10-K: First of Long Island Corp Reports Mixed Results in 2024 Amidst Merger Agreement with ConnectOne

First of Long Island Corporation's 2024 results reflect a decrease in net income and earnings per share, influenced by declining net interest income and increased noninterest expenses, while the company progresses towards a merger with ConnectOne Bancorp.

Summary

• First of Long Island Corporation (FLIC) reported a net income of $17.1 million and diluted earnings per share of $0.75 for 2024, compared to $26.2 million and $1.16 in 2023.
• The decrease in earnings was primarily due to a $13.6 million decline in net interest income, a $359,000 provision for credit losses compared to a $326,000 reversal in 2023, and a $4.1 million increase in noninterest expense.
• These factors were partially offset by a $3.5 million loss on the sale of securities in 2023, a $2.2 million increase in noninterest income, and a $3.5 million decrease in income tax expense.
• The return on average assets (ROA) for 2024 was 0.40%, and the return on average equity (ROE) was 4.49%.
• Net interest income decreased due to a $25.5 million increase in interest expense, partially offset by an $11.8 million increase in interest income; the cost of interest-bearing liabilities increased 90 basis points, while the yield on interest-earning assets increased 31 basis points.
• Noninterest income, excluding a $3.5 million loss on the sale of securities in 2023, increased by $2.2 million, or 22.8%, driven by increases in bank-owned life insurance (BOLI) and service charges on deposit accounts.
• Noninterest expense increased by $4.1 million, or 6.4%, primarily due to branch consolidation and merger expenses.
• The effective tax rate decreased from 11.0% in 2023 to (1.9%) in 2024, mainly due to an increase in the percentage of pre-tax income derived from the Bank's REIT.
• The reserve coverage ratio remained stable at 0.88% of total loans at December 31, 2024, compared to 0.89% at December 31, 2023.
• On September 4, 2024, FLIC entered into a merger agreement with ConnectOne Bancorp, Inc., expecting the transaction to close in the second quarter of 2025.

Sentiment

Score: 5

Explanation: The sentiment is neutral. While the financial results show a decline, the merger agreement provides a potential upside. The document contains both positive and negative aspects, resulting in a balanced outlook.

Positives

• Noninterest income increased by $2.2 million, or 22.8%, excluding the loss on the sales of securities of $3.5 million in the 2023 period.
• Recurring components of noninterest income including BOLI and service charges on deposit accounts had increases of 8.1% and 11.3% , respectively.
• The effective tax rate decreased from 11.0% in 2023 to (1.9%) in 2024.
• The Corporation held a special meeting of shareholders on February 14, 2025 at which time the Corporation's shareholders approved the Merger Agreement and the transactions contemplated thereunder.

Negatives

• Net income decreased to $17.1 million in 2024 from $26.2 million in 2023.
• Net interest income declined by $13.6 million due to rising interest expenses.
• Noninterest expense rose by $4.1 million, driven by merger and branch consolidation costs.
• The effective tax rate decreased from 11.0% to -1.9% due to changes in income sources.
• The Corporation and Bank intend to vigorously defend against the lawsuit claiming monetary damages of approximately $11.1 million, the net amount of funds involved in the suspicious wire transfer activity.

Risks

• A worsening of national or local economic conditions could adversely affect the financial condition and results of operations.
• Inflationary pressures and rising prices may affect our results of operations and financial condition.
• Competition within our market area could limit our ability to increase interest-earning assets and noninterest income.
• Severe weather, acts of terrorism and other external events could impact our ability to conduct business.
• Interruption of our customers supply chains and federal funding could negatively impact their business and operations and impact their ability to repay their loans.
• Declines in the value of investment securities, loans and BOLI may result in impairment charges and may adversely affect our financial condition and results of operations.
• Changes in interest rates and the shape of the yield curve could negatively impact our earnings.
• The performance of our multifamily real estate loans could be adversely impacted by regulation.
• Managements estimate of the Allowance for Credit Losses (ACL or allowance) may not be sufficient and could result in increased provisions and adversely impact our financial condition and results of operations.
• If our regulators impose limitations on our commercial real estate lending activities, earnings could be adversely affected, and we may face greater risk in our loan portfolio.
• The Bank is subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties.
• Changes in laws, government regulation, supervisory guidance and the regulatory policies of the Federal government could have a significant negative impact on our financial condition and results of operations.
• The Bank and Corporation may not have sufficient funds or funding sources to meet liquidity demands.
• Our funding sources may prove insufficient to replace deposits at maturity and support our future growth.
• There can be no assurance that we will continue to declare cash dividends.
• A decline in the Corporation s market capitalization could negatively impact the price, trading volume and liquidity of our common stock.
• The Corporation s internal controls and those of its third-party service providers ( TPSPs ) may be ineffective or circumvented, resulting in significant financial loss, adverse action by governmental bodies and damaged reputation.
• The Banks inability to keep pace with technological advances could negatively impact our business, financial condition and results of operations.
• The inability to attract, motivate or retain qualified key personnel could negatively impact our performance.
• The inability to control the risks associated with social media and other internet postings could adversely impact the Corporation's business and reputation.
• Security System failures, interruptions and security breaches could negatively impact our customers, reputation and results of operations.
• Risks associated with cybersecurity could negatively affect our earnings.
• While our Board of Directors takes an oversight role in cybersecurity risk tolerance, we rely to a large degree on management and outside consultants in overseeing cybersecurity risk management.

Future Outlook

The Corporation expects the merger with ConnectOne to close in the second quarter of 2025, subject to regulatory approvals and customary closing conditions.

Industry Context

The announcement comes amid ongoing consolidation trends in the banking industry, with smaller institutions seeking scale and efficiency through mergers to compete with larger players and adapt to evolving regulatory and technological landscapes.

Comparison to Industry Standards

• The document does not provide enough information to make a detailed comparison to industry standards.
• However, the document does mention a peer group of banks with total assets averaging approximately $5.2 billion, which can be used as a benchmark for comparison.
• The document also mentions that the Compensation Committee benchmarks total target remuneration to the 50th percentile of the Banks peer group.

Legal Proceedings

• The Bank is defending against a lawsuit claiming monetary damages of approximately $11.1 million related to suspicious wire transfer activity.

Stakeholder Impact

• Shareholders will receive 0.5175 shares of ConnectOne common stock for each share of FLIC common stock upon closing 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 roles and relationships following the consummation of the merger.

Next Steps

• Obtain regulatory approvals for the merger with ConnectOne.
• Satisfy other customary closing conditions for the merger.
• Complete the merger transaction in the second quarter of 2025.

Key Dates