The First of Long Island Corporation (FLIC) had a strong financial performance in the second quarter of 2024, with positive developments across key metrics. The bank saw growth in return on assets and equity, net income, earnings per share, and net interest margin. Additionally, deposits, loans, and non-interest income increased, while non-interest expenses decreased. Despite a decrease in net interest income compared to the previous year, the bank remains optimistic about maintaining positive trends, especially with anticipated rate cuts by the Fed. FLIC also highlighted its strong credit quality and capital position, with a leverage ratio of 9.9%.
Key takeaways from the quarter include growth in various areas such as return on assets, equity, deposits, loans, and non-interest income. Net interest margin and earnings per share increased, while non-interest expenses decreased. The bank also opened a new branch and is considering further geographic expansion. Credit quality remains strong, with low levels of problematic loans, although there was a slight increase in net charge-offs due to one specific loan. The bank’s capital position is robust, with no shares repurchased in the quarter.
Looking ahead, FLIC anticipates maintaining positive trends in net interest margin and non-interest income. They also expect the effective annual tax rate to be around 4% and are focusing on relationship-based commercial loans and owner-occupied commercial mortgages. The company may revisit its share buyback program in the future.
In terms of bearish highlights, net interest income and margin decreased compared to the previous year, and there was an increase in non-performing loans attributed to one specific loan. On the bullish side, the bank reported higher earnings per share and net income, improved efficiency ratio, and increased net interest margin. Loan originations, especially in commercial lending, continue to be strong.
Despite overall positive results, FLIC did experience a decrease in net interest income and margin compared to the same quarter of the previous year. In Q&A highlights, discussions revolved around the potential impact of future Fed rate cuts on net interest margin and strategies for managing loans repricing to higher rates.
InvestingPro insights suggest that FLIC has shown resilience and strategic growth but may face potential headwinds according to some analysts. However, the bank has a history of rewarding shareholders with consistent dividend payments and a high dividend yield compared to the industry average. The stock has also shown strong returns in the short term. Investors should consider factors like the P/E ratio, revenue decline, and future profitability when evaluating FLIC’s stock.
For more in-depth analysis, investors can access additional InvestingPro Tips with a discount using the coupon code PRONEWS24. The full transcript of FLIC’s Q2 2024 earnings call is available on the company’s website. I am pleased to announce that we have seen improvements in many key financial ratios and financial statement line items in the latest quarter. These improvements include an increase in return on assets, return on equity, net interest margin, growth in deposits and loans, higher non-interest income, lower non-interest expense, higher net income, and higher earnings per share. Our net interest margin, which had declined for six consecutive quarters, showed a slight increase to 1.8% for the three and six months ended June 30, 2024, indicating a positive trend towards stabilization.
We believe that barring any significant changes in our funding mix or short-term rates moving higher, our interest margin should be at the bottom. The pace of interest earning assets repricing has been in line with interest bearing liability repricing, and we expect this trend to continue or improve in the future. Our focus on relationship-based business, particularly in C&I and owner-occupied commercial mortgages, has led to stronger loan originations and growth in our commercial lending business.
We have also seen improvements in our funding mix, with non-interest-bearing deposits representing a larger portion of our funding mix. Our credit quality remains strong, with low levels of criticized, classified, past due, non-performing, and charge-off loans. We continue to evaluate opportunities for geographic expansion and efficiencies within our existing branch network.
Overall, we remain optimistic about future opportunities to build shareholder value, as we stay focused on strong credit quality and meaningful customer relationships. The recent positive trends in our financial performance indicate a promising outlook for the future. The increase in the linked quarter was mainly due to a rise in net interest income by $270,000 and a decrease in salaries and employee benefits by $474,000, primarily because of lower employee incentive accruals. This was partially offset by a provision for loan losses of $570,000. The decrease from the second quarter of 2023 was primarily due to a decrease in net interest income by $3.4 million, a provision for loan losses of $570,000, partially offset by a decrease in the provision for income tax expense by $1 million. Non-interest income of $2.9 million exceeded previous quarters and was driven by improved results in service charges on deposit accounts, merchant card services, and bank-owned life insurance. Non-interest expenses were $15.8 million for the current quarter, lower than previous quarters due to open staffing positions and reduced incentive compensation accrual rates. Loan growth was strong, with C&I loans increasing by $27 million and commercial mortgages by $15 million. The net interest margin for the second quarter of 2024 was 1.8%, with a yield on total interest-earning assets of 4.16%. The allowance for credit losses was $28.5 million, with a provision of $570,000 during the quarter. The effective tax rate decreased to 1.6% for the second quarter of 2024. One loan became non-performing and required a specific reserve and partial charge-off of about $175,000. This loan was a multifamily loan, the only one in non-performing status. We have analyzed all loans repricing between now and 2025 to assess their cash flow and have reached out to borrowers showing signs of stress to discuss potential solutions. As for tax rates, the effective rate for the year is expected to be around 4%, but may increase to around 7% in the future depending on income levels. On the funding side, most CDs are already at market rates, with minimal repricing left. Despite good loan growth and originations, we anticipate low-single-digit growth this year, with a continued focus on relationship-based C&I and owner-occupied commercial mortgages rather than residential mortgages. The residential sector still has a way to go to reach that quarter, based on the four segments mentioned. We may consider investing in residential properties at that point.
Chris O’Connell: Thank you for the insight. As you engage with multifamily customers and those facing tight situations, do you have an estimate of the size of this customer segment in terms of percentage of the book or dollar amount?
Chris Becker: For the remainder of this year, it consists of six loans, so it’s a small number of borrowers.
Chris O’Connell: Understood. As margins improve and profitability stabilizes into 2025, do you anticipate revisiting the buyback discussion?
Chris Becker: Yes, we are open to revisiting the buyback program as we have $13 million remaining. We evaluate this along with dividends every quarter.
Chris O’Connell: Thank you for the insights. Great quarter, Chris, Janet.
Chris Becker: You’re welcome.
Janet Verneuille: Thank you.
Operator: Thank you for your questions. Chris Becker, any final remarks?
Chris Becker: Thank you for joining us today. We are committed to enhancing shareholder value and appreciate our employees’ dedication to serving our customers and communities. Have a great weekend.