8-K: First of Long Island Corporation Reports Lower 2023 Earnings Amidst Interest Rate Challenges

The First of Long Island Corporation reported a decrease in net income for 2023, primarily due to a decline in net interest income and a loss on the sale of securities.

Summary

• The First of Long Island Corporation's net income for 2023 was $26.2 million, a decrease from $46.9 million in 2022.
• Earnings per share also decreased to $1.16 in 2023 from $2.04 in the previous year.
• The primary drivers for the decline were a $28.8 million decrease in net interest income and a $3.5 million loss on the sale of securities.
• These decreases were partially offset by an $8.1 million decrease in income tax expense and a $2.7 million decrease in the provision for credit losses.
• The net interest margin decreased to 2.16% for 2023, down from 2.89% in 2022.
• The return on average assets was 0.62% and the return on average equity was 7.14% for the year.
• The company's efficiency ratio was 65.52% for 2023.
• Net interest income declined due to a $50.1 million increase in interest expense, partially offset by a $21.3 million increase in interest income.
• Noninterest income decreased by $2.8 million year-over-year, excluding gains and losses on securities sales and asset dispositions.
• Noninterest expense decreased by $3.0 million, primarily due to lower salaries and employee benefits.
• The bank recorded a credit loan loss provision of $326,000 during 2023.
• The effective tax rate declined from 19.4% in 2022 to 11.0% in 2023.
• Net income for the fourth quarter of 2023 decreased by $3.8 million compared to the fourth quarter of 2022.
• Net income for the fourth quarter of 2023 declined $741,000 compared to the third quarter of 2023.
• Total average deposits declined by $104.7 million, or 3.0%, comparing 2023 to 2022.
• The Corporation's leverage ratio was approximately 10.1% at December 31, 2023.
• Book value per share was $16.83 at December 31, 2023, compared to $16.24 at the end of 2022.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with significant declines in key financial metrics, but also some positive signs like slowing margin decline and strong capital position. The overall tone is cautious, reflecting the challenges faced by the company.

Positives

• The pace of decline in the net interest margin slowed considerably in the second half of 2023.
• Noninterest expense decreased by $3.0 million, or 4.4%, for the year.
• The company's capital position remains strong with a leverage ratio of approximately 10.1%.
• The bank has $1.5 billion of available liquidity, exceeding uninsured and uncollateralized deposits of $1.3 billion.
• Management is optimistic about returning to growth in deposits and loans in 2024.
• The company is investing in technology upgrades to improve customer facing and back-office operations.

Negatives

• Net income decreased significantly from $46.9 million in 2022 to $26.2 million in 2023.
• Net interest income declined by $28.8 million, or 24.9%, year-over-year.
• The net interest margin decreased to 2.16% for the year.
• Noninterest income declined by $2.8 million year-over-year, excluding gains and losses on securities sales and asset dispositions.
• Total average deposits declined by $104.7 million, or 3.0%, comparing 2023 to 2022.
• The company experienced a loss on the sale of securities of $3.5 million.

Risks

• The company's liability-sensitive balance sheet is vulnerable to changes in interest rates.
• Competition for funding remains fierce, with demand for higher deposit rates.
• The net interest margin is expected to remain under pressure during the first half of 2024.
• The company is subject to various economic, legislative, and regulatory risks.
• Changes in accounting principles, policies, or guidelines could impact future results.
• The company is exposed to risks related to real estate values.

Future Outlook

Management expects the net interest margin to remain under pressure in the first half of 2024 before improving in the second half, based on falling rate assumptions and an improving yield curve. They are also optimistic about returning to growth in deposits and loans in 2024.

Management Comments

• 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.
• Management is encouraged by recent declines in inflation figures that may lead to reductions in short-term rates in 2024.
• Management continues to pursue ways to reduce noninterest expense as a tactic to offset the impact of the decline in net interest income.
• We believe the stress on deposits is beginning to ease and the anticipated lower market rates will improve loan activity.

Industry Context

The results reflect the challenges faced by many banks in 2023 due to the rising interest rate environment, which negatively impacted net interest margins and deposit flows. The company's focus on commercial relationship banking and technology upgrades aligns with industry trends towards enhancing customer experience and operational efficiency.

Comparison to Industry Standards

• The First of Long Island Corporation's net interest margin of 2.16% is lower than the average for many regional banks, which have seen margins closer to 3% in 2023, such as those reported by companies like New York Community Bancorp and Valley National Bancorp.
• The return on average assets of 0.62% is also below the industry average, which is closer to 1% for well-performing regional banks, such as those reported by companies like Signature Bank before its collapse.
• The efficiency ratio of 65.52% is higher than the industry average, indicating that the bank is spending more on operating expenses relative to its income compared to peers like M&T Bank which has an efficiency ratio closer to 55%.
• The decline in deposits is consistent with industry trends, but the magnitude of the decline is significant, indicating a need for more aggressive deposit gathering strategies compared to peers like First Republic Bank which saw a more moderate decline before its collapse.
• The company's focus on technology upgrades is in line with industry trends, but the impact of these upgrades on the company's financial performance remains to be seen.

Stakeholder Impact

• Shareholders will be impacted by the decrease in net income and earnings per share.
• Employees may see changes in compensation and benefits due to cost-cutting measures.
• Customers may benefit from the planned technology upgrades.
• The company's strong capital position should provide stability for creditors.

Next Steps

• The company plans to complete upgrades to its core system, business online banking, and branch systems in the first quarter of 2024.
• Management will continue to evaluate capital management tools to maximize shareholder value.
• The company anticipates a lower run rate of noninterest expenses in 2024.
• The company expects to file its annual report on Form 10-K on or about March 8, 2024.

Key Dates

Keywords

net interest income, net income, earnings per share, interest rates, net interest margin, deposits, loans, liquidity, capital, financial results, banking