The First of Long Island Corporation Reports Earnings for the Third Quarter of 2020

GLEN HEAD, N.Y., Oct. 29, 2020 (GLOBE NEWSWIRE) — The First of Long Island Corporation (Nasdaq: FLIC), the parent company of The First National Bank of Long Island, reported net income and earnings per share for the three and nine months ended September 30, 2020. In the highlights that follow, all comparisons are of the current three or nine-month period to the same period last year unless otherwise indicated.
THIRD QUARTER HIGHLIGHTSNet Income and EPS were $10.8 million and $.45, respectively, compared to $10.8 million and $.44ROA and ROE were 1.02% and 10.77%, respectively, compared to 1.02% and 10.83%Net interest margin increased 10 basis points to 2.66% from 2.56%Cost of interest-bearing deposits declined 75 basis points to .73% and cost of interest-bearing liabilities declined 60 basis points to .96%Cash Dividends Per Share increased 5.6% to $.19 from $.18Over 99% of COVID-19 loan forbearance agreements concluded and resumed making paymentsCompleted a $128.7 million deleverage transaction to remove inefficient leverageNINE MONTH HIGHLIGHTSNet Income and EPS were $30.7 million and $1.28, respectively, compared to $32.4 million and $1.29ROA and ROE were .98% and 10.49%, respectively, compared to 1.03% and 11.04%Net interest margin was 2.64% versus 2.57%Analysis of Earnings Nine Months Ended September 30, 2020Net income for the first nine months of 2020 was $30.7 million, a decrease of $1.7 million, or 5.2%, versus the same period last year. The decrease is due to increases in the provision for credit losses of $2.2 million and noninterest expense, before debt extinguishment costs, of $1.9 million, or 4.2%.   These items were partially offset by increases in net interest income of $1.4 million, or 1.9%, and noninterest income, before securities gains, of $508,000, or 6.4%, and a decrease in income tax expense of $400,000.The increase in net interest income is mainly attributable to a reduction in deposit rates in response to decreases in the Federal Funds Target Rate to near zero as well as significant declines in rates across the entire yield curve.   The cost of savings, NOW and money market deposits declined 45 basis points to .63% and the cost of interest-bearing liabilities declined 37 basis points to 1.19%. These decreases far outpaced the 15 basis point decline in yield on securities and loans which are generally not subject to immediate repricing with changes in market interest rates.   The increase in net interest income was also attributable to income from SBA Paycheck Protection Program (“PPP”) loans of $1.9 million and a favorable shift in the mix of funding as an increase in average checking deposits of $127.1 million and a decline in average interest-bearing liabilities of $180.2 million resulted in average checking deposits comprising a larger portion of total funding.   Average checking deposits include a portion of the proceeds of PPP loans.   The decline in yield on securities and loans was mainly attributable to an increase in prepayment speeds and lower yields available on securities purchases and loan originations. The economic impact of the COVID-19 pandemic (“pandemic”) caused loans and the overall balance sheet to shrink during the past two quarters. The average balance of loans decreased $84.8 million, or 2.6%, and the average balance of investment securities declined $48.8 million, or 6.2%. The average balance of loans for the current nine-month period includes $97.4 million of PPP loans at a weighted average yield of approximately 2.65%. Measures taken to contain the pandemic significantly disrupted economic activity in our area, caused business and school closures and thus increased unemployment. These disruptions caused management to put a pause on its loan pipeline and slow new business development. The decrease in loans and securities resulted in average interest-earning bank balances increasing $81.4 million, or 266%. As economic activity continues to improve and business restrictions are slowly relaxed in our marketplace, our mortgage loan pipeline is expected to increase through year-end. The mortgage loan pipeline was $72 million at September 30, 2020, an increase of $33 million during the quarter.   Net interest margin for the third quarter and first nine months of 2020 were 2.66% and 2.64%, respectively, an increase of 10 basis points and 7 basis points, respectively, over the comparable periods of 2019. The increases were mainly attributable to our ability to reduce the rates paid on interest-bearing deposits faster than interest-earning assets repriced downward as a significant portion of our municipal bond and mortgage loan portfolios have fixed rates. The PPP loan yields and acceleration of prepayments of residential mortgage loans during 2020 exert downward pressure on net interest income and margin.  The provision for credit losses was $2.5 million for the first nine months of 2020 on a current expected credit loss (“CECL”) basis as compared to $279,000 for the 2019 period on an incurred loss basis. The $2.5 million provision for the current nine-month period was primarily attributable to the pandemic and includes $4.2 million to reflect current and forecasted economic conditions and $1.8 million for net chargeoffs, partially offset by a decline in the outstanding loan balance of residential and commercial mortgages.   The $279,000 provision for the 2019 period was driven mainly by net chargeoffs of $1.3 million partially offset by a decline in outstanding loans.The increase in noninterest income, before securities gains, of $508,000 is primarily attributable to an increase in the non-service components of the Bank’s defined benefit pension plan of $784,000. Management remains focused on revenue enhancement initiatives; however, the pandemic is negatively affecting most categories of noninterest income.The increase in noninterest expense, before debt extinguishment costs, of $1.9 million includes charges related to the closure and consolidation of six branches of $476,000, technology and service contract termination costs of $315,000 and expenses attributable to the pandemic of approximately $300,000. Other factors which increased noninterest expense include salaries, employee benefits and equity compensation expense mainly related to hiring lending and credit staff, salary adjustments and the immediate vesting of stock awards in 2020. These expenses were partially offset by decreases in consulting fees of $634,000 and marketing expense of $216,000. The decrease in consulting fees was mainly due to a revenue enhancement project in 2019.In late September 2020, the Bank eliminated some inefficient leverage by selling mortgage-backed securities with a carrying value of $64.5 million and using the proceeds along with excess cash of $66.8 million to prepay long-term debt of $128.7 million. The transactions resulted in an overall net loss of $3,000 with the gain on sale of securities and loss on extinguishment of debt essentially the same at $2.6 million each. Because of the timing of the transactions, there was little impact on net interest margin for the current quarter or nine-month period. The deleveraging will benefit net interest margin by approximately 10 basis points and improve leverage capital. The benefit to net interest margin could be offset by challenges we face discussed throughout this earnings release.            The decrease in income tax expense of $400,000 is attributable to lower pretax earnings in the current nine-month period as compared to the 2019 period and a decline in the effective tax rate to 16.8%.Analysis of Earnings Third Quarter 2020 Versus Third Quarter 2019Net income for the third quarter of 2020 of $10.8 million was essentially unchanged from the comparable period of 2019. Earnings for the third quarter include increases in net interest income of $1.0 million and noninterest income, before securities gains, of $80,000, and a decrease in the provision for credit losses of $314,000. The positive impact of these items was offset by increases in noninterest expense, before debt extinguishment costs, of $1.3 million, and income tax expense of $181,000.   The increases in net interest income and noninterest income occurred for substantially the same reasons discussed above with respect to the nine-month periods. There was no provision for credit losses for the current quarter on a CECL basis as net chargeoffs of $1.3 million and an increase in historical loss rates were offset by a decline in the outstanding loan balance of residential and commercial mortgages. The increase in noninterest expense was mainly due to the aforementioned branch closures and consolidations, contract termination charges and higher salaries and employee benefits-related costs in the current quarter. Partially offsetting these increases was a decline in consulting fees of $431,000 due to the aforementioned revenue enhancement project. The increase in income tax expense reflects higher pretax earnings in the current quarter and an increase in the effective tax rate to 18.0%.Analysis of Earnings – Third Quarter Versus Second Quarter 2020Net income for the third quarter was essentially unchanged from $10.8 million earned in the second quarter. Net interest margin increased 2 basis points from 2.64% for the second quarter to 2.66% for the current quarter. The increase is mainly due to the reasons discussed above with respect to the third quarter and nine-month periods including lower deposit costs partially offset by prepayments of residential mortgage loans.Asset QualityThe Bank’s allowance for credit losses to total loans (reserve coverage ratio) on a CECL basis was 1.01% at January 1, 2020, 1.09% at March 31, 2020, and 1.08% at June 30, 2020, and September 30, 2020. Excluding PPP loans, the reserve coverage ratio increased 8 basis points during the first quarter of 2020, another 4 basis points during the second quarter of 2020 and maintained that level during the third quarter of 2020. Nonaccrual loans, troubled debt restructurings and loans past due 30 through 89 days remain at low levels.  COVID-19 Loan ModificationsDuring the second quarter, the Bank provided payment deferrals in the form of loan modifications to borrowers experiencing financial disruption and economic hardship as a result of the pandemic. As of October 26, 2020, all such loans have resumed making payment and are current except for three small business loans that were charged-off in the third quarter totaling $281,000, one loan that was 30 to 89 days past due in the amount of $123,000 and four loans that have not yet made full payments in the amount of $1.3 million.   Our employees took tremendous pride in lending under the PPP program and providing payment deferrals to support customers adversely affected by the pandemic. We are also proud of our employees and the banking industry for stepping up to the challenges created by this pandemic.CapitalThe Corporation’s balance sheet remains positioned for lending and growth with a Leverage Ratio of approximately 9.6% at September 30, 2020.   We expect to restart the share repurchase program during the fourth quarter of 2020.Key Initiatives, Customer Service and Challenges We FaceOur strategy is focused on increasing shareholder value through loan and deposit growth, the maintenance of strong credit quality, a strong efficiency ratio and an optimal amount of capital. Key strategic initiatives include building on our relationship banking business, growing fee income, enhancing our brand, highlighting our digital offerings and refining our branch strategy.  We are also focused on serving customers through our personalized approach to banking and continue to offer a wide range of loan and deposit products to customers and the communities we serve. The Bank’s strong capital and liquidity, branch network, lending and deposit platforms and focus on internal controls and cybersecurity provide a solid foundation for serving customers during these challenging times. We provide customers with ready access through our branch network, ATMs and digital offerings.The interest rate and economic environment continues to exert substantial pressure on net interest income, net interest margin, earnings, profitability metrics, loans outstanding and the Bank’s ability to grow.   These items could be negatively impacted by yield curve inversion, low yields available on loans and securities and potential credit losses arising from current economic conditions. Among other things, very low interest rates have caused an acceleration of residential mortgage loan repayments and repricings which are expected to continue in the fourth quarter. The weighted average reduction in yield for refinancings completed or in process at quarter end was 75 basis points which will reduce quarterly net interest income by approximately $500,000. In addition, during the fourth quarters of 2020 and 2021, corporate bonds with current fair values of $80.6 million and $30.2 million, respectively, and an original weighted average fixed rate yield of 5.14% begin repricing on a quarterly basis to a floating rate.   At current rates, the weighted average floating rate yield would be .89%.   Such repricings will reduce net interest income for the fourth quarter of 2020 by approximately $700,000.        The pandemic continues to present substantial challenges for the Bank and its customers. While business activity in the NYC metropolitan area has started to improve, the pace of the recovery is slow and remains uncertain. An elevated level of unemployment and the significant business disruption experienced in the spring and summer cast doubt on the extent of economic recovery possible in the near term and the ability of some businesses to continue.   Forward Looking InformationThis 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 is having an adverse impact on the Corporation, its customers and the communities it serves. The adverse effect of the pandemic on the Corporation, its customers and the communities where it operates 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 September 30, 2020. The Form 10-Q will be available through the Bank’s website at www.fnbli.com on or about November 6, 2020, 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
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CONSOLIDATED STATEMENTS OF INCOME
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PROBLEM AND POTENTIAL PROBLEM LOANS AND ASSETS
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AVERAGE BALANCE SHEET, INTEREST RATES AND INTEREST DIFFERENTIAL
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(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
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(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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