The First of Long Island Corporation Reports Earnings for the Second Quarter of 2021

Thursday, 29. July 2021 14:00

GLEN HEAD, N.Y., July 29, 2021 (GLOBE NEWSWIRE) -- The First of Long Island Corporation (Nasdaq: FLIC), the parent company of The First National Bank of Long Island, reported increases in net income and earnings per share for the three and six months ended June 30, 2021. In the highlights that follow, all comparisons are of the current three or six-month period to the same period last year unless otherwise indicated.

SECOND QUARTER HIGHLIGHTS

  • Net Income and EPS were $11.4 million and $.48, respectively, versus $10.8 million and $.45
  • ROA and ROE were 1.08% and 11.02%, respectively, compared to 1.02% and 11.30%
  • Book value per share increased 7.6% to $17.58 at 6/30/21 from $16.34 at 6/30/20
  • Net interest margin was 2.71% versus 2.64%
  • Cash Dividends Per Share increased 5.6% to $.19 from $.18
  • Effective Tax Rate was 21.7% versus 16.8%

SIX MONTH HIGHLIGHTS

  • Net Income and EPS were $22.7 million and $.95, respectively, versus $19.9 million and $.83
  • ROA and ROE were 1.10% and 11.09%, respectively, compared to .96% and 10.34%
  • Net interest margin was 2.70% versus 2.63%
  • Repurchased 200,420 shares at a cost of $4.1 million
  • Effective Tax Rate was 20.6% versus 16.1%

Analysis of Earnings – Six Months Ended June 30, 2021

Net income for the first six months of 2021 was $22.7 million, an increase of $2.7 million, or 13.8%, versus the same period last year. The increase is due to growth in net interest income of $1.7 million, or 3.4%, and noninterest income of $770,000, or 13.8%, and a decline in the provision for credit losses of $4.1 million. These items were partially offset by increases in noninterest expense of $1.8 million, or 5.8%, and income tax expense of $2.1 million.

The increase in net interest income reflects a favorable shift in the mix of funding as an increase in average checking deposits of $271.9 million, or 26.8%, and a decline in average interest-bearing liabilities of $279.1 million, or 10.2%, resulted in average checking deposits comprising a larger portion of total funding. The increase is also attributable to higher income from SBA Paycheck Protection Program (“PPP”) loans of $3.0 million. PPP income for the 2021 period was $3.9 million driven by an average balance of $155.2 million and a weighted average yield earned of 5.0%. Net interest income for the second quarter and six months of 2021 also benefited by approximately $450,000 from the maturity of a $150 million interest rate swap in May 2021 with a cost of funds of 2.85%. The Bank used excess cash to repay the interest rate swap.

Partially offsetting the favorable impact on net interest income was a decline in the average balance of loans of $161.9 million, or 5.1%.   Also exerting downward pressure on net interest income were current market yields on securities and loans being lower than the runoff yields on both portfolios. The average yield on interest-earning assets declined 36 basis points (“bps”) from 3.52% for the first six months of 2020 to 3.16% for the current six-month period. Management substantially offset the negative impact of declining asset yields on net interest income through reductions in non-maturity and time deposit rates. The average cost of interest-bearing liabilities declined 54 bps from 1.30% for the first six months of 2020 to .76% for the current six-month period.

Net interest margin for the first six months of 2021 was 2.70% versus 2.63% for the 2020 period.   Income from PPP loans improved net interest margin for the first six-months of 2021 by 9 bps. As of June 30, 2021, the Bank had $97.6 million of outstanding PPP loans with unearned fees of $3.3 million. We expect substantially all outstanding PPP loans to payoff by the end of 2021. In the current interest rate environment, the Bank will be unable to replace the yield being earned on PPP loans putting downward pressure on the net interest margin in 2022.

The mortgage loan pipeline was $74 million at June 30, 2021.   Sluggish loan demand and competition for loans among banks and other lenders continues to put pressure on the pipeline and originations. Comparing June 30, 2020 to June 30, 2021, the expansion of our lending teams helped grow commercial mortgages by $127.7 million. Commercial and industrial available lines of credit have increased. However, line utilization is near historic low levels resulting in a decrease in commercial and industrial loans outstanding. We believe the economic impact of the pandemic and the stimulus packages passed by Congress contributed not only to the unusually high level of cash on our balance sheet, but also to decreased loan originations and lower levels of outstanding balances on existing credit lines.

The increase in noninterest income, net of gains on sales of securities, of $164,000 is primarily attributable to increases in the non-service cost components of the Bank’s defined benefit pension plan of $275,000 and fees from debit and credit cards of $242,000. These items were partially offset by decreases in investment services income of $276,000 and service charges on deposit accounts of $188,000. Revenue from assets under management fell as the shift to an outside service provider resulted in the loss of some relationships. Assets under management will likely decline further as the Bank transitions from its legacy trust and investment businesses to a single platform with LPL Financial. The decrease in service charges on deposit accounts is mainly attributable to the pandemic which has negatively affected most categories of fee income.

The provision for credit losses decreased $4.1 million when comparing the six-month periods from a provision of $2.5 million in the 2020 period to a credit of $1.6 million in the 2021 period. The credit provision for the current period was mainly due to improvements in economic conditions, asset quality and other portfolio metrics, and a decline in outstanding mortgage loans, partially offset by net chargeoffs of $460,000. The net chargeoffs were mainly the result of sales of three commercial mortgages in the first quarter.

The increase in noninterest expense of $1.8 million was primarily due to an increase in salaries and employee benefits related to staffing our new Riverhead Branch, building our lending and credit teams and normal salary adjustments.   Also contributing to the increase was higher FDIC insurance expense due to an assessment credit in 2020, increased marketing expense and the cost of facilities maintenance.

Income tax expense increased $2.1 million due to an increase in pre-tax earnings in the current six-month period as compared to the 2020 period and an increase in the effective tax rate to 20.6% from 16.1% when comparing the first six months of 2021 and 2020. The increase in the effective tax rate is mainly due to a decrease in the percentage of pre-tax income derived from tax-exempt municipal securities and bank-owned life insurance in 2021. Additionally, a change in NYS tax law to implement a capital tax in the second quarter of 2021 increased the second quarter provision by approximately $400,000.  

Analysis of Earnings – Second Quarter 2021 Versus Second Quarter 2020

Net income for the second quarter of 2021 of $11.4 million increased $629,000, or 5.8%, from $10.8 million earned in the same quarter of last year. The increase is mainly attributable to an increase in net interest income of $818,000 and a decline in the provision for credit losses of $715,000, partially offset by an increase in income tax expense of $991,000. The variances in each of these items occurred for substantially the same reasons discussed above with respect to the six-month periods.  

Analysis of Earnings – Second Quarter Versus First Quarter 2021

Net income for the second quarter of 2021 increased $121,000 from $11.3 million earned in the first quarter. The increase was mainly attributable to an increase in interest income from the full quarterly impact of first quarter mortgage-backed securities purchases and a decline in interest expense from the aforementioned repayment of the maturing interest rate swap. The increase in net income was also attributable to lower overtime, payroll taxes and other compensation-related costs. Partially offsetting these items was the gain on sale of securities in the first quarter and an increase in income tax expense for substantially the same reasons discussed above with respect to the six-month periods.

Asset Quality

The Bank’s allowance for credit losses to total loans (reserve coverage ratio) was 1.05% at June 30, 2021 as compared to 1.09% at December 31, 2020.   Excluding PPP loans, the reserve coverage ratio was 1.08% and 1.13%, respectively.   The decrease in the reserve coverage ratio was mainly due to improvements in economic conditions, asset quality and other portfolio metrics.   Nonaccrual loans, troubled debt restructurings and loans past due 30 through 89 days remain at low levels.

Capital

The Corporation’s balance sheet remains positioned for lending and growth with a Leverage Ratio of approximately 9.8% at June 30, 2021. The Corporation repurchased 92,533 shares of common stock during the second quarter of 2021 at a cost of $2.1 million and 200,420 shares during the first six months of 2021 at a cost of $4.1 million. We expect to continue our repurchase program during 2021.

Key Initiatives and Challenges We Face

As the economy recovers from the pandemic, we remain optimistic that the Bank’s strategic initiatives will support the expansion and profitability of our relationship banking business. Such initiatives include updated branding, a custom designed website, expanded geographic footprint of the branch network eastward into Riverhead and East Hampton, and recruitment of additional seasoned branch, lending and credit professionals. Renovations at our leased space at 275 Broadhollow Road in Melville, N.Y. for a state-of-the-art branch and needed office space are expected to be completed in early 2022. We continually assess our branch network for efficiencies while remaining cognizant of our customers' branch banking needs. During the pandemic we experienced a notable increase in use of our mobile deposit functionality as well as our cash management offerings.

Low interest rates continue to exert pressure on operating results and growth. Current lending and investing rates are below the rates earned on loan and securities repayments. The net spread on securities purchased is significantly below the Bank’s current net interest margin, and the net spread on new lending is near or below current margin. Continued increases in the cost of cybersecurity, and regulatory expectations in areas such as environmental, social and governance present additional challenges.  

Forward Looking Information

This earnings release contains various “forward-looking statements” within the meaning of that term as set forth in Rule 175 of the Securities Act of 1933 and Rule 3b-6 of the Securities Exchange Act of 1934. Such statements are generally contained in sentences including the words “may” or “expect” or “could” or “should” or “would” or “believe” or “anticipate”. The Corporation cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Factors that could cause future results to vary from current management expectations include, but are not limited to, changing economic conditions; legislative and regulatory changes; monetary and fiscal policies of the federal government; changes in interest rates; deposit flows and the cost of funds; demand for loan products; competition; changes in management’s business strategies; changes in accounting principles, policies or guidelines; changes in real estate values; and other factors discussed in the “risk factors” section of the Corporation’s filings with the Securities and Exchange Commission (“SEC”). In addition, the pandemic continues to present financial and operating challenges for the Corporation, its customers and the communities it serves. These challenges may adversely affect the Corporation’s business, results of operations and financial condition for an indefinite period of time. The forward-looking statements are made as of the date of this press release, and the Corporation assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

For more detailed financial information please see the Corporation’s quarterly report on Form 10-Q for the quarter ended June 30, 2021. The Form 10-Q will be available through the Bank’s website at www.fnbli.com on or about August 4, 2021, when it is electronically filed with the SEC. Our SEC filings are also available on the SEC’s website at www.sec.gov.

CONSOLIDATED BALANCE SHEETS

(Unaudited)
  

       
     
  6/30/21 12/31/20
  (dollars in thousands)
Assets:      
Cash and cash equivalents $191,002  $211,182 
Investment securities available-for-sale, at fair value  806,198   662,722 
       
Loans:      
Commercial and industrial  84,813   100,015 
SBA Paycheck Protection Program  94,309   139,487 
Secured by real estate:      
Commercial mortgages  1,479,244   1,421,071 
Residential mortgages  1,244,439   1,316,727 
Home equity lines  49,693   54,005 
Consumer and other  907   2,149 
   2,953,405   3,033,454 
Allowance for credit losses  (30,968)  (33,037)
   2,922,437   3,000,417 
       
Restricted stock, at cost  19,901   20,814 
Bank premises and equipment, net  37,646   38,830 
Right of use asset - operating leases  11,176   12,212 
Bank-owned life insurance  86,602   85,432 
Pension plan assets, net  20,273   20,109 
Deferred income tax benefit  434   1,375 
Other assets  15,112   16,048 
  $4,110,781  $4,069,141 
Liabilities:      
Deposits:      
Checking $1,318,941  $1,208,073 
Savings, NOW and money market  1,833,590   1,679,161 
Time  231,042   434,354 
   3,383,573   3,321,588 
       
Short-term borrowings  55,000   60,095 
Long-term debt  226,002   246,002 
Operating lease liability  11,998   13,046 
Accrued expenses and other liabilities  17,564   21,292 
   3,694,137   3,662,023 
Stockholders' Equity:      
Common stock, par value $.10 per share:      
Authorized, 80,000,000 shares;      
Issued and outstanding, 23,695,017 and 23,790,589 shares  2,370   2,379 
Surplus  102,636   105,547 
Retained earnings  309,256   295,622 
   414,262   403,548 
Accumulated other comprehensive income, net of tax  2,382   3,570 
   416,644   407,118 
  $4,110,781  $4,069,141 


CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

               
               
  Six Months Ended Three Months Ended 
  6/30/21  6/30/20 6/30/21 6/30/20 
  (dollars in thousands) 
Interest and dividend income:              
Loans $53,456  $56,888 $26,750  $27,957 
Investment securities:              
Taxable  4,078   6,749  2,245   3,323 
Nontaxable  4,462   5,066  2,214   2,501 
   61,996   68,703  31,209   33,781 
Interest expense:              
Savings, NOW and money market deposits  2,260   6,639  1,194   2,359 
Time deposits  3,897   5,928  1,593   2,886 
Short-term borrowings  700   885  350   266 
Long-term debt  2,311   4,157  1,146   2,162 
   9,168   17,609  4,283   7,673 
Net interest income  52,828   51,094  26,926   26,108 
Provision (credit) for credit losses  (1,609  2,450  (623)  92 
Net interest income after provision (credit) for credit losses  54,437   48,644  27,549   26,016 
               
Noninterest income:              
Investment services income  791   1,067  317   519 
Service charges on deposit accounts  1,418   1,606  735   619 
Net gains on sales of securities  606         
Other  3,544   2,916  1,775   1,433 
   6,359   5,589  2,827   2,571 
Noninterest expense:              
Salaries and employee benefits  19,915   18,913  9,845   9,639 
Occupancy and equipment  6,344   6,133  3,067   3,061 
Other  6,019   5,472  2,917   2,960 
   32,278   30,518  15,829   15,660 
Income before income taxes  28,518   23,715  14,547   12,927 
Income tax expense  5,863   3,808  3,159   2,168 
Net income $22,655  $19,907 $11,388  $10,759 
               
Share and Per Share Data:              
Weighted Average Common Shares  23,758,398   23,871,245  23,735,723   23,838,224 
Dilutive stock options and restricted stock units  89,776   39,135  96,060   23,638 
   23,848,174   23,910,380  23,831,783   23,861,862 
               
Basic EPS  $.95   $.83  $.48  $.45 
Diluted EPS  $.95   $.83  $.48  $.45 
Cash Dividends Declared per share  $.38   $.36  $.19  $.18 
               
FINANCIAL RATIOS
(Unaudited)
ROA  1.10%  .96% 1.08 % 1.02%
ROE  11.09%  10.34% 11.02 % 11.30%
Net Interest Margin  2.70%  2.63% 2.71 % 2.64%
Dividend Payout Ratio  40.00%  43.37% 39.58 % 40.00%
 

PROBLEM AND POTENTIAL PROBLEM LOANS AND ASSETS
(Unaudited)

         
         
  6/30/21  12/31/20 
   (dollars in thousands) 
         
Loans, excluding troubled debt restructurings:        
Past due 30 through 89 days $238  $1,422 
Past due 90 days or more and still accruing      
Nonaccrual  260   628 
   498   2,050 
Troubled debt restructurings:        
Performing according to their modified terms  570   815 
Past due 30 through 89 days      
Past due 90 days or more and still accruing      
Nonaccrual     494 
   570   1,309 
Total past due, nonaccrual and restructured loans:        
Restructured and performing according to their modified terms  570   815 
Past due 30 through 89 days  238   1,422 
Past due 90 days or more and still accruing      
Nonaccrual  260   1,122 
   1,068   3,359 
Other real estate owned      
  $1,068  $3,359 
         
Allowance for credit losses $30,968  $33,037 
Allowance for credit losses as a percentage of total loans  1.05%  1.09%
Allowance for credit losses as a multiple of nonaccrual loans  119.1x  29.4x


AVERAGE BALANCE SHEET, INTEREST RATES AND INTEREST DIFFERENTIAL

(Unaudited)

                   
                   
  Six Months Ended June 30,
  2021 2020
  Average Interest/ Average Average Interest/ Average
(dollars in thousands) Balance Dividends Rate Balance Dividends Rate
                   
Assets:                  
Interest-earning bank balances $184,641  $96 .10% $91,821  $120 .26%
Investment securities:                  
Taxable  445,712   3,982 1.79   344,932   6,629 3.84 
Nontaxable (1)  357,924   5,648 3.16   375,326   6,412 3.42 
Loans (1)  3,008,594   53,459 3.55   3,170,449   56,891 3.59 
Total interest-earning assets  3,996,871   63,185 3.16   3,982,528   70,052 3.52 
Allowance for credit losses  (32,256)        (33,115)      
Net interest-earning assets  3,964,615         3,949,413       
Cash and due from banks  34,228         32,925       
Premises and equipment, net  38,399         39,814       
Other assets  133,715         134,421       
  $4,170,957        $4,156,573       
Liabilities and Stockholders' Equity:                  
Savings, NOW & money market deposits $1,786,527   2,260 .26  $1,704,484   6,639 .78 
Time deposits  371,919   3,897 2.11   503,364   5,928 2.37 
Total interest-bearing deposits  2,158,446   6,157 .58   2,207,848   12,567 1.14 
Short-term borrowings  56,813   700 2.48   92,235   885 1.93 
Long-term debt  229,593   2,311 2.03   423,846   4,157 1.97 
Total interest-bearing liabilities  2,444,852   9,168 .76   2,723,929   17,609 1.30 
Checking deposits  1,285,761         1,013,832       
Other liabilities  28,509         31,819       
   3,759,122         3,769,580       
Stockholders' equity  411,835         386,993       
  $4,170,957        $4,156,573       
                   
Net interest income (1)    $54,017       $52,443   
Net interest spread (1)       2.40%       2.22%
Net interest margin (1)       2.70%       2.63%

(1) Tax-equivalent basis. Interest income on a tax-equivalent basis includes the additional amount of interest income that would have been earned if the Corporation's investment in tax-exempt loans and investment securities had been made in loans and investment securities subject to federal income taxes yielding the same after-tax income. The tax-equivalent amount of $1.00 of nontaxable income was $1.27 for each period presented using the statutory federal income tax rate of 21%.

AVERAGE BALANCE SHEET, INTEREST RATES AND INTEREST DIFFERENTIAL
(Unaudited)

                    
                    
   Three Months Ended June 30, 
  2021 2020 
(dollars in thousands) Average
Balance
 Interest/
Dividends
 Average
Rate
 Average
Balance
 Interest/
Dividends
 Average
Rate
 
Assets:                   
Interest-earning bank balances $213,688  $57 .11% $153,565  $38 .10% 
Investment securities:                   
Taxable  489,407   2,188 1.79   347,202   3,285 3.78  
Nontaxable (1)  354,175   2,802 3.16   370,479   3,165 3.42  
Loans (1)  3,004,227   26,752 3.56   3,181,365   27,958 3.52  
Total interest-earning assets  4,061,497   31,799 3.13   4,052,611   34,446 3.40  
Allowance for credit losses  (31,623)        (34,119)       
Net interest-earning assets  4,029,874         4,018,492        
Cash and due from banks  35,491         31,488        
Premises and equipment, net  38,102         39,696        
Other assets  132,671         139,330        
  $4,236,138        $4,229,006        
                    
Liabilities and Stockholders' Equity:                   
Savings, NOW & money market deposits $1,864,640   1,194 .26  $1,698,207   2,359 .56  
Time deposits  322,987   1,593 1.98   496,691   2,886 2.34  
Total interest-bearing deposits  2,187,627   2,787 .51   2,194,898   5,245 .96  
Short-term borrowings  54,985   350 2.55   61,133   266 1.75  
Long-term debt  226,002   1,146 2.03   448,351   2,162 1.94  
Total interest-bearing liabilities  2,468,614   4,283 .70   2,704,382   7,673 1.14  
Checking deposits  1,327,332         1,109,620        
Other liabilities  25,649         32,179        
   3,821,595         3,846,181        
Stockholders' equity  414,543         382,825        
  $4,236,138        $4,229,006        
Net interest income (1)    $27,516       $26,773    
Net interest spread (1)       2.43%       2.26% 
Net interest margin (1)       2.71%       2.64% 

(1) Tax-equivalent basis. Interest income on a tax-equivalent basis includes the additional amount of interest income that would have been earned if the Corporation's investment in tax-exempt loans and investment securities had been made in loans and investment securities subject to federal income taxes yielding the same after-tax income. The tax-equivalent amount of $1.00 of nontaxable income was $1.27 for each period presented using the statutory federal income tax rate of 21%.

For More Information Contact:
Jay McConie, EVP and CFO
(516) 671-4900, Ext. 7404

 


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