8-K: First of Long Island Corporation Reports Lower Q1 2024 Earnings Due to Net Interest Income Decline

The First of Long Island Corporation reported a decrease in net income and earnings per share for the first quarter of 2024 compared to the same period last year, primarily due to a decline in net interest income.

Summary

• The First of Long Island Corporation reported a net income of $4.4 million and earnings per share of $0.20 for the first quarter of 2024.
• This is a decrease compared to the first quarter of 2023, which saw a net income of $6.5 million and earnings per share of $0.29.
• The primary reason for the lower earnings was a $5.5 million, or 23.2%, decline in net interest income.
• This decline was partially offset by a $3.5 million loss on sales of securities in the first quarter of 2023.
• The decrease in net interest income was mainly due to an increase in interest expense of $11.0 million, which was only 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.
• Noninterest income, excluding the loss on sales of securities, increased by $272,000, or 10.9%.
• Noninterest expense decreased by $365,000, or 2.2%.
• The bank did not record a credit loss provision in the first quarter of 2024, compared to a $1.1 million provision in the first quarter of 2023.
• The return on average assets was 0.42%, the return on average equity was 4.72%, the net interest margin was 1.79%, and the efficiency ratio was 76.48%.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the significant decrease in net income and net interest income, along with a decline in key financial ratios. While there are some positives, the overall tone is concerning from an investment perspective.

Positives

• Noninterest income, excluding the loss on sales of securities, increased by 10.9% year-over-year.
• Noninterest expense decreased by 2.2% year-over-year.
• The bank did not record a credit loss provision in Q1 2024, compared to a $1.1 million provision in Q1 2023.
• The company's capital position remains strong with a leverage ratio of approximately 10.0%.
• Book value per share increased to $16.78 on March 31, 2024, from $16.43 on March 31, 2023.
• The bank has $1.5 billion of available liquidity as of March 31, 2024.
• Recurring components of noninterest income including bank-owned life insurance (BOLI) and service charges on deposit accounts had increases of 7.7% and 11.8%, respectively.

Negatives

• Net income decreased by $2.1 million year-over-year.
• Net interest income decreased by $5.5 million, or 23.2%, year-over-year.
• The net interest margin decreased to 1.79% from 2.34% year-over-year.
• Average deposits decreased by $162.6 million, or 4.7%, year-over-year.
• The weighted average cost of new FHLB borrowings was 4.72%, significantly higher than the weighted average cost of total deposits at 2.08%.

Risks

• The company is exposed to risks associated with changing economic conditions, legislative and regulatory changes, and monetary and fiscal policies.
• Changes in interest rates, deposit flows, and the cost of funds could negatively impact the company's performance.
• Competition and changes in management's business strategies pose potential risks.
• Changes in accounting principles, policies, or guidelines could affect the company's financial results.
• The company is exposed to risks related to changes in real estate values.
• The company's net interest margin is dependent on an improving yield curve.

Future Outlook

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

Management Comments

• President and Chief Executive Officer Chris Becker noted that the bank typically experiences seasonal deposit outflows at year-end and deposits generally build throughout the year.
• Mr. Becker stated that while average deposits declined approximately $100 million during the first quarter, total deposits were $55.5 million higher on March 31, 2024, than on December 31, 2023.
• Mr. Becker mentioned that the first quarter 2024 repricing of wholesale funding represented the final tranches of wholesale funding with a significant increase in interest costs.
• Mr. Becker added that retail certificates of deposit have largely repriced to market, although the 2024 tranches in April and May have a weighted average cost of approximately 4% and will likely reprice higher during the second quarter of 2024.

Industry Context

The decrease in deposits reflects industry trends, as noted in the report, suggesting that other banks may be experiencing similar challenges in attracting and retaining deposits. The increase in the cost of funds is also a common theme in the current interest rate environment.

Comparison to Industry Standards

• The company's net interest margin of 1.79% is below the average for many regional banks, which typically range from 2.5% to 3.5%.
• The efficiency ratio of 76.48% is higher than the industry average, which is typically around 60%.
• The return on average assets of 0.42% is below the industry average, which is typically around 1%.
• The return on average equity of 4.72% is also below the industry average, which is typically around 10%.

Stakeholder Impact

• Shareholders will be impacted by the decrease in earnings and the potential for lower dividends.
• Employees may be impacted by changes in incentive compensation and benefits.
• Customers may be impacted by changes in interest rates and deposit offerings.
• Creditors may be impacted by changes in the company's financial performance.

Next Steps

• The company will file its Form 10-Q for the quarter ended March 31, 2024, on or about May 10, 2024.
• The Board and management will continue to evaluate capital management tools to maximize shareholder value.

Key Dates

Keywords

net interest income, earnings, net income, interest rates, bank, financial results, deposits, liquidity, capital, credit losses