal outflows and wholesale funding and retail certificates of deposit largely repriced to market rates should stabilize our margin in the coming quarter.
• Improvement in the margin in second half of 2024 is dependent on an improving yield curve.

Industry Context

The decrease in net interest income and deposit outflows reflect broader industry trends, particularly the impact of the current interest rate environment on banks with liability-sensitive balance sheets. The company is actively managing its liquidity and capital position in response to these challenges.

Comparison to Industry Standards

• The company's net interest margin of 1.79% is below the average for many regional banks, indicating a potential challenge in profitability compared to peers.
• The company's efficiency ratio of 76.48% is relatively high, suggesting that the bank may have higher operating costs compared to more efficient competitors.
• The company's return on average assets (ROA) of 0.42% and return on average equity (ROE) of 4.72% are below the industry average for well-performing banks, indicating a need for improvement in profitability.
• The company's leverage ratio of approximately 10.0% is strong and above regulatory requirements, indicating a solid capital position.
• The company's loan portfolio is heavily weighted towards real estate, which is a common characteristic of many regional banks, but the concentration in Long Island and NYC may present unique risks.
• The company's reliance on brokered time deposits, which increased to $210.0 million, is a common practice in the industry but can be a more expensive source of funding compared to core deposits.

Legal Proceedings

• The Corporation is involved in various legal actions and claims arising in the normal course of its business, but these are not expected to have a material adverse impact.

Stakeholder Impact

• Shareholders will experience lower earnings per share and a decrease in book value per share.
• Customers may see changes in deposit rates and loan terms.
• Employees may be affected by changes in incentive compensation and group health costs.
• Creditors may be impacted by changes in the company's liquidity and capital position.

Next Steps

• The company will continue to evaluate capital management tools to maximize shareholder value.
• The company expects to stabilize its margin in the coming quarter.
• The company will consider reinvesting cash inflows from the investment securities portfolio in higher-yielding agency mortgage securities.
• The company will monitor the repricing of its loan portfolio and the impact of interest rate changes.

Key Dates

Keywords

net interest income, credit losses, interest rates, loan portfolio, deposits, earnings, financial results, bank, mortgages, liquidity