Q2 2024 First of Long Island Corp Earnings Call
Welcome to the first of long Island Corporation's second quarter 'twenty 'twenty four earnings conference call on the call today are Chris Becker, President and Chief Executive Officer, and Jennifer Kneale, Senior Executive Vice President and Chief Financial Officer.
Speaker Change: Today's call is being recorded.
A copy of the earnings release is available on the Corporation's website at F. N B L. I dot com and on the earnings call webpage at H P. P. P. S. Colon forward slash <unk> slash Www Dot C. S T proxy dotcom foreign Slash F N b ally ports.
Speaker Change: Cash earnings or its slashed 'twenty 'twenty four for its last Q2.
Before we begin the company would like to remind everyone that this call may contain certain statements that constitute forward looking statements made under the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1995.
Such statements are subject to risks uncertainties and other factors that may cause actual results to differ materially from those contained in any such statements, including those set forth in the company's filings with the U S Securities and Exchange Commission.
Investors should also refer to our 2023 10-K filed on March eight 2024, and supplemented by our 10-Q for the four for the quarter ended March 31, 2024 for a list of risk factors that could cause actual results to differ.
Materially from those indicated or implied by such statements.
Speaker Change: I would now like to turn the call over to Chris Becker.
Okay.
Thank you.
Good afternoon, and welcome to the first of Long Island Corporation's earnings call for the second quarter of 2024.
I'm pleased to report linked quarter improvements in many key financial ratios and financial statement line items, including.
Increase in return on assets increase and return on equity improvement in efficiency ratio growth in deposits growth in loans higher noninterest income lower noninterest expense.
Higher net income.
Our earnings per share and most importantly increase in net interest margin.
After six consecutive quarters of net interest margin declined from 2.97% for the three months ended September 32022.
To 1.79% for the three months ended March 31, 2024, our margin increased to one 8% for the three and six months ended June 32024.
While not a substantial move up certainly a positive indicator for stabilization.
Repeating what I stated last quarter barring any significant changes in our funding mix.
For short term rates moving higher.
Speaker Change: We believe our net interest margin should be at the bottom.
The pace of interest, earning assets repricing was basically in line with the pace of interest bearing liability repricing during the second quarter of this year and that trend is expected to continue if not improve in the quarters ahead.
Managing the mix of the balance sheet will augment margin improvement and coupled with a more favorable yield curve. This improvement can accelerate.
Talk of lower short term rates is encouraging for continued earnings growth moving forward.
The bank had stronger loan originations during the second quarter closing $70 million with a weighted average rate of approximately 7%.
Second quarter originations were driven by C&I and owner occupied commercial mortgages, highlighting our focus on relationship based business.
Speaker Change: Originations during the second quarter.
<unk> the progress made remixing, our loan portfolio from consumer to commercial that began in 2020.
During that period relationship based C&I and owner occupied commercial mortgages increased 80% and other commercial real estate increased 30%.
In total our commercial lending business has grown $582 million that growth has been masked by letting our residential lending business amortize down by $514 million over the same period.
Speaker Change: Building our commercial relationship business has also resulted in an improved mix on the funding side.
Speaker Change: As noninterest bearing deposits represented 30% of our funding mix at June 30 of 'twenty 'twenty four compared to 25% on December 31 2019.
In the current environment I believe it is important to note that our remix to commercial lending has not included any significant increase in multifamily loans outstanding are multifamily loans totaled 868 million at the end of the second quarter of 'twenty 'twenty four up minimally from $835 million at the.
The end of 2019.
The June 32024 pipeline was 137 million with a projected average rate of approximately $6 seven 5%.
Please keep in mind that many loans in the pipeline are floating often index plus a margin until the closing so the weighted average rates move with the market.
The pipeline.
Speaker Change: Has increased from the end of the first quarter.
Speaker Change: When it was at $113 million.
Speaker Change: We have been closely monitoring rate resets and have provided detailed information in that regard and a form 8-K filed on March one 2024 supplemented by additional information in our annual shareholders' meeting presentation on April 16th 2024.
During the second half of this year.
Just on rates as of June 32024.
We have $65 million of multifamily and non owner occupied commercial mortgages repricing with a weighted average rate of 4.24% before the rate reset in our projected weighted average rate of 7% after the rate reset.
Looking forward into 2025.
Based on rates as of June 32024.
We have $122 million of multifamily and non owner occupied commercial mortgages repricing with a weighted average rate of 3.53% before the rate reset in our projected weighted average rate of 7.02% after the rate reset.
Speaker Change: For loans with projected cash flow stress, we have started to reach out to borrowers to discuss options for their consideration.
Our criticized classified past due nonperforming and charge off levels all remained low and we currently assess our credit quality is strong.
On June 28, 'twenty 'twenty four we opened a branch on the North Fork up long island in Southwold.
We believe this location will be a great complement to the rest of the east end of long Island presence that we established over recent years, including Riverhead, South Hampton and he stamped in.
We currently have 41 branches, covering Nassau and Suffolk counties in the boroughs of Manhattan, Queens and Brooklyn.
Our branch count is down from a high of 52 branches at the end of 'twenty and 19, but our total deposits have increased by approximately 220 million over that period.
A much more efficient model.
We continue to evaluate prospects for geographic expansion as well as efficiencies within our existing branch network.
Our company has been around for nearly a century, because we stay focused on the fundamentals of strong credit quality quality and meaningful customer relationships we.
We believe our fundamentals have built and we will continue building a strong franchise.
Growth and margins have been challenged over the past 18 months, but we remain optimistic about future opportunities to build shareholder value.
Janet Brunelle will now take you through financial highlights of the quarter and year to date Janet.
Thank you Chris good afternoon, everyone.
Following up on some of Chris's comments positive trends quarter over quarter. It included the following an increase in return on assets from 0.422, 0.45% an increase on return on equity from 4.72% to 5.15% increase.
Increase in net interest margin from $1 seven nine to one 8% improvement in the efficiency ratio to 73, 6% from $76 five.
Although these are site improvements they can be forward facing indicator of the trending stabilization of our net interest margin coupled with the recent heightened mark in anticipation of the fed funds cut in September we expect to maintain this trend.
The company recognized net income of 4.8 million for the second quarter of 'twenty 'twenty four $4 4 million for the linked quarter and $6 9 million for the same quarter last year, earning.
Earnings per share with 21 cents for the quarter equal to the per share dividend declared by our board of directors in June of 'twenty 'twenty four EPS.
P S. The linked quarter and the same quarter last year with 20, and 31 cents respectively.
The increase in the linked quarter was largely attributed to the increase in net interest income by 270000 and decrease in salaries and employee benefits the 474000 <unk>.
Primarily due to decreases in employee incentive accruals. These are partially offset by a 570000 provision for loan losses.
Declines in the second quarter of 2023 is largely attributed to the decrease in the net interest income by $3 4 million.
570000 provision for loan losses, partially offset by a decrease in the provision for income tax expense of 1 million attributable to lower earnings and a decrease in the effective tax rate.
Noninterest income of $2 9 million exceeded noninterest income recorded in the linked quarter of $2 8 million in the same quarter last year of $2 7 million improved results from service charges on deposit accounts.
Birch and cloud services and bank owned life insurance were the main contributors to the increase man.
Management had guided in analyst calls to quarterly noninterest income totals approximately $2 6 million based.
Based on deposit account service charge collection improvements after a system upgrade management.
Currently believes recent increases in monthly service charge revenue will remain stable, although merchant credit card service income can fluctuate. We now expect for the last two quarters of 'twenty 'twenty. Four these revenues will trend consistent to the first two quarters.
Noninterest expense totaled $15 8 million for the current quarter.
As compared to $16 2 million in the linked quarter and $16 five in the same quarter last year.
Earlier in the year management had guided an analyst calls to quarterly non interest expense totals of approximately $16. Two 5 million. We did have some open staffing positions during the second quarter, but we also lowered the incentive compensation accrual rates.
We anticipate noninterest expenses for the last two quarters of 'twenty four will be comparable to the first two quarters.
During the second quarter, we used excess cash to pay down that $143 million of wholesale borrowings leading to a small deleveraging of the balance sheet of $46 million, even though we had deposit growth of 37 million and loan growth a $14 million long growth was better than the net number reflects as C&I loans.
Creased 27 million and commercial mortgages increased by 15 million commercial growth was offset by the residential mortgage decreasing $27 million as we continue to remix the loan portfolio towards commercial lending. The overall loan yield of 4.22 was up eight basis points quarter over.
Quarter.
The second quarter saw a notable increase in average non maturity interest bearing deposits of $85 million and certificates of deposit of 15 million average noninterest bearing checking deposits increased by 11 million and represent 33% of total deposits the weighted average cost of interest.
Non maturity deposits.
There's 2.84% and for Cds It was 4.24%.
As of the close of the second quarter, the repricing of wholesale funding F. H L. B borrowings and brokered Cds to current market rates remained largely behind us although at a slower pace. We continue to approve upward interest rate adjustments based on the overall customer relationship.
The purchase of the fixed to floating swap in March of 'twenty three continues to pay dividends, adding 1.2 million to the net interest income in the second quarter swap matures in March of 'twenty 'twenty six.
Net interest income for the second quarter of 'twenty 'twenty four increased 270000 compared to the linked quarter and decreased $3 4 million from the same quarter last year, our net interest margin of one 8% for the second quarter.
Of 'twenty 'twenty four compares to $1 seven 9% linked quarter and 2.17% the same quarter last year.
Yield on total interest, earning assets was 4.16% for the second quarter for.
4.048 for the linked quarter and $3 78 for the same quarter last year.
Cost of total interest bearing liabilities was 3.56 for the second quarter of 'twenty, 'twenty, four 3.47% linked quarter and 2.51% for the same quarter last year.
The allowance for credit losses as of June 32024 was $28 5 million.
Provision was booked to the ACL of 570000.
During the quarter the quarterly provision was largely due to 276000 specific reserve on one nonperforming loan and about 421000 of net charge offs. The reserve reserve coverage ratio at June 30, 'twenty 'twenty four remained flat.
Eight 8%.
Third to the linked quarter.
The capital position remains strong with a leverage ratio of crocs approximately nine 9% at June 30, 'twenty 'twenty four book value per share was $16 71 at June 30th versus 16 22 at June 30, 2023 the.
Speaker Change: The accumulated other comprehensive loss component of stock stockholders' equity is mainly comprised of a net unrealized loss and available for sale securities portfolio due to higher market interest rates. There were no share repurchases in the second quarter of 'twenty 'twenty four.
Then anticipating caught anticipating causing a greater impact of the tax exempt items on the effective tax rate.
With that I turn it back to our operator for questions.
Thank you. Our first question for today comes from Mark Fitzgibbon from Piper Sandler Mark. Please proceed with your question.
Thank you for taking my question and good afternoon Happy Friday.
Hey, good afternoon.
If the fed follows the forward curve and we CTO more cuts this year I'm curious how much you think the net interest margin might be able to snap back by the end of the year.
Well in a previous call. We had indicated that each 25 basis point cut could could improve margin by four to five basis points and we have an updated that and further sets that still seems to be pretty.
Pretty good estimate.
Okay, and then secondly I.
I was curious.
Obviously here is terrific, but what drove that 1.8 million dollar uptick in nonperforming loans and could could you also share with us what net charge offs were in the quarter.
Yeah.
Yes, net net charge offs were a little over 400000 for the quarter and.
It was one one loan that went nonperforming where we took that's the loan that had this specific reserve and how.
<unk> had a partial charge off down to the appraised value.
Charge off was about 175000.
Okay, and what type of loan is that.
That was a multifamily loan.
That's our only multifamily loan and nonperforming.
Alright, and then I heard the numbers that you mentioned on the call about multifamily and non owner occupied commercial real estate debt.
Rolling from sort of euro four in a quarter up to 7% or three and a half up to 7% on the $122 million.
So I'm curious have you guys done an analysis it sort of looks at whether the cash flow on those buildings will be sufficient once the rate basically doubles.
Yes, absolutely absolutely. We've look we've looked at every loan from that's re pricing between now and the end of 2025 to calculate there.
The repricing rate and their cash flow.
And that's where I'd mentioned any anything that's showing some possible stress, we're reaching out in advance to those customers.
To see what.
What type of strategies, we could do to help relieve any of that stress. We've had success in that regard we've had.
Speaker Change: Situations, where the borrower has.
Refinance refinance early and repay down we've got other situations where.
We've got an additional an additional piece of collateral or by combining.
Two loans into one one that had stronger cash flow one that may be showing signs of stress at the reset to combine them to make.
You know make the cash flow better overall, so borrowers have been been receptive to us reaching out early.
And because obviously they don't want to get into a situation and especially if if there's a current option for a rate that might be a little bit less than what they would reset at say five or six months down the road.
Okay and then the last question I had was around the tax rate I heard.
Janet your comments your effective rate for the year be around 4% what will look like in 2025, like what sort of a normalized run rate.
For you all.
Well, assuming that income goes up the effective tax rate will go up obviously, because the tax exempt items will be a smaller percentage of income.
I hesitate to give a number I don't know maybe I would say.
I don't know, probably maybe about 7% I would estimate.
At this point, but.
Speaker Change: Really it is.
Speaker Change: It's going to depend on where income comes in and.
And how we manage those tax exempt items.
Great. Thank you.
Thank you Mark.
Alright, our next question for today comes from Chris O'connell AK VW, Chris. Please proceed with your question.
Hey, good afternoon.
Speaker Change: Hey.
Good.
Just wanted to start off with.
So you provided the multifamily.
Non owner occupied CRE repricing in the second half of the year just curious.
How much.
The multifamily and non owner occupied repriced.
Speaker Change: In the first half of 'twenty four.
Yeah. It was it was it similar to whats going on the second I don't have that number right in front of me.
But it was it was very similar to what's what's re pricing in the second half.
Got it and as far as the funding side goes.
With.
Cds are up.
Probably pretty close to market rates at this point I mean, how much more do you think has left to reprice.
Upwards in the second half of the year.
There's very little that we just.
Had one small piece that re price that was at a low rate on the brokerage side.
Speaker Change: And as far as the retail Cds, they are pretty much at market I would say, it's a minimal what's left to reprice to market rates.
Got it.
I'm just curious because you did have.
Pizza pneumatic CD repricing, especially kind of earlier in the year as well as the borrowings.
Speaker Change: Why not a little bit more positive.
On the margin in the interim between now and when the rate cuts again, given that it seems like similar asset repricing.
On the other side of the balance sheet.
Yeah, I think as we looked at the second quarter, I was pretty pretty well, even as far as what repriced on both sides of the balance sheet.
Speaker Change: And we still have.
On the non maturity side in.
In our money market deposit accounts.
You still have those one off relationship discussions and we still had some some increase in those rates throughout the second.
Second quarter and I think that's that's why we're still being a little a little cautious on this we're looking closely at those but.
There's still that that's where the numbers still went up.
For us in the second quarter.
Got it.
And.
On the loan growth it sounds like you have pipelines, you're up improved the past couple of quarters.
Speaker Change: Good originations are you still thinking.
Inclusive of that.
Speaker Change: For residential planned run off.
Net low single digit growth for this year.
Yes.
And if you're getting into or getting into a.
A rate cutting environment as we get.
Speaker Change: Towards the back half of 2004 to 2025 is that residential strategy do you think that will continue.
Speaker Change: Or moderate if there is less.
Funding pressures.
Speaker Change: And lead to higher kind of net loan growth into 2025.
It will continue we don't plan to begin originating residential mortgages, we stopped originating them.
Towards the second half of last year, we don't plan to begin originating them now we may consider purchasing a <unk>.
Loans, if we wanted to have some diversification in the portfolio, but we really want to focus on continuing to grow the relationship base C&I and owner occupied commercial mortgages. If you look at our if you look at our loan portfolio kind of Pie chart.
That's still the smallest slice wallets, it's up from.
LOE of 7%, a handful years ago to about 12% or so now.
Ideally, we'd like kind of like four equal buckets of.
Multifamily or other other commercial real estate relationship C&I and owner occupied and then residential so the residential still has a ways to go to get down to that quarter if.
If you look at those those four pieces of the pie and you know at that point, we would possibly consider as I said buying some residential.
Got it.
Thats helpful.
And then.
As you guys reached out to you know what you said in the multifamily customers than the ones that look tight any.
<unk>.
Sense of how big that customer segment is either on a percentage basis of the bulk or on a dollar amount even if it's kind of just ballpark.
Yeah I can tell you it's for the remainder of this year, it's six <unk>.
<unk>.
So it's a small number of borrowers.
Great.
And as you guys start to see.
The margin come up.
And get a little bit more comfortable.
With the overall earnings and profitability profile of the year.
In the back half of the year into 2025.
Do you think you start to revisit.
The buyback conversation.
Yes, I certainly think that that's you know that's something I mean, we did buyback some stock in the first quarter of this year and you know.
That's something we look at every quarter, along with along with the dividend and make those decisions but.
Certainly we have $13 million still under the buyback program that we have outstanding.
So absolutely we would look at that.
Great I appreciate all the color thanks, Chris.
Speaker Change: Great quarter.
Welcome.
Alright. Thank you. This concluded our question and answer session I will turn the floor back to Chris Becker for closing comments.
Yes. Thank you for your attention and participation on the call today, we remain focused on making the right decisions to increase shareholder value over the long term.
I. Thank our employees for their continued dedication to service our customers and communities enjoy the upcoming weekend.
Okay.
Okay.
Yes.
The meeting will go on air and as scheduled time on the meeting web page.
[music].
Yes.
Okay.