10-Q: First of Long Island Corp. Reports Mixed Results Amidst Merger Announcement

First of Long Island Corporation's Q3 2024 results show a decrease in net income and net interest income compared to the previous year, alongside a pending merger with ConnectOne Bancorp.

Summary

• First of Long Island Corporation reported a net income of $13.8 million for the first nine months of 2024, a decrease from $20.2 million in the same period last year.
• Diluted earnings per share were $0.61, down from $0.89 year-over-year, which includes $0.05 per share impact from merger and branch consolidation expenses.
• Net interest income decreased by $11.7 million due to a $23.4 million increase in interest expense, partially offset by an $11.7 million increase in interest income.
• The company recorded a provision for credit losses of $740,000, compared to a reversal of $1.2 million in the prior year.
• Noninterest income, excluding a loss on securities sales in 2023, increased by $1.4 million, driven by gains in bank-owned life insurance and service charges.
• Noninterest expense increased by $254,000, primarily due to merger and branch consolidation expenses of $1.4 million.
• The effective tax rate decreased from 11.6% to -0.3% due to an increase in income from the company's REIT.
• Total average deposits declined by $89.6 million compared to the same period last year.
• The company had $915.7 million of available liquidity at September 30, 2024.
• The leverage ratio was 10.13% at September 30, 2024, and book value per share was $17.25.
• A merger agreement with ConnectOne Bancorp was announced on September 4, 2024, with shareholders set to receive 0.5175 shares of ConnectOne stock for each share of First of Long Island stock.

Sentiment

Score: 4

Explanation: The document presents mixed results with a significant decrease in profitability and net interest income, offset by some positive aspects like increased noninterest income and a strong capital position. The pending merger adds uncertainty, resulting in a slightly negative sentiment.

Positives

• Noninterest income increased by $1.4 million, excluding a loss on securities sales in 2023, driven by gains in bank-owned life insurance and service charges.
• The company maintains a strong capital position with a leverage ratio of 10.13%.
• The company has $915.7 million of available liquidity.
• Book value per share increased to $17.25 from $16.83 at year-end 2023.
• The company's efficiency ratio was 76.39% for the first nine months of 2024.

Negatives

• Net income decreased to $13.8 million from $20.2 million year-over-year.
• Diluted earnings per share decreased to $0.61 from $0.89 year-over-year.
• Net interest income declined by $11.7 million due to increased interest expenses.
• The company recorded a provision for credit losses of $740,000, compared to a reversal of $1.2 million in the prior year.
• Total average deposits declined by $89.6 million compared to the same period last year.
• Returns on average assets (ROA) and average equity (ROE) decreased to 0.44% and 4.88%, respectively, from 0.64% and 7.29% in the same period last year.

Risks

• The company's net interest income is sensitive to changes in interest rates.
• The merger with ConnectOne is subject to regulatory approvals and shareholder approval, which may not be obtained or may be delayed.
• The merger agreement contains restrictions that may limit the company's ability to operate its business.
• The company is subject to various legal actions and claims, including a customer dispute over $11.1 million in suspicious wire transfers.
• Economic conditions on Long Island and in the boroughs of NYC could affect the financial strength of the company's borrowers and the value of real estate collateral.
• The company's loan portfolio is concentrated in commercial mortgages, which may be subject to higher risk.
• The company's uninsured deposits represent 45.9% of total deposits, which could pose a liquidity risk.

Future Outlook

The company is focused on completing the merger with ConnectOne Bancorp, Inc., which is expected to close in mid-2025, subject to customary closing conditions. The company expects approximately $77.3 million of cash inflows from the investment securities portfolio over the next twelve months and will consider reinvesting them in higher yielding agency mortgage securities. The company expects approximately $354.2 million of cash inflows from the mortgage loan portfolio over the next twelve months.

Management Comments

• The Board and management continue to evaluate the quarterly dividend to provide the best opportunity to maximize shareholder value.
• Management believes that the methods selected fairly reflect the historical loss component of expected losses inherent in the Banks loan portfolio.
• Management is not aware of any environmental pollution originating on or near properties securing the Banks loans that would materially affect the carrying value of such loans.

Industry Context

The results reflect the challenges faced by regional banks in a rising interest rate environment, with increased funding costs impacting net interest income. The merger with ConnectOne is a strategic move to enhance scale and competitiveness in the market.

Comparison to Industry Standards

• The decrease in net interest income is consistent with trends seen in other regional banks facing rising interest rates.
• The company's efficiency ratio of 76.39% is higher than some of its peers, indicating potential for cost improvements.
• The company's leverage ratio of 10.13% is above the regulatory requirement of 9.00%, indicating a strong capital position.
• The company's loan portfolio is heavily concentrated in commercial mortgages, which is a common characteristic of regional banks but also presents a higher risk profile compared to more diversified portfolios.
• The pending merger with ConnectOne is a trend seen in the industry as banks seek to consolidate and gain scale to improve profitability and efficiency.

Legal Proceedings

• The Bank was notified by a customer of suspicious wire transfer activity in July 2024 involving the customer's bank accounts. The net amount of funds at issue is currently $11.1 million. The Bank disagrees with the customer's demands and will vigorously defend its position.

Stakeholder Impact

• Shareholders will receive 0.5175 shares of ConnectOne common stock for each share of First of Long Island common stock upon completion of the merger.
• Employees may experience uncertainty about their future roles and relationships following the consummation of the merger.
• Customers may experience uncertainty about their future relationships with the bank following the consummation of the merger.
• Vendors may seek to change existing business relationships with the Corporation or fail to extend an existing relationship with the Corporation.

Next Steps

• The company will seek regulatory and shareholder approvals for the merger with ConnectOne.
• The company will continue to manage its loan and investment portfolios.
• The company will continue to evaluate its quarterly dividend.

Key Dates

Keywords

merger, banking, financial results, net interest income, credit losses, liquidity, capital, interest rates, loans, deposits